Understanding auto insurance is far from easy. There is an endless supply of confusing terms, plenty of incorrect information, and on top of all that, the confusing contracts don’t make things any easier. You can scroll through our glossary and become an expert by studying it night and day, but that would take you ages. To start off, let’s go over the basics. Click on the link to be brought to your question, or scroll down to start reading from the top:
- Why do you need car insurance? Is it legally required?
- What types of car insurance are available? What are my coverage options?
- How much coverage do I need? What should my limits be set at?
- What are deductibles? Can you explain them to me?
- How do you get the cheapest car insurance rates?
Why Do I Need Auto Insurance?
All states require some form of auto insurance, however, the amount and types of coverage required to have vary state by state. Check with your state’s government website to determine how much coverage you need.
In addition to state requirements, it is vitally important that you have auto insurance to protect yourself, your loved ones, and your finances from unforeseeable misfortune. Without auto coverage, you may find yourself owing a great deal of money, or unable to pay for necessary medical fees.
Put simply: it’s a very bad idea to drive without auto insurance. It’s a legal requirement in every state but New Hampshire. However, even if it wasn’t a legal requirement, you’d still want to carry car insurance. It reduces your liability. By carrying car insurance, you’re protecting yourself while you’re engaging in a relatively risky activity. Driving a vehicle is one of the most dangerous things most people do in an average day. There are few other situations in an average day where you can cause so much damage to so many people with one simple mistake.
If you don’t carry car insurance, and you get into an accident, then you’re required to pay for all expenses out of pocket. You might be required to pay for the medical bills of the other driver, for example. You might also be responsible for covering the other driver’s lost wages as they recover from the accident. Plus, you’ll have to pay to repair the other driver’s vehicle.
Now, these amounts may not seem too expensive for a smaller accident with minimal injuries. However, let’s say you get into an accident with a minivan filled with a family. If you’re at-fault for this collision, and there are significant damages to everyone inside the vehicle, then you may be required to pay hundreds of thousands of dollars.
Of course, even if you “get lucky” and never get into an accident while uninsured, you’re still exposing yourself to problems with the law. If you get pulled over for speeding, for example, and you have inadequate insurance coverage, then the police officer might give you a ticket with a fine of $500 to $1,000. In some cases, your car might even be impounded and towed.
Ultimately, you need car insurance for countless reasons. It’s not just a legal requirement – it’s the smart thing to do financially.
What Types of Coverage are Available to Me?
This is possibly the most confusing part of auto insurance. Some people are totally unaware that there are different forms of coverage, leaving many unprotected. Others just neglect other forms of coverage outside of the two common coverage types (liability and collision).
Liability – Liability coverage protects you in situations where you are responsible for damages or injury. When involved in an accident, liability coverage will help pay for damages and medical bills of the other party or parties involved.
Collision – Collision coverage protects you from paying the full cost for damage done to your vehicle. You are only responsible for costs within your deductible. Terms vary from company to company, so do your research before agreeing to anything.
Medical Coverage – Medical coverage is pretty self-explanatory. This coverage will help pay for medical expenses as a result of an auto incident.
How Much Coverage Do I Need?
Unfortunately, there is no easy way to determine this. You must take an in-depth look at your current situation, including; cars, family member, and financial stability, just to name a few. When choosing a deductible, the higher your deductible, the lower your premium, in most cases. This is why it is commonly advised that you choose the highest deductible that you will be able to pay at any given time. For a better answer to this question, please read our article, “How much auto coverage do I need?”
Your personal preferences for car insurance will vary. Some people are willing to pay a higher monthly premium in exchange for added peace of mind, for example.
However, car insurance coverage isn’t just a personal preference: it’s also a legal requirement. States have different laws regarding the minimum amount of coverage to drive on the road.
Typically, states list minimum coverage requirements as three numbers. You might see numbers on a policy expressed as 20/40/15, for example. In this case, a 20/40/15 policy meets the minimum insurance requirements for drivers in the state of Iowa. Drivers in Iowa are required to have a minimum of $20,000 of bodily injury liability coverage per person, $40,000 of bodily injury liability coverage per accident, and $15,000 of property damage liability coverage per accident. Your insurance company might list this policy as a “20/40/15” plan.
Different states have widely different requirements for minimum insurance coverage. California drivers, for example, require minimum insurance coverage of 15/30/5, while drivers in Texas require a minimum coverage of 30/60/25. Some states have additional insurance requirements. Drivers in Florida, for example, are required to have $10,000 in personal injury protection (PIP) coverage. Check your state’s minimum insurance requirements to determine how much coverage you need.
Deductibles and Premiums; What Do They All Mean?
Let’s say you’re a good driver who pays for your auto insurance regularly. You have a 1-year car insurance policy, but you split the policy into 12 monthly installments. Your car insurance premium will be $1200 per year or $100 per month. As long as you pay your premium, your car insurance will stay active and you can avoid lapsed coverage.
One day, you get into an accident. Your car has $2,000 worth of damage. Your insurance company will cover the damage. However, you’re required to pay a deductible to make the claim. A typical car insurance deductible is $500 to $1,000. However, some deductibles are as low as $250 or as high as $2000.
How to Get the Cheapest Auto Insurance?
It is mandatory in all 50 states in the U.S that a car owner has liability insurance coverage that will cover damages caused by an accident to a third party or their property. Not having insurance can result in heavy penalties and fines for first-time offenders and car owners even face the risk of being arrested and seeing their car impounded if they are caught for repeat offenses of driving without valid insurance coverage.
The above introduction would have probably made you realize the importance of getting car insurance as soon as you can. Now that that is done, we will try to look into how one can go about choosing the cheapest auto insurance.
First of all, you should decide what kind of insurance you need. Liability insurance is mandatory in most states although comprehensive coverage is usually optional. You should ideally consider availing comprehensive insurance as it will cover repairs to your car. Comprehensive auto insurance packages might also cover theft which can be a godsend if you are the unfortunate victim of car theft. Additionally, most auto insurance quotes will depend on the coverage amount that you seek. It will also depend on the deductible you are looking to pay in case of damage. The higher the deductible, the lower the cost of insurance will be.
One of the best ways to look for the cheapest auto insurance quotes is to do online research. Unlike calling several insurance companies over the phone, you can conveniently enter your information at just one website and get a collection of quotes from various companies in the industry, including the largest players such as GEICO, Progressive and Safeco. In a matter of minutes, you will be presented with quotes to compare from many different companies that might otherwise take a few hours to achieve if you called each company to get your quote.
Once you have shortlisted some companies that you are interested in, it is important to go through their fine print as some auto insurance quotes might have attractive quotes only to add a lot of charges to the policy in their fine print. It is possible to get auto insurance quotes for as little as $50 from some companies although you should make sure that the insurance coverage you are seeking has some reasonable value to it. Don’t make the mistake of buying auto insurance just for the sake of staying under the radar as it might truly be useful to you in the event of an accident.