How to Make Sense of Automobile Insurance

For many people, the process of buying automobile insurance is confusing. However, it doesn’t have to be when the terms and requirements are clarified.

The big question is: Why even buy vehicle insurance? That’s an easy answer. In almost every U.S. state, Canadian province, Europe, and the rest of the world, drivers are legally required to have auto insurance. Those involved in an accident without the required auto insurance risk financial disaster and in some cases jail time. So, it’s pretty simple. Buy the insurance or risk going to jail or going broke.

If thoughts about deductibles, premiums, comprehensive coverage and the myriad other insurance terms and requirements seem too complicated to understand, here’s a brief primer on how to make sense of automobile insurance.

What’s Liability Coverage?

If there is one insurance term that is most important to understand it’s liability coverage. The reason? This coverage is most often legally required and not having it can potentially cost the driver a great deal of money should he have an accident.

Liability coverage pays for the accidental bodily and property damage to others should an individual be involved in an accident. These injuries can be more complicated than one might think. They include medical expenses, pain and suffering and even the wages that another person loses because of the accident.

This coverage also covers the repair of the other guy’s vehicle and it pays for any court costs or attorney’s fees that might result from the accident. This is the most important auto insurance coverage and its cost will vary depending on where the driver lives.

Is Collision Coverage Necessary?

As a kid, going to the carnival or amusement park and riding on the bumper cars was a blast. There’s something about ramming other unsuspecting drivers that is almost irresistible. Unfortunately, when one of these collisions happens on the open road with a full-size car, it’s not so much fun and it can be extremely expensive.

In the auto insurance arena, having collision coverage means that the policy owner will be paid for all repairs due to any damage to his/her vehicle should an accident occur. The amount of collision coverage is usually related to just how cool (and expensive) the vehicle is.

Insurance experts suggest that one carefully considers the amount of money that it would take to repair a vehicle before deciding on an amount for collision coverage. If cruising around town in a new Ferrari a person might want to consider more coverage than if he is driving a 1980 Ford pickup.

What is Comprehensive Coverage?

Experiencing a hail storm while traveling in a car can be terrifying and loud! A hail storm can make an automobile look like a giant golf ball, complete with more dimples than the PGA would allow. Before going through one of these storms, it’s advisable to consider the costs and advantages of comprehensive coverage.

Comprehensive coverage pays the policy holder for the loss or damage of an insured vehicle which does not occur in an automobile collision. The types of damages that are covered by comprehensive coverage are flood, wind, fire, hail, vandalism or theft.

If one lives an area with a high incidence of dangerous or inclement weather, the premiums that are paid for comprehensive coverage would likely be well worth considering.  The costs for this type of coverage will depend on several factors including the type and value of the vehicle and the primary area where it is driven.      

Do You Need PIP Coverage?

If you’ve never heard of the auto insurance term “personal injury protection,” you might think that a “PIP” is one of those background singers who accompanied soul signer Gladys Knight. Here’s what PIP means from an auto insurance standpoint.

Personal injury protection coverage, or PIP, pays the medical expenses of the insured driver regardless of whose fault the accident might be. This type of coverage can be extremely important in accidents that lead to the long-term disability of a driver.

When someone is young, there’s a feeling of invincibility – nothing can possibly go wrong – and then an accident occurs and the world changes forever. It’s a good idea to check out PIP coverage, just in case.

 What is Uninsured or Underinsured Motorist Coverage?

The worst part of being involved in an automobile accident is the likelihood that the other driver has little or no coverage. It is in this case when uninsured or underinsured motorist coverage is invaluable.

As anyone who has had experience driving on high-traffic freeways knows, it’s dangerous out there, especially on the highway. Uninsured motorist coverage pays for the damages to a vehicle when the other driver has no liability insurance coverage. The other problem that arises is when a driver is judged guilty of improper driving, has an accident and has an insufficient amount of liability insurance to pay damages. With underinsured coverage, the damages to a vehicle are covered in spite of the negligence on the part of the other driver.

In a tough economy, many people are forced to reduce their spending on essentials, including liability insurance. If they happen to cause a collision, the liability for damages and medical coverage can be covered if uninsured or underinsured coverage is in place.

 Do You Need Rental Reimbursement Coverage?

It’s only when an auto is in the repair shop and unavailable that one notices how much they rely on their cars to get them where we need to go. Imagine how inconvenient it would be if the car was in a collision and unavailable for months while repairs are being made. The time to think about this is before the accident.

Most people would be lost without an automobile to get to work and complete all of their daily errands. Rental reimbursement coverage will pay for a rental car if one’s car is damaged in an accident. Usually, this rental car payment comes in the form of a daily allowance.

What’s a Deductible and What’s the Best Amount You?

One of the most confusing aspects of purchasing vehicle insurance has to do with deductibles.  Every car insurance policy has a deductible. This is the amount of the damages that the policy owner is required to pay after making a claim. After this deductible amount is paid by the policy owner, the remainder is paid by the insurance company.

The rate for auto insurance coverage is lowered by choosing a higher deductible amount. The amounts of these deductibles vary depending on the country, but they are usually in amounts of (US) $100, $250, $500 and $1,000. If repairs from an accident were to cost (US) $3,000 and the policy owner had a $500 deductible, the insurance company would pay $2,500 after the policy owner paid $500. Since the rate for auto insurance coverage is lowered by choosing a higher deductible amount, some consideration should be put into the appropriate amount for this deductible.

What Factors Determine the Price of Auto Insurance Coverage?

Just as airline passengers compare the price they paid for tickets, friends will often compare the price they paid for auto insurance. There are many factors that go into this calculation.

Anyone who drives a sports car will likely pay a higher rate for insurance than their neighbor down the street who drives a family sedan. Where one lives is also a consideration in the price of auto insurance. Living in an area that has a high crime or vandalism rate – which is often in an urban area – will result in paying a higher rate for insurance than someone who lives in a lower crime area.

If an individual drives more than average, she has a higher probability of getting into an accident. Consequently, the costs for auto insurance will be somewhat higher than for someone who drives a few times a week. Age, gender and marital status are all standard indicators for safer driving and if one is younger than 25, male and unmarried, he can expect to pay a higher rate for insurance.

Does the Rate for Auto Insurance Increase With Poor Driving?

Typical questions about vehicle insurance include queries about deductibles, requirements for liability insurance, comprehensive insurance and how claims are filed. However, the all-time most popular question involves the affect of poor driving on auto insurance rates.

Does a person’s insurance rate increase if they have an accident or receive speeding or traffic tickets? This answer is an unsurprising, yes. The follow-up question is usually something like: “well, why?” This answer to this is a little more complicated but infinitely logical upon closer consideration.

Insurance companies charge higher rates to people who have accidents and tickets because they are statistically higher risks. Law enforcement data collected over decades unequivocally prove that the chances of having an accident increase, based on the number of tickets and accidents the individual has had.

Why Risk It?

Purchasing vehicle insurance is a tedious task because of all of the choices that the marketplace offers. It can also be expensive – especially if one has the misfortune of being a 19 year old male. However, not having basic insurance coverage, such as a liability policy, and then being involved in an accident can be financially ruinous. Don’t wait until the officer says: “Can I see your license and proof of insurance please?”