The Basics to Buying Auto Insurance
If you are about to purchase auto insurance for the first time, there are some things you need to be aware of before choosing the policy that is right for you. Below you’ll find some of these basics covered.
Minimum Requirements
In every state in the United States, auto insurance is required by law for all drivers. However, each state determines how much insurance coverage is needed. The coverage amounts can vary greatly. Most of the time minimum insurance requirements are expressed with three numbers. In North Dakota, for example, the minimum is 25/50/25.
Understanding what these numbers mean will help you understand your coverage. The first two numbers refer to bodily injury liability limits. In North Dakota, you must have coverage of at least $25,000 per person and a maximum per accident of at least $50,000. The third number refers to property damage liability. You would need to have at least $25,000 in coverage to pay for the damages to the other person’s car or other property damaged during an accident.
Liability Insurance Explained
While the coverage above is required, many drivers assume this minimum coverage will also protect them in the event of an accident. However, that’s not the purpose of state minimum coverage. This is liability insurance which means it only covers the costs you would be responsible for by causing the accident. If you are found to be at fault for a collision, your damages are not going to be covered by this auto insurance. Those damages will have to be paid out-of-pocket unless you have additional coverage.
Full Coverage
Many drivers talk about purchasing “full coverage” auto insurance. Often this type of coverage is required if you are financing or leasing an automobile. Unlike liability which is only intended to protect the other driver from you, this type of coverage is meant to provide you with some peace of mind.
Interestingly, there is no such thing as a full coverage policy. Instead, this usually refers to collision and comprehensive policies. Collision insurance will pay for damage done to your car even if the accident was your fault. This type of coverage would also cover hit and run accidents and accidents in which you hit an inanimate object, such as a pole.
Comprehensive coverage pays for damages to your car caused by problems other than accidents, such as vandalism, theft, or natural disasters. For example, if your car is flooded then the damages may be covered under this policy, as long as you were in no way at fault for the problem.
While so-called full coverage auto insurance is a good idea for newer cars, the extra expensive of these policies may not be worth it if you have an older vehicle.
Uninsured and Underinsured Motorist Insurance
In a number of states, the state minimum coverage requirements don’t only include liability insurance but also uninsured and/or underinsured motorist policies that will offer you some protection in the event that you are in an accident with someone who has no or who has insufficient insurance coverage. Connecticut, Maine, Minnesota, and Vermont all require the purchase of both types of policies. Even in states where such a policy is not required, you can purchase these policies for an extra premium.
Personal Injury Protection (PIP)
Pennsylvania, New York, and a few other states also require PIP insurance. Also known as personal injury protection, PIP is a policy intended to cover medical expenses for individuals involved in the accident. You and your passengers would all be covered under your policy. Coverage also extends to anyone you allow to drive your car and to you and your family if injured while in someone else’s vehicle. PIP coverage will pay medical and funeral expenses up to the policy limit. In most states, this type of auto insurance is provided as an optional policy.
Gap Insurance
Another auto insurance policy you might want to consider is gap insurance. This type of policy pays the difference — up to the policy limit — between the value of a totaled car from an accident and the amount still owed to the financing company. Because cars depreciate so quickly once they leave the lot, there is a good chance that at some point during your ownership, you will owe more than what the car is actually worth. If your car is totaled in an accident, your collision coverage or the other driver’s liability coverage will only pay the value of the car at the time of the accident. You will be responsible for paying the difference if you do not have gap insurance.
Other Insurance Options
In addition to the coverage discussed above, you might want to add rental car coverage and/or towing and labor. Both types of coverage can save you a lot of money if your car breaks down or needs to be repaired because of an accident.
Keeping Premiums Low
If you opted for all of these types of auto insurance, your premiums would be quite high. However, there are ways to lower your annual costs. For example, you could drop full coverage on older cars. You could also increase your deductible which is the amount you must pay out of your own pocket before the insurance will provide any coverage. Remember that a higher deductible may be a good idea if you need to keep your premiums low but don’t make it so high you won’t be able to afford to pay it if necessary.
March 13, 2009, Posted by Rainy Day Mitch