Auto Insurance For Dummies
When buying auto insurance for the first time, it is important to understand what it is, what it covers, how it works, how much you need and how to buy it. MoneyGeek created a car insurance guide to help you navigate these topics and find the right policy for your needs.
auto insurance for dummies
In short, car insurance is crucial to have. However, it can be challenging to understand how it covers you, what it means to make a claim, how much coverage you should buy and how much a policy costs. This car insurance guide can help you understand more about your insurance so you can make informed decisions when selecting and utilizing your policy.
Auto insurance coverages may vary depending on your needs as a driver. A policy may include liability insurance, comprehensive and collision coverage, personal injury protection and uninsured/underinsured insurance.
Car insurance is a contract between the policyholder and the insurance provider. Under this contract, you agree to pay a certain monthly or yearly premium for your policy. In turn, your insurance carrier agrees to pay for losses and expenses related to covered accidents when you file a claim. An insurance claim is a formal request that a policyholder files to their insurance carrier for compensation for all covered losses.
Your needs and situation as a driver determine the right coverage for you. Depending on the type of policy you purchase, your insurance could cover vehicle damage, medical expenses and property damage for yourself or others.
States have different auto insurance laws. In most states, having liability insurance is a requirement for drivers. This coverage offers essential protection against possible financial loss due to a car accident where the policyholder is at fault. It includes bodily injury liability and property damage liability to the other party but does not cover damage to you or your vehicle.
Among all states, 18 require motorists to purchase personal injury protection (PIP). Also known as no-fault insurance, PIP covers medical payments related to injuries you and your passengers sustain in the event of an accident, regardless of who is at fault. It also covers other related expenses, such as health insurance deductibles, lost wages, childcare and funeral services.
In some states, drivers need to carry uninsured/underinsured motorist coverage. But even if it is not a requirement, having this type of insurance will give you and your family additional protection. About 12.6% of drivers are uninsured in the United States. If you ever get in an accident where the at-fault driver is uninsured or has limited coverage, this insurance will cover the medical fees, lost wages and car damage you incur.
When discussing car insurance for beginners, it is necessary to include claims. A car insurance claim is a formal request that a policyholder files with their insurer. It allows them to get compensation for covered loss as defined in the policy. Insurance providers review claims and determine their validity. Once approved, the provider will issue payment to the policyholder.
To ensure approval of your claim, you need to provide evidence from the accident scene. Obtain contact and insurance information from the other driver. Be sure to call authorities right after the accident and have them file a police report. Take pictures of the scene and any damage, if possible. Try to record the names and contact information of witnesses.
Having a higher deductible usually results in lower insurance premiums because you will be paying more out-of-pocket when you file a claim. Lower deductibles cost more in premiums but cover more expenses after an accident.
If you get involved in an auto accident, your insurer will help cover related expenses after you meet your deductible. For instance, say you file a collision insurance claim for $6,000 worth of damage, and your deductible is $500. You must pay $500 out-of-pocket, while your insurer will cover the remaining $5,500.
Each state has its own laws that determine the minimum auto insurance coverage requirements that every driver must have. Most states require some form of liability insurance. However, other states require PIP or uninsured/underinsured motorist coverage. Failure to carry and maintain the necessary coverage limits can lead to penalties and fines.
The average cost of car insurance across the country is $1,424 per year or $119 per month. However, the actual cost of car insurance will vary per person. Insurance providers use individual factors, like location, ZIP code, age, gender, credit score, driving history and coverage level to determine premiums for each policyholder.
Insurance premiums can seem expensive, but the coverage you receive from it far exceeds what you pay. For instance, the average cost of insurance across the country is $4,272 over three years. For this much, you could potentially receive up to $100,000 in bodily injury coverage per person, $300,000 per accident and $100,000 in property damage from your insurance provider.
Before choosing an insurance company, you have to determine what you want in an insurer. For the most part, insurance providers offer similar core coverages. Your decision will depend on how much you value cost versus quality of service.
For some drivers, the best car insurance for beginners is a policy that fulfills their state obligations and allows them to save on their monthly bills. MoneyGeek collected average rates from various companies to determine the cheapest car insurance companies.
Car insurance protects you financially by paying for car repairs you would otherwise pay out of pocket. Getting coverage can also protect you from non-collision incidents like a tree falling on your car or getting hit by an animal.
Mark Fitzpatrick is a senior content director at MoneyGeek with over five years of experience analyzing the insurance market, conducting original research and creating content that can be personalized for every buyer. He has been quoted on insurance topics in several publications, including CNBC, NBC News and Mashable.
While basic, legally mandated auto insurance covers the cost of damages to other vehicles that you cause while driving, it does not cover damage to your own car. To cover this, you need to purchase the following optional auto insurance coverages:
Some people don't understand the need for auto insurance, which can leave them personally exposed and cause significant financial problems in the event of an accident. Auto insurance is mandatory in nearly all states, except New Hampshire.
Think of your auto insurance policy as six separate policies. Some types of coverage are required by state law, depending on where you live. Others are optional. Consider each one and ask yourself how much you need. Each type of coverage has its own premium. Add them up and you've got the price of your auto insurance policy. Subtract the ones you may not need and you gain some control over the cost.
Comprehensive coverage covers you in case your car is stolen or damaged in ways that don't involve a collision. Covered risks include hail, fire, theft, flood, earthquake, explosion, falling objects, and encounters with wildlife, such as deer. Comprehensive is optional coverage, though your bank may require it if you have an auto loan. You may choose a deductible on this coverage.
Uninsured/Underinsured motorist (UM/UIM) coverage covers medical and other expenses when you are hit by a driver without adequate auto insurance. Whether this coverage is mandatory or optional depends on your state laws. You can purchase additional coverage to pay for damage to your car if hit by an uninsured motorist, but many people instead just purchase collision and comprehensive.
Your policy is a legal contract, so at first glance it can seem confusing. But, if you know what to look for and where to find it, your policy becomes a lot easier to understand. Each auto and homeowners insurance policy has three standard parts:
Declarations Page. This is where you'll find your name, a statement of the policy period during which you are covered and the amount of premium you pay. The "dec" page also includes a description of the insurance coverage provided and gives the maximum dollar limit the insurer will pay for a claim under each coverage.
Insuring Agreement. This is the main part of the policy. It describes what the insurance company will do in exchange for the premium you're paying. The insuring agreement will also say who is covered: The persons named as insureds on the declarations page, residents of the same household and persons using the car with the permission of the insured. Everything is spelled out specifically in an attempt to avoid misunderstanding. Read the definitions section and the list of exclusions that apply to each coverage. Its vital that you know what you are covered for and what you are not covered for when you need to use your coverage!
If you're buying a new car or shopping for auto insurance, you'll likely need to understand the common types of coverage available on a car insurance policy. The various types of car insurance coverage are available to help protect you, your passengers and your vehicle if you're involved in a car accident.
If you're hit by a driver who doesn't have insurance, uninsured motorist coverage may help pay for your medical bills or, in some states, repairs to your vehicle. If you're hit by an underinsured driver, that means they have car insurance, but their liability limits aren't enough to cover your resulting medical bills. That's where underinsured motorist coverage may help, depending on the laws of your state.
You may be able to add the following optional coverages to your car insurance policy, depending on your situation. Your insurance agent can help you understand what each helps cover, so you can put together a policy that's right for you.
Except for New Hampshire, every state requires drivers to carry property damage and bodily injury liability insurance. Other coverages may be required, depending on your state. These may or may not include uninsured and underinsured motorist coverage, and PIP. 041b061a72