Learning to identify a good auto insurance policy and get the best deal starts with an understanding of some insurance terminology and background. This auto insurance guide can shed light on some of the lingo you will hear from insurance agents and others when talking about car insurance. Read on for information regarding discounts and other ways you can cut down your auto insurance costs. Knowledge is power!
INSURANCE MINI-GLOSSARY
Liability Insurance
Liability insurance is the minimum amount of auto insurance coverage required by every state in the U.S. This insurance protects drivers from having to use up all their personal savings and other assets to pay for damages and injuries caused in an auto accident in which they are held responsible. Liability insurance is really comprised of two different components: coverage to pay for bodily injuries for each person, with limits for each accident, and coverage that pays for damage to the other person’s car or other personal property. This type of insurance is typically stated as three numbers, such a 15/25/5. This translates to $15,000 of bodily injury coverage per person per accident; $25,000 bodily injury coverage for one accident total, and $5,000 of personal property damage coverage. This insurance does not provide any coverage to the policyholder; it only covers damage the policyholder has caused to others in an accident.
No-Fault Insurance
No-fault insurance, rather than being a type of insurance, is actually the way an insurance company chooses to settle claims. Generally speaking, if your insurance coverage is no-fault, the insurer does not need to know who caused the accident before paying out the claim. Certain states require no-fault insurance, and they also may restrict rights on the ability to sue other parties for damages. Regular insurance, on the other hand, always requires the insurance company that covers the at-fault driver to pay for losses from the accident.
Medical/Personal Injury Protection (PIP)
Medical coverage takes care of the medical bills and any funeral expenses for a covered driver or accompanying passengers. This insurance pays the bills regardless of who’s at fault for the accident. Also known as Personal Injury Protection (PIP), this insurance can cover you and your family members while you are in someone else’s car, or if you are hit while walking on foot. The medical payments have a cap that is chosen by the insured when they buy the policy. This coverage may be duplicative if you already have good health coverage from your employer or another source. Check for duplicate coverage — it’s one easy way to cut your auto insurance costs!
Uninsured and Under-insured Motorist Coverage
Don’t you hate it when other people drive without insurance? Most people do, especially if they get hit by someone who can’t afford to pay for the damage or injuries they caused. To protect yourself, you can purchase uninsured bodily injury and property damage coverage; in fact, some states require it. Insurance companies will also sell you the same type of coverage to cover the difference when an at-fault driver’s insurance only covers part of the costs for injuries or property damage. This is called under-insured motorist coverage.
Collision Coverage
This type of insurance coverage pays to repair your car or replace it if your car collides with another object or vehicle, or if it rolls over. The payment is limited by your car’s actual cash value, less the deductible amount you chose for the policy.
Comprehensive Coverage
Comprehensive insurance covers your car when it’s damaged by non-collision events. This includes fire, flooding, hail damage or a fallen tree. It also includes damage from hitting a deer in the road, or theft and vandalism. Just like collision coverage, the insurance payment is limited by the current market value for your car. If you have any after-market or non-standard equipment installed or a fancy chameleon paint job, you will not receive compensation for it.
Gap Insurance
Even if your insurance company pays off your car when it’s totaled after an accident, they may not pay as much as you owe on the car if it’s leased or financed. The insurance company has its own people determine the car’s fair market value. You may contest this value, but there is no guarantee you will change the insurance company’s mind. Gap insurance pays off any remaining balance of the car, after the insurance proceeds are applied.
SR-22 Insurance
An SR-22 is a certificate showing a person’s proof of insurance, or financial responsibility. People convicted of DUIs (Driving Under the Influence) or other severe traffic violations may be required to file this form with their Department of Motor Vehicles. They must carry at least enough liability insurance to meet state minimums if they want to continue driving, and their increased risk will also drive up their insurance rates. If they let their insurance lapse, the SR-22 filing requires their insurance company to inform the Motor Vehicles Department, which immediately suspends the driver’s license. Most states requiring SR-22 forms need it filed for three consecutive years. If allowed to lapse, the three-year period must be re-started from the beginning.
Agreed-Value Insurance
Agreed value insurance is worth mentioning because it applies to all kinds of cars that a traditional auto insurer will not cover. This type of insurance covers classic cars, street rods, custom cars, exotic cars, kit cars and even antique tractors. Your vehicle is appraised, and you and the insurance company reach an agreed-upon value for the car, which becomes your insurance policy’s coverage limit. Most of these policies require the car to be garaged securely the majority of the time, but some policies allow the car to be used for short commutes. If you own one of these types of cars and don’t drive that often, try agreed value insurance before a regular insurance company; you might find the rates are dramatically cheaper.
Optional Insurance Services
Auto insurance companies offer additional types of insurance that can be added on to your policy for a fee. For example, accidental death coverage can be part of your PIP coverage; this provides payment to a designated beneficiary if the insured dies as a result of injuries from an accident. Rental car reimbursement pays for a rental car if your covered vehicle is stolen or not drivable. Towing coverage is another common addition, paying a fixed dollar amount toward charges to tow your disabled car to a repair shop after a break-down or accident.
Mileage Monitors
Progressive Insurance and a few other auto insurers have started offering a new way to charge you only for the amount of insurance you actually use. You pay for the amount of time, or miles, that you log in your car each month. You must install a mileage monitor on your car, and the monitor communicates back to the insurance company, either via GPS or electronic technology. This could save a good amount of money on insurance, but be careful — some companies check your speed, braking and other driving habits and may actually place you in a higher risk category if they think your driving is unsafe, which could increase your rates.
ADDITIONAL INSURANCE INFORMATION
Discounts
Most auto insurance companies offer a selection of discounts. Make sure you ask your agent for all available discounts when buying your coverage. Accident forgiveness is a newer type of discount, which allows drivers to have one accident without getting their rates raised. Some companies discount your policy if you buy coverage online, and paying in full saves the monthly processing fees. Multi-car policies get discounts, and safe drivers and good students also usually get discounts. Some companies discount your auto insurance if you own your home; you can also get a discount for combining car insurance with your homeowner’s policy. Cars with an anti-theft recovery system and extra safety features get you discounted rates, and there are literally dozens of other discounts depending on the insurer and your state of residence, so don’t forget to ask.
Deductibles
Most types of car insurance ask you to select a deductible, which is a set amount of accident-related costs you agree to pay if you file an insurance claim. Your insurance prices will be significantly lower if you choose a higher deductible of, say, $1,000, but you will need to keep that cash set aside in case you do have an accident. The insurance company will require you to pay it before they pay for the rest of the damages.
State Auto Insurance Requirements
Every state has minimum auto insurance requirements. Most require liability insurance only, while some also require personal injury protection and/or uninsured motorist coverage. Each state’s Department of Motor Vehicles or insurance commissioner can provide the state’s minimum insurance requirements. Check your state’s DMV website, or view all state requirements at Insure.com. [ http://www.insure.com/car-insurance/minimum-coverage-levels.html ] Each state’s minimum requirements do not necessarily mean they offer enough coverage in the event of an accident. In many cases, you would be better off buying a higher level of coverage than the state minimum. If your car is financed or leased, you may be required to carry “full coverage” insurance — in other words, liability, comprehensive and collision insurance. The required coverage limits will also most likely be higher than the state’s required minimum.
Finding the Best Car Insurance Rates
Getting rock-bottom quotes is simply a matter of knowing what to do and what to ask for. Every insurer prices coverage differently, so definitely get multiple quotes. Consider buying one of the Insurance Institute for Highway Safety’s top safety pick cars, and try to find a job with a shorter commute. Keep your car garaged, and think about moving to a safer zip code. Paying your policy annually saves on monthly fees, and a clean driving record cuts risk and therefore rates. Keep your credit rating up — insurance companies are now relying more on this and raising rates for those with lower credit scores. Only buy coverage you need – if you drive an older car that can be replaced for a few thousand dollars, you probably don’t need to have comprehensive or collision insurance. This coverage only pays the replacement value for your car, and the insurance may cost more than your car is worth.
Start lowering your auto insurance costs now by letting us help you get quotes from several different insurers so you can comparison shop. Take advantage of our free quote utility; it takes just minutes to find out how much you could be saving.
