Auto Insurance Basics
Auto Insurance Basics
Be careful when choosing minimum coverage amounts because your assets could be liquidated if the damage you cause exceeds the limits chosen.
State Mandated Coverage
- Bodily Injury Liability covers the costs associated with the death or bodily injury of others resulting from an accident that you cause.
- Property Damage Liability covers the cost to repair property damaged in an accident in which you are found at fault. Property can include a car, fence, mailbox, house, or any property damaged in the accident.
Optional but Recommended Coverage
This category of coverage is not mandated in all states. However, even if the state does not require the coverage, each offers additional protection. Check with state laws for more information regarding the requirements for these types of coverage.
- Collision covers the cost of repairing your car, minus your deductible, when it is hit by an object or involved in an accident, regardless of which party is at fault. Although not usually required by state insurance law, a lien holder may require it.
- Comprehensive covers the cost of repairing your car or in some cases another car you drive, minus your deductible, when it is damaged for a reason other than collision. The reason might involve theft, vandalism, fire, flood, or animals. This coverage also goes by the name “Other Than Collision.” Although not usually required by the state, a lien holder may require it.
- Uninsured/Underinsured Motorist covers you, your passengers, and others included on your policy (either as passengers or pedestrians), up to your limits, for personal or bodily injuries, or damages or death, that have been caused by an uninsured driver, a driver with insufficient insurance coverage (underinsured) or an unidentified (hit-and-run) driver.
Additional Coverage Options
- Rental insurance is there to offset the costs of a rental car should you need one while damage to your car is being repaired.
- Towing/Roadside Assistance coverage varies among providers but typically includes, up to certain limits, towing to a repair center, delivery of fuel, and minor car repairs.
- Gap coverage kicks in should your car be totaled. It pays the difference between the cash value of your car at the time of a covered accident and your loan payoff amount.
Auto Insurance Terms You Need to Know
- Deductible is the amount you agree to pay out of your own pocket before the insurance pays out any money. The higher the deductible, the lower the rate you’re quoted. Before choosing your deductibles, make sure you’re financially able to pay that amount should the need arise.
- Exclusions include the scenarios that are not covered by your auto insurance policy. Damage caused by wear and tear is a common exclusion as is intentional damage. There likely will be other exclusions that you need to understand and be aware of.
- Costs in excess of policy limits are your responsibility which is why it is so important to consider coverage limits very carefully before choosing them, especially if you own valuable assets such as a home. Those assets could be liquidated in the event additional funds are needed to cover excess policy limit costs.
Tips for Keeping Auto Insurance Costs Down
You are required to carry auto insurance and premiums can be costly. But there are ways to keep those costs as low as possible including:
- Taking advantage of every available discount offered by the auto insurer.
- Choosing the highest deductible you can afford.
- Driving safely and defensively all the time.
- Choosing only the coverage and limits you absolutely need.
- Driving a make and model of car that’s not attractive to thieves and won’t require costly repairs.
- Eliminating coverage for collision and comprehensive if your car is older and you could afford to pay out of pocket for needed repairs or if it would make more financial sense to replace rather than repair damages.
- Maintaining a track record of responsible credit usage.
- Taking time to get and compare auto insurance rates offered by multiple insurers.