Auto Insurance 101

What is liability coverage?

Liability coverage covers expenses for bodily injury or property damage for which the insured driver is liable. All US states, besides New Hampshire, require a minimum amount of liability coverage in order to drive.

Minimums for auto insurance look something like this: 25/50/25. What this means is that your insurance only covers up to $25,000 per person injured in an accident, a maximum of $50,000 for all people injured, and $25,000 worth of property damage.

What is bodily injury coverage?

Bodily injury coverage is a type of liability coverage. It covers the cost of injuries caused by the insured driver to another person. This includes basic medical expenses, such as hospital fees and rehabilitation, but it can also cover lost wages and pain and suffering. This type of coverage is required by most states.

Although not every state has explicit laws regarding bodily injury coverage, it is extremely important and highly recommended that you purchase it. It is also recommended that you consider purchasing more than the state-required amount. Most minimums have not been adjusted to account for increased repair and medical costs, meaning that your coverage might not be enough. If this happens, you could end up having to pay for the remaining costs out of pocket.

What is the difference between Comprehensive and Collision coverage?

Collision coverage covers the cost of your vehicle if it is damaged or totaled in an accident. The collision can be with another vehicle or with an object, such as a telephone pole or guardrail.

Comprehensive coverage, on the other hand, covers the cost of your vehicle if it is stolen or damaged by something other than a collision, such as a natural disaster. This only covers the cost of items that are permanently attached to the vehicle. For example, Comprehensive coverage would not cover the expense if a purse was stolen from your vehicle. It would, however, cover the cost if your tires were stolen.

Neither Comprehensive nor Collision coverage is required by any state, but it is highly suggested that you get it in order to protect your vehicle and avoid having to pay for repairs out of pocket. The only situation in which this coverage might not be ideal is when the car would cost more to repair than it is worth.

Both Comprehensive and Collision coverage are subject to deductibles.

What is Personal Injury Protection (PIP) and Medical coverage?

Personal Injury Protection (PIP) and Medical coverage cover medical expenses and lost wages for the policyholder, as well as any passengers in their vehicle, in the event of an accident. This type of coverage is not required by all states, and it might not be necessary to maximize this coverage if you have a good health insurance plan.

What is “no fault” insurance?

Pure no fault insurance is a type of insurance program in which a policyholder uses their insurance to cover their own expenses from an accident, regardless of which party was at fault. No fault insurance works like this: if there is an accident, the victim’s insurance company would pay their claim and the at-fault driver’s insurance company would pay their claim. Despite the fact that both insurance companies had to pay, only the at-fault driver’s premium would increase. The goal of this program is to lower premium costs by avoiding costly and time consuming litigation, resulting in quicker payments.

Currently, no states have a pure no fault program in place. In states with partial no fault laws, there is usually a threshold that must be hit in order for one driver to sue another. Accidents must be extremely severe or expensive in order for litigation to take place.

The following states currently have some form of no fault laws in place:

Florida
Hawaii
Kansas
Kentucky
Massachusetts
Michigan
Minnesota
New Jersey
New York
North Dakota
Pennsylvania
Utah

What is subrogation and how does it help me?

Subrogation is the process of the victim’s insurance company recovering funds from the at-fault party. If you are in an accident where you are not at fault, your insurance company will initially cover the costs of your claim. They will then begin the process of trying to recover the funds from the at-fault driver or, more commonly, their insurance company.

It is important to note that an insurance company can only subrogate if their client had no fault in the accident.

What is Uninsured and Underinsured motorist coverage?

Uninsured and Underinsured motorist coverage provides coverage to the policyholder in the event that the at-fault party doesn’t have sufficient insurance to cover the damages. The policyholder’s insurance company would cover the costs and then use subrogation to recover the funds from the at-fault party. This type of insurance is required by 21 states.

Approximately 1 in 7 US drivers does not have insurance. While not every state requires Uninsured and Underinsured motorist coverage, it is highly recommended that you add it to your insurance plan in order to protect your assets.

There are certain insurance companies that are required by law to issue you this coverage unless you decline it in writing.

Does my auto insurance cover rental cars?

Whether or not your insurance covers your rental car depends mostly upon your policy coverage. If you have Collision and Comprehensive coverage on your own car, then your auto insurance will carry over to a rental car. If not, you could purchase insurance from the rental company.

Some credit card companies will cover damages to a rental car as long as you are using that card to pay for the car. This, however, is secondary to your insurance policy and will not pay for any damages to the other driver.

Will my insurance company cover the cost if my car is stolen or vandalized?

Theft or vandalism is covered under Comprehensive coverage. If you have this included in your policy, your insurance company will cover all costs minus your deductible.

What happens if I am hit by someone without auto insurance?

If you are hit by someone who does not have auto insurance, your next steps depend largely upon what type of coverage you have. If your insurance policy includes Uninsured and Underinsured motorist coverage, then your insurance company will cover the costs.

If you do not have this coverage included on your policy, then you must file a claim with your insurance company to get PIP or medical payments. If you have Collision coverage, this should cover the cost of repairs. If you do not have collision coverage, you may have to sue the at-fault party in order to recover the money. Unfortunately, it is very unlikely that you will get much money through litigation since the at-fault driver may not have enough money or assets to cover all of your expenses.

What raises insurance premiums?

It is a common misconception that any claims you file will raise your insurance premium. Claims in which you were at fault, however, could result in higher premiums.

Many states have laws in place governing premium increases. Certain smaller violations, such as a parking or speeding ticket, may not raise your premium if they only occur once. Your premium could increase if smaller violations increase in frequency and severity.

How does the car I drive affect my insurance rate?

As a general rule of thumb, the more expensive of a car you have, the higher your insurance rate will be. This is because, on average, claims are higher with a more expensive car. More expensive cars are also more likely to be stolen than less expensive cars.

Other factors also come into play when determining your insurance rate, such as your car’s safety. For example, larger cars tend to have lower insurance rates because they are safer in collisions. Sports cars, on the other hand, have higher rates since they attract people who are more likely to drive fast or in a reckless manner.

Is there any way to lower my insurance rate?

The following factors can possibly lower your insurance rate:

A clean driving record – this includes safe driving as well as car safety features, such as air bags, seatbelts, anti-lock brakes, and an alarm system.
Increased deductible
Good credit score
Good health insurance policy – this would reduce the amount of medical coverage you need

How to get discounts on car insurance

Additional Information

Your insurance premium is determined by many factors, such as your driving skills, past driving records, age, and general car safety. The more of a “risk” you come across to an insurance company, the more expensive your car insurance will be. Because of this fact, insurance companies often offer discounts to drivers they see as a “better risk”. These people are less likely to file an expensive claim when they are compared to higher risk drivers.

Many of these discounts are common across multiple insurance companies, while others are specific to only a few. While you may be offered a few discounts upon receiving a quote, it is definitely in your best interest to specifically ask your insurance agent for a list of discounts they offer. There are some discounts that you will not be offered until you ask. Auto insurance can be very expensive, so it would be beneficial to take advantage of all of the discounts you can get.

Here is a comprehensive list of common auto discounts to inquire about with your insurance provider:

Bundling Discount: Many insurance companies offer a “bundling discount” to customers who purchase more than one type of insurance through them. By getting multiple insurance policies, such as homeowner’s, auto, and life all from the same provider, you can effectively receive a discount on all of them.
Club Membership Discount: Certain clubs or organizations offer discounted auto insurance to their members. This discount will usually be presented to you prior to joining the organization but if it is not, it could be beneficial to inquire about any possible discount programs.
Defensive Driver Discount: Auto insurance companies like to see that their customers are constantly working to be better drivers, and they will reward this behavior with discounts. This is because, statistically, drivers who have taken driving courses are involved in fewer accidents than their less-educated counterparts. By taking a “defensive driving” course, you could save around 10% on your insurance.
Equipment Discount: Installing safety and security features on your car is a great way to prevent accidents and theft, but it is also a great way to save money on your auto insurance. Features such as airbags, anti-lock brakes, rear view cameras, and daytime running lights make you much less of a risk to insurance companies and, consequently, can save you some serious cash.
Good Student Discount: If you are a full time student between the ages of 16-25, you are eligible for a good student discount in most states. Each insurance company has different qualifications, however usually you must maintain at least a “B” average to receive this discount. Annual savings are usually around 15%.
Good Driver Discount: While being deemed a “good driver” is usually based upon how clean your driver record is, this is not the only factor insurance companies take into account when giving this discount. Factors such as where you live and where your car is parked most of the time also affect your eligibility for the Good Driver Discount.
Low Mileage Discount: Statistics show that the less you drive, the less likely you are to be involved in a costly accident. Although each insurance company that offers this discount has slightly different qualifications and rates, drivers can typically save between 10-15% on their premiums for driving less than 7,500-15,000 miles per year (approximately).
Military Discount: If you currently are, or were at one point, a part of the military, you and your family could be eligible for up to a 15% discount on your insurance. This is offered by most insurance carriers, but you may have to inquire with your agent to receive this discount.
Multiple Car Discount: This is probably one of the easiest, and most common, discounts to receive. You can save money on your insurance simply by putting more than one vehicle on a single policy.
Long-Term Customer Discount: Some insurance companies offer discounts ranging from 5-15% if you stay with them for a predetermined number of years. It is important to note that while sticking with one company may get you a discount, your premium could still be more expensive than switching insurance providers.

Getting discounts on your auto insurance doesn’t take long and it isn’t difficult, but it can save you tons in the long run. Inquire about which discounts you qualify for with your insurance provider and start saving today.

Club Membership Discount – Different clubs or organizations that you belong to may offer discounted insurance rates.
Defensive Driver Discount – Many insurance companies give policyholders this discount for taking a “defensive driving” course.
Equipment Discount – Some insurance companies offer discounts for installing safety or security equipment on your vehicle.
Good Student Discount – Often insurance companies reward students for getting good grades. Each company has different qualification and age requirements may be in place.
Good Driver Discount – This type of discount is not offered by all companies. It is based upon things such as driving record, where you live, and where you mainly park your car.
Low Mileage Discount – This one is simple – if you drive only a small amount, you are eligible for a discount. Insurance companies’ reasoning behind this is that the less you drive, the less likely you are to get into an accident
Military Discount – Many auto insurance companies offer discounts to members of the US military and their family members.
Multiple Car Discount – Having more than one car insured with the same insurance company can often result in discounts.

Tips on Choosing the Best Coverage

How much coverage is required by my state?

Required coverage varies by state. Minimums for auto insurance often look like this: 25/50/25. What this means is that your insurance only covers up to $25,000 per person injured in an accident, a maximum of $50,000 for all people injured, and $25,000 worth of property damage.

How much coverage do I need?

The more coverage you have, the less you will have to pay out of pocket in the event of a costly accident. You must carry at least the minimum amount required by your state, but it is suggested that you carry more. State minimums have not kept up with the increasing cost of repairs and medical expenses. If you are in an accident that exceeds your minimum coverage, you will be left to pay for the expenses yourself.

The following factors affect how much insurance coverage you should get:

Risk aversion — You must determine how averse you are to risks and insure yourself accordingly
Geographic Location — If you live in the city, chances are much higher that you will be a victim of vandalism, theft, or minor accidents.
Type of car you drive — You might want to spend more on coverage if you have a newer, more expensive car
Amount of assets you own —If you have many assets, you will want to protect them with more coverage
Passengers — If you frequently have passengers in your car, you should make sure your insurance covers them in the event of an accident.

How can I select the deductible that is right for me?

The standard deductible amount is $500, although you can elect to make this higher or lower. The higher your deductible is, the lower your monthly premiums will be. While this might seem very appealing, it is important to remember that you are taking on more risk by having a higher deductible. However, if you are a safe driver and have sufficient funds to cover a higher deductible, then it might be advisable to increase it.

Should I select Comprehensive or Collision coverage?

Both Comprehensive and Collision coverage are advisable as covering the cost of your car can be extremely costly. The only time where it might make sense to forgo these types of coverage is when the cost of your car is lower than what it would cost to fix it.

How can I get discounts on my auto insurance?

The following are some common discounts offered by insurance companies:

Bundling Discount –Many insurance companies offer discounts to their customers for taking out more than one type of insurance from insurance company.
Club Membership Discount – Different clubs or organizations that you belong to may offer discounted insurance rates.
Defensive Driver Discount – Many insurance companies give policyholders this discount for taking a “defensive driving” course.
Equipment Discount – Some insurance companies offer discounts for installing safety or security equipment on your vehicle.
Good Student Discount – Often insurance companies reward students for getting good grades. Each company has different qualification and age requirements may be in place.
Good Driver Discount – This type of discount is not offered by all companies. It is based upon things such as driving record, where you live, and where you mainly park your car.
Low Mileage Discount – This one is simple – if you drive only a small amount, you are eligible for a discount. Insurance companies’ reasoning behind this is that the less you drive, the less likely you are to get into an accident.
Military Discount – Many auto insurance companies offer discounts to members of the US military and their family members.
Multiple Car Discount – Having more than one car insured with the same insurance company can often result in discounts.t of medical coverage you need