The Insurance Weblog

Auto Insurance Basics

Do you know the basics of auto insurance so you can understand what your agent is talking about? There are just too many terminologies in the auto insurance industry. If you are new to auto insurance, you may be overwhelmed by terms like "uninsured motorist", "comprehensive", BI, PD, etc. If this is the case, take five minutes to read the below Auto Insurance Basics, prepared by Insurance.com.

Why buy auto insurance?

1) Auto insurance protects you against the financial risk associated with personal injuries and property damage caused by auto accidents, theft, vandalism, or natural disasters.

2) All states require you to purchase at least a minimum amount of liability coverage. Other types of auto insurance coverage may be optional or required, depending on state regulations.

3) If you have a car loan outstanding, you'll generally be required by the lender to purchase at least a minimum amount of auto insurance.

Liability coverage
You'll be required by state law to purchase a minimum amount of some or all of the following types of liability coverage:

Bodily injury liability: Protects your assets if you are held liable for an auto accident in which other people are injured or killed.
Property damage liability: Covers repairing or replacing the autos or other property of other people.
Uninsured/underinsured motorist coverage: Unless you live in a "no-fault" state (where your own insurance will cover your losses), this coverage insures you against losses caused by other drivers with little (underinsured) or no (uninsured) auto insurance.

To adequately protect yourself, you may want to purchase much more than the minimum amount of coverage required in your state.

Collision, other-than-collision, and medical payments coverages

Although these types of coverage are optional in most states, it often makes sense to purchase them, unless you can afford to pay for damages yourself.

Collision: Pays to repair or replace your car if it's damaged in an accident.
Comprehensive: Insures your car against damage caused by something other than an auto accident (e.g., theft, fire, flood, vandalism).
Medical payments or personal injury protection: Covers various medical expenses not covered by your health insurance or your passengers'.
And then the insurance company pays for everything, right?

Wouldn't that be nice? But it's not always true. Here are some things you'll always need to cover yourself:

Deductibles: The amount of money that you've agreed to pay out of your own pocket before your insurance coverage kicks in.
Exclusions: Events or situations your policy specifically omits from coverage, such as property damage or personal injury you intentionally cause to others, or damage to your own car due to mechanical failure.
Costs above limitations: Any expenses for which you're responsible that exceed the caps on the dollar amounts of coverage you're entitled to receive under your policy.

Driving a good bargain

Many factors affect your auto insurance premiums, including your age, the state in which you live, the make and model of your car, where your car is garaged, and your driving record. Although you can't do much about some of these factors, here are some things you can do to help lower your premiums:

- Increase your insurance deductible.
- Eliminate optional coverages (e.g., towing and labor, rental insurance) from your auto insurance.
- Eliminate collision and comprehensive coverage if you drive an older car valued at less than $1,000 and could afford to pay for repairs if necessary.
- Ask about available discounts (e.g., low-mileage discounts, discounts for safety or antitheft devices) for your auto insurance.
- Avoid buying a vehicle that is prone to theft or expensive to repair.
- Keep your car in a garage.
- Drive safely to establish a good driving record.