While most people know whether they have liability, collision and/or comprehensive coverage, few people pay much attention to their insurance coverage until after they've been in an accident. In this article, we'll go over car insurance coverage and give you some tips to help you get the most for your money.
The Basic Types of Coverage
Protecting your assets and your health are two of the primary benefits of car insurance. The following are the main types of car insurance coverage:
- Liability Insurance: This coverage pays for third-party personal injury and death-related claims, as well as any damage to another person's property that occurs as a result of your automobile accident. Liability coverage is required in all but a few states.
- Collision Insurance: This coverage pays to repair your car after an accident. It is required if you have a loan against your vehicle because the car isn't really yours in this case—it belongs to the bank, which wants to avoid getting stuck with a wrecked car.
- Comprehensive Insurance: This coverage pays for damage incurred as a result of theft, vandalism, fire, water, etc. If you paid cash for your car or paid off your car loan, you may not need collision or comprehensive coverage, particularly if the blue book value of your car is less than $5,000.
Additional Car Insurance Coverage
In addition to the coverage listed above, other optional coverage types include the following:
- Full Tort/Limited Tort: You can reduce your insurance bill by a few dollars if you give up your right to sue in the event of an accident. However, giving up your rights is rarely a smart financial move.
- Medical Payments/Personal Injury Protection: Personal injury protection pays the cost of medical bills for the policyholder and passengers. If you have good health insurance coverage, this may not be necessary.
- Uninsured/Underinsured Motorist Coverage: This option provides for medical and property damage coverage if you are involved in an accident with an uninsured or underinsured motorist.
- Towing: Towing coverage pays for a tow if your vehicle cannot be driven after an accident. If you are a member of an automobile service, or if your vehicle comes with roadside assistance provided by the manufacturer, this coverage is unnecessary.
- Glass Breakage: Some companies do not cover broken glass under their collision or comprehensive policies. In general, this coverage is not worth the long-term cost.
- Rental: This insurance option covers the cost of a rental car, but rental cars are so inexpensive that it may not be worth paying for this coverage.
- Gap: If you demolish that $35,000 sport utility vehicle 10 minutes after you drive it off the lot, the amount the insurance company pays is likely to leave you with no vehicle and a big bill. The same thing applies if your new set of wheels gets stolen. Gap insurance pays the difference between the blue book value of a vehicle and the amount of money still owed on the car. If you are leasing a vehicle or purchasing a vehicle with a low, or no, down payment, gap insurance is a great idea.
Factors That Impact Your Rates
In addition to the specific coverage options that you select, other factors that affect your auto insurance rates include the following:
- Your deductible: This is the amount of money that you pay out of your own pocket if you get in an accident. The higher your deductible, the lower your insurance bill. In general, a deductible of at least $500 is worth considering, as damage to your vehicle that comes in at less than $500 can often be paid without filing an insurance claim.
- Age: Younger, less experienced drivers have higher insurance rates.
- Gender: Men have higher rates than women.
- Demographics: Though actual risk is determined by the zip code you live in, city residents statistically have more accidents, which drives their premiums higher than those who live in rural areas. Additionally, more people living in an area means more claims, which is reflected in the higher premium prices in such places. If you've recently taken up residence in New Mexico, Alabama, Oklahoma or Florida, expect to pay higher premiums. According to the Insurance Research Council, these states have the greatest concentrations of uninsured motorists, which ultimately seeps into insured drivers' premiums.
- Claims: Accident-prone drivers pay more. If you want to keep your rates low, keep the number of claims that you file to a minimum.
- Moving Violations: Speeding and other moving violations all have a negative impact on your insurance bill. Obey the law to help keep your rates from rising.
- Vehicle Choice: Sports cars cost more to insure than sedans, and expensive cars cost more to insure than cheap ones do. Looking into the cost of insurance before you purchase that new car could help you save a bundle on your car insurance.
- Driving Habits: The number of miles that you drive, whether or not you use your car for work, and the distance between your home and work all play a role in determining your rates.
- Theft Deterrent Systems: If you have an alarm on your car, you'll pay less to insure your vehicle.
- Safety Devices: Airbags and anti-lock brakes both work in your favor by keeping you safer and lowering your insurance bill.
- Accident Prevention Training: Some companies offer discounts if you take a driver's education training course.
- Multiple Policies: If you have more than one car and/or also have homeowner or renter's insurance, keep in mind that many insurance companies offer discounts based on the number of policies that you have with them.
- Payment Plan: Some insurance companies offer discounts based on your payment plan. Paying your entire yearly bill at one time, instead of in installments, may lead to a discount.
- Credit Score: Good credit lowers your car insurance rates. Bad credit increases them.
- Not having auto insurance: If you ditched your auto insurance in an effort to save some money, you've committed a classic case of being "penny smart and pound foolish." Not having any auto insurance, even for just over 30 days, will cause your premiums to jump.
Tips for Lower Car Insurance
1. Compare Rates for Various Cars
If you are shopping for a new car, call your current insurance (or a new insurance company) to compare premiums for the cars. Car insurance costs vary because of the safety record, repair costs and likelihood of theft as well as the price of the car.
2. Avoid Gaps in Coverage
If you are switching policies, make sure you are completely covered at all times. If you let your insurance coverage lapse by forgetting to make the premium payments, your rates are likely to be increased.
3.Claim all Your Discounts
If your car has extra anti-theft or safety features such as anti-lock brakes, most insurance companies will give you a discount on your premiums. You may also be eligible for a discount if you have taken a defensive driving class or, if you are a student, you have good grades