Choosing Auto Insurance: Coverage Basics

Picking the right auto insurance coverage can be a challenging and daunting task, especially with so many companies and types of coverage to choose from. However, it's essential to have the right type of auto insurance to protect yourself from financial disaster if your car is stolen, damaged, or you cause a crash that injures yourself or others. Here's an introduction to the key things to consider when choosing auto insurance coverage.

Firstly, it's important to understand the different types of insurance coverage available and what each one covers. The core types of coverage to focus on include medical or personal injury protection, uninsured/underinsured motorist coverage, collision coverage, and comprehensive coverage.

Secondly, you should review the financial health of car insurers. While everyone wants a good deal, low rates won't help if the company you choose goes out of business or can't pay its claims.

Thirdly, don't shop by price alone. Consider the insurance company's claim practices, reliability, and the services provided by agents, brokers, or insurance companies. Think about the particular types of products and coverages offered to meet your individual needs. For example, do you need comprehensive or collision coverage, or higher liability limits to protect your assets?

Lastly, remember that insurance requirements and rates vary by state, so be sure to review your state's specific requirements and decide on the type and amount of coverage you need based on factors such as the age of your car, your driving habits, and your financial situation.

Know your state's requirements

Car insurance requirements vary from state to state, so it's important to familiarize yourself with the rules and regulations of the state in which you reside. While car insurance is mandatory in almost every state, the specific coverages and limits can differ significantly. Here are some key points to consider when reviewing your state's requirements:

Minimum Liability Coverage

Nearly all states require a minimum amount of liability insurance. This coverage protects you in the event that you cause injuries or damages to others in a car accident, including the other driver and their passengers. The minimum liability limits vary by state and typically consist of three components: bodily injury coverage per person, bodily injury coverage per accident, and property damage coverage per accident. For example, a common set of minimum liability limits might be expressed as 15/30/10, meaning up to $15,000 per person for bodily injuries, a total of $30,000 in bodily injury coverage for the entire incident, and $10,000 for property damage. Keep in mind that these minimum limits may not be sufficient for serious accidents, and it is generally recommended to carry higher liability limits.

Uninsured/Underinsured Motorist Coverage

About half of the states require uninsured/underinsured motorist (UM/UIM) coverage, which protects you if you are hit by a driver with little or no insurance. UM/UIM coverage helps pay for injuries to you and your passengers, as well as damage to your car and other property. In some states, this coverage is only required for bodily injuries, while others mandate coverage for property damage as well.

Personal Injury Protection (PIP)

Personal injury protection is typically required in no-fault states, where each party is responsible for their own damages in an accident. PIP covers medical expenses for insured drivers and their passengers, regardless of who is at fault. It can also cover lost wages or other benefits not covered by health insurance. Even in at-fault states, some require PIP coverage.

Medical Payments Coverage

Medical payments coverage is similar to PIP in that it covers medical expenses for injuries sustained in a car accident. However, it does not cover additional benefits like lost wages. This type of coverage is rarely required, with Maine being the only state that mandates it.

Comprehensive and Collision Coverage

While no state requires comprehensive and collision coverage, these optional coverages can provide valuable protection for your vehicle. Comprehensive coverage pays for damage to your car that is not caused by a collision, such as theft, vandalism, natural disasters, animal strikes, and falling objects. Collision coverage, on the other hand, covers damage to your car due to a collision, regardless of who is at fault.

State-Specific Requirements

In addition to the above coverages, some states have unique requirements. For example, Florida mandates PIP coverage in addition to property damage liability insurance, while Virginia allows drivers to opt out of insurance requirements by paying an annual $500 uninsured motorist fee.

Remember to review your state's specific insurance laws and regulations to ensure you are meeting the minimum requirements. It is also important to consider your own needs and circumstances when selecting a car insurance policy.

Understand your financial situation

Understanding your financial situation is key to picking the right auto insurance coverage. Here are some things to consider:

Your Assets

If you own a lot of assets, you may want to consider higher liability limits on your auto insurance policy. This will protect your assets in the event of an accident. The liability limits refer to the maximum amount that your insurance company will pay out for bodily injury and property damage per accident. For example, a policy with liability limits of 25/50/25 will cover up to $25,000 for bodily injury per person, $50,000 total for bodily injury per accident, and $25,000 for property damage per accident. Keep in mind that the minimum liability limits required by your state may not provide enough financial protection, especially in serious accidents.

Your Liquidity

When considering your auto insurance deductible, think about your liquidity, or how much you can afford to pay out-of-pocket per claim. A higher deductible can help lower your monthly premiums, but make sure you set aside the money you save to cover your deductible if needed. For example, if you have a $1,000 deductible, you may not want to make a claim for a small repair that costs less than $1,000.

Your Budget

When deciding on the coverage and deductibles that are right for you, it's important to consider your financial situation and budget. Auto insurance premiums are typically paid monthly, quarterly, or semi-annually. You'll want to choose a coverage amount and deductible that you can comfortably afford while still ensuring you have adequate protection. If you own a lot of assets, you may want to increase your coverage limits to protect them. Additionally, consider your driving habits and the age of your car. If you have a new or relatively new car, collision coverage is recommended to protect your investment.

Your State's Requirements

Almost every state in the US requires drivers to have auto insurance, specifically liability insurance. However, the minimum coverage limits vary by state. Be sure to review your state's insurance regulations to understand what is required and what is optional. For example, personal injury protection (PIP) is mandatory in some states but not others. Additionally, your state may require you to carry uninsured/underinsured motorist coverage, which will protect you if you are hit by a driver without insurance or with insufficient insurance.

Compare quotes from multiple insurers

Comparing quotes from multiple insurers is a crucial step in choosing the right auto insurance coverage. Here's a detailed guide to help you navigate this process effectively:

Understand the Importance of Comparison Shopping

Don't just settle for the first insurer you come across. By comparing quotes from multiple insurers, you gain a broader perspective on the market and increase your chances of finding the best value for your money. This process ensures you don't overpay for coverage and helps you identify insurers that offer the specific benefits you need.

Identify Reputable Insurers

Not all insurers are created equal. When requesting quotes, focus on well-known companies with a strong financial standing. You can refer to reports from independent ratings agencies such as A.M. Best, Fitch, Moody's, and Standard & Poor's to assess an insurer's financial health. This step ensures that the company will be able to pay out claims if needed.

Gather the Necessary Information

Before reaching out for quotes, have the following details ready:

• Vehicle information: Make sure to have the Vehicle Identification Number (VIN), year, make, and model of each vehicle you want to insure.
• Driver information: Gather the names, license numbers, and licensing dates of all licensed drivers in your household or those who will regularly drive the car.
• Safety features and equipment: Make a list of any safety systems in your car, such as anti-theft devices, airbags, and seat belts. Also, note any after-market equipment installed in your vehicle.
• Driving history: Be prepared to provide an honest account of your driving history, including any accidents, violations, or claims.
• Current insurance policy (if applicable): Have a copy of your current auto insurance policy handy for reference.
• Annual mileage estimates: Know how many miles you typically drive in a year for each vehicle.

Contact Insurers and Request Quotes

You can obtain quotes by contacting insurance agents, brokers, or individual companies directly via phone or the internet. When requesting a quote, ensure that you provide consistent and accurate information about your situation to facilitate a meaningful comparison. Ask about the various types of coverage they offer and the specific benefits included in each quote.

Compare Quotes and Evaluate Coverage Options

Once you have multiple quotes, it's time to compare them. Go beyond just the price and consider the following:

• Coverage limits: Ensure that the quotes provide the same level of coverage across all insurers.
• Discounts: Inquire about any available discounts, such as those for safety features, low mileage, or good student grades.
• Policy term length: Be mindful that a significantly lower quote may be based on a shorter policy term, such as six months instead of a year.
• Reputation and financial health: Assess the insurer's claims handling reputation, financial health, and customer service.

Consider Bundling Opportunities

Many insurance companies offer discounts if you bundle your auto insurance with other types of insurance, such as home or renter's insurance. If you have other insurance needs, explore this option to maximize your savings.

Ask Questions and Clarify Details

Throughout the quote comparison process, don't hesitate to ask questions. Clarify any uncertainties about coverage, exclusions, or limitations. Remember, you're not just looking for the lowest price but also the most suitable coverage for your needs.

By following these steps, you'll be well-equipped to compare quotes from multiple insurers and make an informed decision about your auto insurance coverage.

Learn about different types of coverage

Auto insurance coverage can be broadly categorized into required and optional coverage. The most basic auto insurance types are bodily injury and physical damage liability coverage.

Bodily Injury Liability Coverage

This covers costs associated with injuries and death caused by you or another driver operating your car. It covers the medical bills of the injured party up to your policy's limits. For example, a $25,000/$50,000 bodily injury policy would cover up to $25,000 for a single individual's medical bills and a total of $50,000 for medical bills across the entire accident.

Property Damage Liability Coverage

This coverage reimburses others for damage caused by you or another driver operating your car to another vehicle or other property, such as a fence, building, or utility pole. This is usually written as a single limit, for instance, $25,000.

Medical Payments or Personal Injury Protection (PIP) Coverage

This provides reimbursement for medical expenses for injuries to you or your passengers and may also cover lost wages and other related expenses.

Uninsured Motorist Coverage

This reimburses you when an accident is caused by an uninsured motorist or in the case of a hit-and-run. Underinsured motorist coverage is similar but applies when the at-fault driver has insufficient insurance to cover the costs of the accident.

Collision Coverage

This optional coverage reimburses you for damage to your car that occurs as a result of a collision with another vehicle or object when you are at fault. It does not cover mechanical failure or normal wear-and-tear but will cover damage from potholes or rolling your car.

Comprehensive Coverage

This provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees, and other hazards.

Glass Coverage

Windshield damage is common, and some policies include no-deductible glass coverage, which also includes side windows, rear windows, and glass sunroofs. Supplemental glass coverage can also be purchased separately.

Gap Insurance

If you lease or finance your vehicle, you may be required to purchase collision and comprehensive insurance. However, these policies only cover the market value of your car, not what you paid for it. Gap insurance can be purchased to cover the difference if your car is totaled or stolen.

Ask about discounts

Discounts are a great way to save money on your auto insurance coverage. When shopping for a new policy, renewing an existing one, or evaluating your costs, be sure to ask about any discounts you may be eligible for. Combining individual discounts, no matter how small, can lead to substantial annual savings, so take advantage of everything on offer.

• Good driver discount: If you have a clean driving record, meaning you have no accidents, speeding tickets, or other violations, you may be eligible for a good driver discount. This is usually defined as going a specified period of time without any incidents.
• Student discount: Students enrolled in high school or college who maintain a certain average grade (typically a B or higher) may be able to save with this type of discount.
• Anti-theft device discount: Having security devices such as an alarm or a tracking device installed in your vehicle may help you save on car insurance.
• Paperless discount: Opting to receive policy documents electronically can often result in a small discount.
• Military discount: Some car insurance companies offer discounts to current or former members of the military.
• Automatic payments discount: Some insurers offer a discount for policyholders who set up automatic premium payments through electronic funds transfer, debit card, or credit card.
• Loyalty discount: Some companies offer a price break for renewing your policy.
• Low-mileage discount: Insurers may offer a rate tailored to your driving habits, including the number of miles you drive. This may involve an app or other device that can track your mileage.
• Bundling or multipolicy discount: If you purchase two or more insurance policies from the same insurer, such as auto, home, or renters insurance, you may be eligible for a multipolicy or bundling discount.
• Vehicle safety discount: If your car has safety equipment like anti-lock brakes, airbags, and daytime running lights, you may be eligible for a discount. Airbag discounts can be as much as 40% applied to your medical payments or personal injury protection coverage.
• Good student discount: If you or your student driver is enrolled full-time at a high school or college and meets certain requirements, you could qualify for a discount. This usually includes maintaining at least a B average and being between the ages of 16 and 25.
• Defensive driver discount: Some insurance companies will give you a discount if you take an approved defensive driving course. This discount may only apply to qualified drivers of a certain age, typically 50 or older.

Frequently asked questions