Auto Insurance 101: What You Should Know

Car insurance is designed to protect you and the ones you love against financial loss related to car accidents. This is essentially a contract between you, the policyholder, and the insurance company. For a premium (your monthly or other periodic payment), you are given coverage against things like property damage, personal injury protection, and liability, among others. Let’s take a closer look at what car insurance is and what it includes, and more.

What Does Auto Insurance Cover?

There are several different types of coverage available on a car insurance policy. The basic elements include:

·  Liability coverage

·  Medical payments (also called PIP, or personal injury protection)

·  Comprehensive coverage

·  Collision coverage

·  Uninsured/underinsured motorist coverage

Most states have a law requiring a minimum level of liability insurance. Other states have a higher requirement or will require more types of coverage for drivers. If you live in New Hampshire, you can opt out of car insurance by proving that you can meet the financial responsibility requirements set by the state. However, everywhere else, you’ll have to provide proof of insurance to comply with the law.

Liability insurance covers the majority of accidents. It’s a three-fold coverage that offers protection per person, per accident, and for property damage per accident. It’s usually written like this:

$25,000/$50,000/$25,000 ($25,000 per person, $50,000 per accident, $25,000 property damage coverage)

Some policies will also have medical payments coverage, which is also called no-fault coverage. This will provide coverage for injuries and medical payments for an accident, regardless of who caused it. It can also cover deductibles, lost wages, and even funeral costs in loss-of-life accidents.

Comprehensive coverage protects against non-driving incidents, such as theft or storm damage. Collision coverage provides protection for your car and the people in it after an accident when you are at fault. And as the name suggests, uninsured or underinsured motorist coverage is designed to provide protection when you’re involved in an accident where the driver at fault doesn’t have insurance or lacks sufficient coverage. 

How Much Auto Insurance Do I Need?

The amount of car insurance that you need depends on where you live and what is required. However, you might also want to purchase more than the state minimum coverage to better protect yourself. You can often get exponentially more coverage for just a few dollars more per month, so be sure to compare your options.

If you have a loan on your vehicle, the lender may require you to have full coverage insurance. The exact amounts of coverage required will again depend on where you live, or it may vary from one lender to the next. In either case, make sure that you are meeting these two requirements, at the very least.

Imagine foregoing coverage because you don’t want to spend an extra $25 a month only to end up with $50,000 in medical bills that you have to pay—it’s usually not worth it to skimp with car insurance.

How Much Does Auto Insurance Cost?

The premium that you are charged for car insurance will be determined by combining several factors to create what insurance companies call your “risk profile.” The premium rate is usually given in a six-month format and then broken down into monthly or periodic payments.

Your car insurance premium is based on:

·  Your age and driving history

·  Accident and ticket records

·  The vehicle you drive

·  When and how you drive

·  How much coverage (and what type) you choose

Even something as simple as driving late at night can hike up your premiums because that’s the time when it’s most dangerous to be on the roads.

Car insurance doesn’t have to be complicated. As you can see, the basics are fairly straightforward and can help you find a better policy to ensure that you’re protected.