Regardless of whether you lease or own a car, you need auto insurance. If you haven’t taken the time to research the logistics of car insurance, you might overspend or miss out on essential coverage.
Before purchasing your next insurance policy, make sure that you know everything necessary to select a well-tailored policy. We have prepared a guide on auto insurance that may make it easier to distinguish between what you need and what you can leave out.
Why Do You Need Car Insurance?
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Purchasing car insurance is a good way to protect the investment in your car. Spending a little money each month on insurance premiums can spare you from the potentially enormous costs associate with damaged car parts or accidents.
In many states, car insurance is not optional. Most states have a minimum level of insurance that you must carry. If you are pulled over by a police officer in one of these states and you don’t have an active insurance policy, you will face a hefty fine. In addition to government requirements, most lenders require you to carry a comprehensive insurance policy to protect their investment until you pay off your loan.
Things You Should Know About Buying Car Insurance
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1. The Insurer Will Ask You a Lot of Questions
When you shop for insurance, you’ll be asked a series of questions, some of which may seem odd or unnecessary. However, your answers to those questions will determine the cost of your policy. A few of the factors used to calculate the cost of your policy include:
- Your driving record
- Your credit score
- Your age, gender and marital status
- The type of vehicle you drive, and your average annual miles
- Where you live and where you park your vehicle
- The number of insurance claims you’ve made
- The details of your desired coverage levels
By asking these questions, the insurer is trying to determine how risky it will be to insure your vehicle.
2. Tort or No-Fault State? Learn the Difference
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The difference between living in a tort state or a no-fault state is another crucial factor to understand. In a tort state, drivers can take legal action against each other to reclaim damages from accidents, with the payouts provided by the drivers’ insurers. In a no-fault state, each party in an accident simply receives a payout from their insurer.
3. Types of Insurance
The two types of insurance that you will often see as you browse various policies are collision coverage and comprehensive coverage. Although both types of coverage are considered optional, some auto lenders may require you to take one or even both options.
- Collision Coverage insures you against damages caused by collisions with another object, such as a tree, a building or another car. If your car is damaged, this coverage will pay for repairs. If your car is totaled, this coverage will pay the value of your car. Owners of new or expensive cars typically take this type of coverage; it’s not worth having for older cars with lower values.
- Comprehensive Policies cover all miscellaneous damage that your car might endure, such as fire or flood damage, weather damage or cracks on your windshield. The damage doesn’t have to be tied to accidents. This type of coverage is more affordable if you have anti-theft and tracking devices installed on your car.
There are several more types of coverage you can choose from:
- Liability Insurance – this kind of insurance covers injuries and property damage caused by your actions. Most states require a minimum level of liability insurance. Liability insurance will cover the cost of repairing damaged property, as well as medical bills for injuries.
- Personal Injury Protection – PIP, for short, covers your medical bills and those of your passengers, no matter whose fault the accident was. This type of coverage is not available in some states, while others have mandatory PIP coverage. Florida, for instance, requires you to have PIP coverage.
- Uninsured/Underinsured Motorist Protection – this type of coverage is beneficial in states where relatively low minimum coverage isn’t enough to cover all the expenses of an accident.
How to Save Money on Car Insurance
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The cost of car insurance might seem high at first, but there are multiple things you can do to reduce your rates. First, look for possible discounts. There are many discounts available, and they are usually divided into three basic categories:
- Vehicle Discounts: This type relates to the vehicle’s features. For instance, cars with increased safety features are eligible for such discounts.
- Policy Discounts: Insurance companies will provide this discount if you combine various policies (insuring multiple vehicles or insuring your home and car). Your loyalty to the insurance company also provides discounts – the longer you are with them, the bigger the discount.
- Driver Discounts: Drivers who pose less of a financial risk are rewarded with discounts. You can get discounts for:
- Having “low-risk” occupations (engineer, scientist, teacher, nurse, pilot, first responder)
- Having a membership in certain associations (member of the military, an auto club, credit union, professional organization, etc.)
- Being a good student
- Being a senior driver
- Taking driver’s education
What Else Plays a Role in Determining the Cost of Car Insurance?
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Your driving behavior has a direct impact on your insurance premiums. Traffic infractions and accidents are likely to increase your premiums, while maintaining a clean record can help keep your insurance costs low. If you drive less than 7,500 miles each year, you can also reduce your premiums. Some insurance companies offer monitoring programs which evaluate your driving behavior; participation in these programs can lower your premiums if you are a consistently safe driver.
Modifying your policy can also help you save. For example, you may want to eliminate collision coverage if you own an old car. Consider increasing your deductible on both comprehensive and collision coverage. Shop around for quotes before you make a purchase.
Bundling your car insurance with another type of insurance, such as homeowner’s insurance, can also help you save money.
Other Tips to Help You Save Money
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Before you select a policy, find out what each policy will actually insure. Some plans only provide the minimum amount of coverage required by law; other policies may offer extra coverage, such as bodily injury, uninsured motorist protection, medical coverage and more. Depending on other insurance policies that you hold, this additional coverage may be redundant; removing it from your plan might help you save money.
Decide how much coverage you’ll actually need and eliminate policy riders that you don’t need. For example, if you belong to AAA, you can safely remove towing coverage from your policy. Increasing your deductible is a reliable way to reduce your premiums, if you can afford to do so. Finally, think carefully before you add in extras, such as courtesy car coverage or legal expense coverage; each of these additions can significantly increase your premiums.
Paying Insurance
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Most insurance policies give you the option between paying for the entire policy upon purchase or paying for the policy over time. If you can afford to pay for the policy at once, you’ll save money in the long run by doing so. Always pay your premiums on time; late payments may cause the insurance company to raise your premiums when you renew your policy.
Always be sure to keep your proof of insurance in your vehicle and update the cards whenever your policy renews; this is required by law in most states. Keep all other documents related to your insurance policy together in one easily accessible location.
Insurance Coverage Gaps
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Be aware of some common gaps in insurance coverage. Most insurance policies don’t cover items that are not a permanent part of your car; if a thief smashes a window and steals your smartphone or bag, your insurance may pay for the broken window, but it won’t reimburse you for your personal belongings.
If your vehicle is totaled before you’ve finished paying off your loan, your insurance won’t cover the remainder; your policy will pay you for the value of your vehicle at the time of the damage, but that might not equal the amount that you still owe on your loan.
Conclusion
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Car insurance might seem like a complicated subject, but paying attention to the details of your policy can help you save money while providing yourself with the level of protection that’s right for you.
What type of car insurance do you prefer?
Do you have any car insurance tips that could help others?