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Ah, car insurance. Probably the most exciting topic out there when it comes to personal finance.
Just kidding. Car insurance can be a real pain sometimes. It’s one of those things that we need, but don’t want to have to deal with.
But that’s why it’s important to learn all the ins and outs of what it is!
Understanding car insurance will help you know what you’re looking for when you’re shopping around for the best insurance company.
Knowing what you’re looking for can save you hundreds of dollars a month because you’ll know what insurance policy is right for you.
Let's break down the basics of car insurance. Whether you’re young and new to car insurance, or a seasoned driver and want to know more about what’s out there, you’ll walk away with some value after reading this article.
We’ll talk about what car insurance is, what’s included in it, and some tips on finding the best policy for you.
Basics of Car Insurance
48 out of 50 U.S. states require drivers to have auto insurance. (Virginia and New Hampshire being the outliers)
Each state has different requirements for the minimum amount of insurance you need. And you’ll have to do some research to find out what your state requires of you.
In some cases, your state won’t require you to have all six types of coverages that we’ll talk about in a moment. But it would be in your best interest to have all six despite what your state requires so you can have what’s called a “full coverage” auto policy.
A basic auto insurance policy is comprised of six different kinds of coverage:
1. Bodily injury liability
If you are responsible for an accident that injures another person, bodily injury coverage helps pay for any medical and “lost income” expenses that occurred as a result of the accident.
So, if you cause a car accident. And you cause someone else to be out of work, then your bodily injury coverage may compensate for their lost income.
2. Medical payments or personal injury protection (PIP)
This covers anyone in your car including you and your passengers. PIP can cover medical payments or lost wages. PIP can also cover funeral costs.
3. Property damage liability
This covers any damage you cause to someone else’s vehicle or property. Usually, this includes damage to another vehicle but can also include damage to street signs, walls, buildings, etc.
4. Collision
Collision coverage helps fund repairs for any damage to your vehicle whether or not you were at fault for the accident.
5. Comprehensive
Comprehensive coverage helps you pay damage to your vehicle in the case of events other than collisions like fire, theft, or vandalism.
6. Uninsured and underinsured motorist coverage
This is coverage if you are hit by an uninsured driver or a driver who doesn’t have sufficient coverage to pay for the loss.
What is not covered by auto insurance?
Damage caused by someone else driving your car
Damages that exceed your liability coverage
Exotic or vintage cars
Vehicle repairs
General maintenance
Choosing The Right Car Insurance Policy for You
Now that you know what car insurance consists of, your next step is to find a policy that’s affordable for you.
There are several steps to think about when you’re shopping around for car insurance.
You’ll want to decide how much coverage you need, which insurance company you want to choose, and what you can afford.
Let’s talk about choosing how much coverage you need first.
Choosing the right amount of coverage for your car insurance
The six different types of coverage we discussed earlier makeup what’s called a “full coverage” auto policy.
Choosing the right car insurance company for you
When looking for a good car insurance company, you’ll want to find a company that has fast response times to claims and questions you might have. Check ratings and talk pick up the phone to check out their customer service quality.
You can think of this process as finding a reliable bank. You’re not always gonna be contacting them. But when you have to, you’re gonna want someone reliable, efficient, and easy to deal with.
You can check ratings on third-party sites like J.D. Power to read ratings and reviews of different insurance companies.
In addition to the service quality, you’ll also want to shop around and get different quotes.
Finding an affordable car insurance premium
Your premium is how much car insurance you pay per month. Your premium is what keeps your policy active. In general, the more risk you pose to the insurance company, the higher your premium will be.
So if you have a history of accidents or DUIs, then your premium will likely be higher. Figuring out your premium isn’t always a straightforward process.
A premium can be unique to each driver. So you’ll have to call different insurance companies and get separate quotes to compare rates.
What factors influence my rate?
Your age
Age of your car
City and state
Claims history
Credit score
How much you drive (mileage on a car)
Safety features in your vehicle
Type of car
What now?
If you get into an accident without insurance, you will have to pay out of pocket. This could include paying for damaged vehicles, medical bills, towing fees, property damage. And the list goes on.
And in most states, it’s illegal to drive your vehicle without insurance. So, car insurance is a natural part of our monthly financial expenses as Americans.
Picking the right car insurance is not a walk in the park. In some cases, people know that they’re overpaying for car insurance but don’t switch their policies just because of how much of a chore it is.
So if you can, let’s get it right the first time so you won’t ever have to deal with hopping around different insurance companies.
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