Understanding Auto Insurance
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UPDATED: Jul 8, 2021
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If you own a vehicle, you may have general knowledge about auto insurance and some familiar terms.
However, like most Americans, you might not have a full understanding of the different components of an auto insurance policy. This knowledge is important for choosing the best coverage for your needs.
Understanding auto insurance basics will help you make the best choice. Your confidence is increased by choosing the right policy coverage if you are involved in an accident.
This article discusses the common types of auto insurance coverage. An explanation is provided regarding the pricing of auto insurance. Additionally, useful information and tips is included for finding an affordable auto insurance policy.
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Every state has some type of auto insurance requirements to which every driver must comply. Knowing your state’s requirements is the best place to start when understanding auto insurance.
You will learn what is required and make certain your insurance carrier offers the correct policies. Another important aspect of understanding auto insurance is the factors that determine the cost.
Contributing factors include your driving history, the type of vehicle you own and your financial position.
Taking each into consideration can help with comparing the premiums and policies of several companies.
Types of Auto insurance Coverage
When you purchase auto insurance, you are buying a policy that is based on several factors including your age and the type of car your drive. These policies may contain different types of coverage.
Some auto insurance coverage is optional. Other types of coverage are generally required by your state. Common auto insurance coverage includes:
- Liability – Pays expenses for bodily injury and property damage that you cause in an accident. These expenses may include medical, lost wages and the cost of repairing a vehicle or other property. Each state determines the minimum liability coverage that each driver must maintain. However, you have the option of purchasing more.
- Collision and Comprehensive – Collision pays expenses related to damages to your vehicle when you get in an accident. Comprehensive pays for damages by something other than an accident to your vehicle. Examples of this may include vandalism, theft, wind, hail or fire.
- Medical Coverage – Offered in most states to pay medical expenses for injuries incurred by an accident, regardless of who is at fault.
- Personal Injury Protection (PIP) – Not all states require this type of coverage. This coverage also pays for your medical expenses regardless to who is at fault for an auto accident as well as adding other things such as death benefit and loss of income.
- Uninsured/Underinsured Motorist – As the name implies, this coverage pays for damage to you and your vehicle when a driver who either has no insurance, or not enough, causes an accident.
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Cost of Auto Insurance
Several factors can determine the cost of auto insurance. The price typically varies among insurance providers.
You can conveniently research and compare auto insurance rates through online sites. It helps to understand how the rates are determined before making a policy purchase.
Factors that can affect your auto insurance costs include:
- Type of vehicle
- Whether you live in the city, suburbs or a rural area
- Distance of commute to and from work
- Other driving patterns
- Your age, gender, marital status
- Driving record
Even with these factors, there are ways to lower your auto insurance costs. Falling into one or more categories can help you save and comparison shop for the best prices.
Many people buy vehicles based on personal preferences. Consider purchasing a vehicle based on the preferences of an insurance company.
For example, insurance companies are aware of which vehicles have the most problems and are susceptible to theft. Find out which vehicles are on the good list for insurance companies and benefit from a lower rate.
When comparison shopping, find out the different types of discounts each insurance provider offers. Make sure you qualify for the discounts before purchasing a policy.
If you carpool or use public transportation, be sure to report this to the insurance company. Many provide discounted rates when you drive your car less.
Other Things to Consider
Generally, your auto insurance policy is based on two priorities: state minimum requirements and your personal needs. By law, you must purchase the minimum amount of car insurance coverage, but that amount might be enough to protect you financially.
For example, the minimum coverage for property damage in your state might be $15,000. If you are involved in an accident and cause damage to a vehicle $30,000, you are liable for the remaining $15,000 if the vehicle is totaled.
You might want to purchase a policy that exceeds the minimum coverage.
Choosing the Right Policy
Most auto insurance policies provide options in addition to minimum coverage. You may need a rental vehicle while your car is being repaired after an accident.
Leased vehicles may require a gap insurance policy. This covers the difference between your insurance policy and the balance of a lease if the vehicle is totaled.
Protecting your personal assets is an important consideration.
If your auto insurance policy does not cover the expenses of an injured driver, his or her attorney might sue you for the additional costs. Paying a little more for additional protection can pay off long-term.
The best way to find adequate auto insurance coverage at affordable rates is by comparing various policies.
Many online sites offer a one-stop place where you can obtain quotes from multiple auto insurance providers. Armed with this information, you can get what you need and save money.