Car insurance is a contract that basically states that you will pay money to the insurance company and later if you have a car accident covered by the policy, the insurance company will pay you money .
You could pay for car insurance and never use it. But in the event of a serious accident, you could receive much more than you paid.
Auto insurance is a financial safety net. This saves you the potential financial disaster of owing someone thousands, or even hundreds of thousands of dollars after a car accident. Getting auto insurance quotes is easy and comparing quotes can save you hundreds of dollars.
What are the car insurance requirements?
Most states have laws requiring “financial responsibility” for accidents you cause. Most car owners choose to purchase auto insurance to meet this requirement. If you live in New Hampshire, you don’t have to buy auto insurance unless you cause an accident.
You may not know that many states have alternatives to car insurance, but they are generally not very attractive. They usually involve posting bail with the state for $50,000 or more.
What does car insurance cover?
If you cause an accident and you don’t have auto insurance, you may face bills for:
- The wounds of others.
- Damage to other cars.
- Damage to property of others such as fences.
- Damage to your own car.
- Your own medical bills.
- Legal costs if the other driver sues you.
A variety of auto insurance types are available to pay the bills for all of the above.
Motor vehicle liability insurance is mandatory when taking out auto insurance. It pays for the damage and injury you cause to others. Liability coverage amounts are often written as three numbers. These are the maximum limits your insurer will pay for personal injury, accidental injury, and accidental property damage.
Some states also require:
- Uninsured/Underinsured Motorist Coverage for your injuries and those of your passengers if you are the victim of an accident caused by a driver without or insufficient liability insurance. In some states you can also buy property damage coverage for uninsured motorists to cover damage caused to your car by an uninsured motorist.
- Personal Injury Protection (PIP) or Medical Payments Coverage (MedPay) for your injuries and those of your passengers, no matter who was at fault.
Also to be considered:
- Collision insurance for damage to your vehicle caused by hitting objects such as trees, poles or other cars.
- Back to back insurance for car theft as well as damage to your vehicle caused by weather, fire, explosion, vandalism, flooding and collision with animals.
And many car insurance companies offer many other options, such as:
Reimbursement of rent coverage if your car is repaired after an accident.
Mechanical failure insurance for non-accident car problems, such as engine problems.
Roadside assistance coverage for issues like punctures and lockouts.
Pet injury coverage for the injury or death of a pet as a result of an accident.
Gap insurance to pay the difference between what you owe on the car loan or lease and the insurance check for a totaled car.
How does an auto insurance deductible work?
An auto insurance deductible is the amount of money that will be deducted from an insurance claim check. Casco and collision insurance include deductibles in the event of a claim. For example, if you have collision coverage with a $500 deductible and you cause $3,000 of damage to your car, your insurer will pay the remaining $2,500.
The lower the auto insurance deductible, the higher your premium will be.
Liability insurance has no deductible.
What affects car insurance rates?
Here are the factors that generally help determine your car insurance premium. These may vary by state and insurance company.
Location: Where the car is “parked”.
Credit: Bad credit often leads to higher rates. (Except in California, Hawaii and Massachusetts, where auto insurers cannot use credit to fix prices.)
Driving history: Many insurers look back three years on your driving history. They look for accidents, claims and moving violations. Some violation convictions, such as a DUI, may affect your rates longer.
Vehicle model: A model’s claims history affects its rates. So if other people have planted the model a lot, you may need to pay more. This is why sports cars are often the most expensive to insure. See the cheapest cars to insure.
Your age: Young drivers generally suffer the highest rates, which usually begin to decline around age 25.
Coverage interruptions: If you had auto insurance gaps, you will likely pay more. Plus, there are penalties for driving without insurance if you get caught.
There are usually many ways to get car insurance at a discount. Your insurance agent can review available discounts to make sure you are getting all possible price reductions.
How to choose the right car insurance?
First, decide what types of auto insurance you want. Maybe you want a policy with only state-required liability coverage. Or maybe you are interested in comprehensive car insurance. The choice depends on how much you want to pay and what safety net you want in the event of an accident. Typically, people with assets to protect in a lawsuit need more auto insurance.
If you buy collision and casualty insurance, choose a deductible amount. Do you prefer higher premiums and lower deductibles or vice versa?
Then, compare the rates of several companies if you want to find cheap car insurance. Shopping is the best way to save money.
An auto insurance agent can help you choose the right coverage for any issues you want to cover.