How this Guide is Organized
1 Why You Need It
2 Types of Coverage
3 Who Pays for What?
4 What do you need?
5 What Should you Pay?
6 Bring Your Costs Down
7 Place your Bets
8 Best Car Deals this Month
Most people don't know much about car insurance beyond the fact that you pretty much have to have it. Insurance isn't exactly a thrill-a-minute subject. But, when you get into a car wreck (and that's when, not if), even if it's a little fender bender, you'll be glad auto insurance is there to help -- provided you've got the right coverage. Here's the rundown on car insurance and how to find the right policy for you.
Why You Need It
Cars are expensive, and car accidents are really expensive. In addition to car damage, there are also medical bills to consider. When thinking about the cost of a collision, you need to keep in mind that a car accident may involve more than one car -- that can easily double the cost of the damage. And, if each car has multiple passengers and they all get injured, you see how collision costs add up.
Insurance helps you cover those costs. Basically, you pay for an insurance policy, which is cheaper than the costs you'd likely incur because of an accident. Then, if you have an accident, the policy covers some of the costs associated with it. What your insurance policy covers depends on the type of coverage you buy.
Types of Coverage
The type of coverage you get depends on the laws in your state (most states have some required minimum auto insurance laws), the value of your car, and how much of your own money you're willing to spend if you get into an accident.
* Collision coverage is pretty basic: it pays for damages to your car if you hit something.
* Liability coverage is required by most states. It covers property damage and injuries to others caused by your car. So, if you drive through your neighbor's fence, collision coverage covers the damage to your car and liability coverage covers the damage to the fence. Liability coverage is what you need if you're in an accident and it's your fault.
* Medical coverage covers medical expenses that are the result of an accident. If you broke your wrist while driving through your neighbor's fence, this coverage would take care of it.
* Comprehensive coverage covers damage to your car that's not the result of a collision. This is the kind of coverage you'd want if a tree fell on your car, or if it were damaged in a flood.
* Personal Injury Protection is very similar to medical coverage. The difference is that medical coverage covers everyone injured in an accident, while Personal Injury Protection only covers you. It's required coverage in many states; medical coverage tends to be optional.
* Uninsured motorist coverage takes car of damage to your car if it is hit by a driver who doesn't have liability insurance.
* Underinsured motorist coverage will pay for damages to your car if it's hit by someone who doesn't have enough insurance to pay for the damage. For example, if your car gets hit by someone with only $2,000 worth of liability coverage and there's $3,000 worth of damage to your car, underinsured motorist coverage pays the difference.
* Rental reimbursement will pay for you to rent a car while yours is in the shop due to an accident.
Who Pays For What?
What's New Car Insurance?
When you buy a new car, you should consider getting new car insurance. If a car is totaled in an accident, most insurance companies will only pay what the car is worth, which tends to be much less than what you paid for the car new, leaving you out a lot of cash. New car insurance pays for the full value of the car new.
In an accident, the type of coverage that comes into play depends on who is at fault. The person who causes the accident is the one whose insurance pays for all the damages. So, if you just drive through your neighbor's fence, your insurance will pay -- and as a result, your insurance rates will go up. However, if you drive through your neighbor's fence because someone rear-ended you and sent your car flying, the insurance of the person who hit you would pay for all the damages.
What Do You Need?
The type of coverage you get depends the laws in your state (most states have some required minimum auto insurance laws), the value of your car, and how much of your own money you're willing to spend if you get into an accident.
You should always get enough insurance to cover the value of your car -- especially if you still owe money on it. Otherwise, the car could be totaled and you'd still be making payments on it. That means that if you have an expensive car, you should get a lot of coverage. If it's a cheap car, you can buy less. You also should take into account how much money you have in savings. If you have enough money to handle unexpected medical expenses, lost work days and renting a car, you can probably get less coverage.
Also look at other insurance you have. Your medical insurance may cover injuries received in a car accident. If that's the case, you can decrease the medical coverage on your car insurance. Likewise, your homeowners or renters insurance may cover damage to your car.
What Should You Pay?
What you pay for car insurance is a made up by a number of complex factors. Basically, your insurance rates are based on how much coverage you want and how likely the insurance company thinks it is that you'll have an accident. As a result, safe and experienced drivers pay less for insurance than 16-year-olds with speeding tickets. Also, how expensive your car is and the type of car it is will determine your insurance rates. A 20-year-old station wagon is a lot cheaper to insure than a brand new sports car, because that 20-year-old wagon is cheaper to fix and, according to insurance companies, less likely to be in an accident. Other factors, such as where you live and how often you drive, will also play a role in determining your costs.
Bring Your Costs Down
There a re a lot of ways you can bring your insurance costs down. One is by having a larger deductible. A deductible is part of your insurance policy that you agree to pay. For example, if you have a $1,000 deductible and are in an accident that causes $2,000 worth of damage, you'd pay $1,000 and your insurance would pay $1,000. A large deductible will bring down your insurance costs, but it will mean that in some accidents, your insurance won't pay a dime.
If the damage to your car is less than the cost of your deductible, you'll have to pay it all. When shopping for coverage, don't get a deductible that's so large you can't pay it, and always keep an amount equal to your deductible in your savings account. You'll never know when you may need it.
You can also bring down your car insurance costs by lessening the odds that you'll be in an accident. See if your insurance company will lower your rate if you take a defensive driving course. If you're still in school, see if they offer good-student discounts. Also, if you drive less, you'll be less likely to be in an accident. If your car's parked on campus during the week, don't pay for insurance that assumes you're driving it daily. If you do drive daily, look for ways to decrease your time behind the wheel -- take the bus, walk, and bum rides with friends, then let your insurance company know you're driving less so they can adjust your rate.
Place Your Bets
In the end, car insurance is a bet. You pay a monthly fee to an insurance company. They're betting that you won't get into an accident. You're hoping that you won't, but betting that you will. If you "win," the insurance company will pay your accident costs. If you're not in an accident, the insurance company wins because they get to keep your money. Losing this bet isn't bad, though. You won't have to deal with being in an accident, and the longer you lose the bet by not getting into a wreck, the less you'll have to pay the insurance company. But, the day you're in an accident, you'll be glad you're covered.
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