Understanding the costs and benefits of different plans can help you decide what works best for you.
Auto insurance can seem like an expensive necessity, but the benefits of being covered are well worth the cost. Auto insurance is more than just a requirement in nearly every state. Being covered can protect you financially in the event of damage or accidents.
While the basic idea behind car insurance is simple, things can get a bit more confusing in practice. A single auto insurance policy probably includes several types of coverage, all of which offer different types of benefits in return for higher or lower premium payments. It’s important to understand what the different types of insurance cover—and what they don’t—so you can make sure you get exactly what you need.
Premiums, deductibles and other costs
Any type of car insurance you choose will come with regular premium payments to keep your coverage active. The amount of your premium depends on many factors, such as age, driving record, your vehicle’s make and year, and the type of coverage you decide to get. The national average car insurance premium is about $900 a year.
Types of coverage
Nearly every state requires you to carry a minimum amount of auto insurance to cover the cost of damage or injuries caused by your car if you get into an accident. Of course, not all accidents are created equal: it’s possible to wind up with damage that isn’t covered under a minimum policy. That’s where additional options come into play.
Liability insurance covers drivers if they are at fault in an accident. It covers the cost of any damage you do to other vehicles, people or property. It can also protect other assets, like your house and savings, if you get sued because of a covered accident. Be aware, however, that liability insurance does not cover any damage to your own vehicle.
This type of coverage doesn’t typically have a deductible, which means that it applies from the first dollar that you’re required to pay. However, if you carry insufficient liability limits, you may still need to pay out of pocket for damages that exceed the limits you have purchased. Your insurance agent can help you determine how much liability coverage you should need.
There are also specific types of liability coverage:
- Body injury liability covers costs associated with injuries or death in an accident you cause.
- Property damage liability covers damages to property you are liable for in an accident you cause including cars, buildings or fences.
Premium payments for liability coverage depend on the maximum amount of money your insurer will pay out in an accident. For example, your policy may cover up to $100,000 in bodily injury per person and $50,000 in property damage per accident. Some states set minimum amounts, but you can always purchase more. The higher the limits, the higher the premium. When it comes to liability insurance, it’s also important to remember that any costs to an injured party beyond your policy’s limit will be your responsibility.
Medical payments or personal injury protection (PIP) covers medical expenses for you and your passengers. This type of coverage may also reimburse you for lost wages if you have injuries that cause you to miss work.
Uninsured and underinsured motorist coverage protects you if you get in an accident where you are legally entitled to collect from an at-fault driver who is not insured or not sufficiently insured, or flees the scene before you can identify them.
Comprehensive and collision insurance covers the damage done to your own car. Collision insurance covers damages if you crash into an object like a tree, guardrail or another car. Comprehensive insurance pays out if your car is stolen or damaged in other ways, like from storms, vandalism, floods or falling objects.
Comprehensive and collision insurance are typically sold together, and in most cases you’ll have to pay a deductible before your coverage kicks in. For example, if you file a claim for $3,000 in damages and your policy has a deductible of $1,000, you’ll be on the hook for $1,000 and your policy will cover the rest. The higher your deductible, the lower your premium payments and vice versa.
This level of coverage is usually more expensive than liability coverage but can be a good fit if you’re driving a newer car, especially if you’re still making payments on it.
How to choose the right coverage for you
In addition to deciding the type of insurance you want, you’ll have to figure out who you want to buy it from. Working with a local agent gives you the benefit of personalized service with someone who is familiar with the type of insurance that works best in your area. Look for an agent who is willing to help you figure out the best fit for you. They should also be available for questions and concerns after you’ve bought your policy, both to assist you in filing claims and to help revise your policy choices as your needs change.
When you’re pricing auto insurance policies, it may be tempting to take the cheapest coverage option available. But not having the right level of coverage for your needs could cost you in the long run. Knowing the types of insurance available and working with a good agent can help you make the right choice for your specific situation.