Insurance, is one of the more interesting financial decisions that is made each year by consumers. Whether it be auto, health, life or the many other kinds available, the options, features and pricing can be a bit overwhelming. Essentially, you are paying insurance companies every month to protect your family, yourself, and those around you from, well, your family, yourself and those around you. Auto insurance rings particularly true in this instance as the money you pay every month is to protect you, your vehicle and those that could be damaged as a result of your vehicle.
The goal of this article (and the one that follows) is to help you find the best auto insurance available at the best rate. To do that, let’s first cover a few key definitions and describe the different coverages available to you. We can then give you some tips on how to compare auto insurance to find the lowest rate possible.
Even though car Insurance dates all the way back to 1898, Massachusetts was actually the first state to make it a mandatory requirement in 1927. As you can see from the chart below (notated in thousands of dollars), all 50 US states require some form of liability auto insurance and the variance between states can be quite large. If you live in Florida (Woo Hoo!), your requirements are much less than that of an Alaskan resident. But what do all of these numbers mean?
You will notice right away that each state requires three different amounts. The first number refers to the coverage for an individual injured in an accident. The second number refers to the total amount of coverage for all people injured in an accident, both of which are known as “Bodily Injury Coverage“. So for example, if you were to live in the state of Missouri and you carried the minimum amount of bodily injury coverage and you run over two people with your automobile, your insurance company could provide the injured up to $25,000 a piece in damages. If those injured require more than what your insurance company provides, you can be sued for the difference. Also, should more than two people be injured in the accident, making the total claim higher than $50,000, you again can be liable for the difference.
The third number represents the amount of coverage for property damage caused in an accident which is simply referred to as “Property Damage Coverage“. This is less likely to happen of course but if you are unfortunate enough to drive into buildings or ruin expensive pieces of property, this is where Property Damage Coverage comes in handy.
The numbers you see above are only the minimum amounts of coverage required by law. If you are dealt the terrible hand of injuring someone or something with your automobile, the small amounts above will likely fall way short of covering all bills and expenses. Happily, auto insurers provide larger amounts of coverage, for a higher price of course, depending on your risk factor, which we will dive into shortly. The coverages above protect everything that isn’t you or yours, which is why it is known as liability insurance. Any damage caused to yourself or your automobile will not be covered by your auto insurance company unless you carry things known as “Collision”, “Comprehensive” “Personal Injury Protection” and “Uninsured and Underinsured Motorist” coverages.
Collision Insurance covers damages to your automobile when you are involved in a collision with another vehicle or object. If you are involved in a crash and are carrying collision coverage, your auto insurer will pay to fix your automobile following the below provision:
- The damage sustained to your car is less than the determined amount of your vehicle: For example, if you are driving an old Dodge Dart worth $1,000 and your insurer’s body shop feels it would cost $5,000 to fix it, the insurance company will NOT pay $5,000 to fix it. Instead, they will only pay what the car was worth at the time of the collision. In this particular instance, an insurance company cannot allow for you to come out ahead, so spending $5,000 to fix something previously worth $1,000 is not going to happen.
Also included in this coverage is what is known as a deductible. A deductible is the amount the insured must pay for the first (x) amount of damages, then the insurer pays the rest up to the maximum allowed by the policy. The higher the deductible, the lower the monthly cost of the collision coverage. An important note about deductibles is that they occur on each claim made, not within each policy renewal or yearly. Unlike health insurance, if you are in two accidents and file two claims this year and have a $500 deductible, you will pay that amount for EACH accident.
Comprehensive Insurance covers damages to your automobile for almost everything that is not covered in collision. Fires, floods, acts of nature, deers running across the street and theft are just a few reasons motorists would carry comprehensive insurance. Some auto insurance providers require you to carry collision if you want to carry comprehensive, which is another reason why you need to do your homework on auto insurance quotes. Like collision, a deductible needs to be chosen if you wish to carry comprehensive coverage.
Personal Injury Protection, commonly known as PIP coverage, is similar to the liability coverage we discussed earlier. This insurance, however, covers you, the passengers in your vehicle, other authorized drivers on your policy and in some cases the pedestrians on the street if they are injured in a motor vehicle accident. The amount of your coverage is structured like that of the liability insurance chart above where you are covered up to a certain amount. The more you wish to pay on your premiums to provide this coverage, the higher the limit.
PIP coverage is not available in all states and currently there are 16 states classified as no-fault states that make PIP coverage mandatory. Those states are Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania and Utah.
Uninsured Motorist Insurance and Underinsured Motorist Insurance are forms of coverage that may be necessary if you are not carrying health insurance and/or you are always transporting other passengers in your vehicle. You might be wondering why you would carry this coverage because if someone hits your car and is at fault, they are responsible to cover all of your expenses. While that statement is 100% factual, the truth of the matter is that they may be carrying the minimum liability requirements of their state. If your medical bills, expenses, lost wages and other damages exceed their coverage, your only available option is to sue them for the difference. A lawsuit can take a good amount of time to be processed. And even if you win, there is no guarantee that you will collect the money you are owed. As the saying goes, “you can’t draw blood from a stone”, so having your insurance company make up for the difference might be a wise decision.
Logic would tell you that if a driver does not have auto insurance, then he or she probably doesn’t have much money to compensate you for the damages he or she caused. If you are injured by an uninsured motorist, recouping those funds may be impossible. Uninsured and Underinsured motorist coverage is generally the least expensive of the coverages outlined in this article, so it might be a solid investment.
So, now that you know what kinds of coverages are available to you within an automobile insurance policy, it’s time to determine the right amount of coverage for you and your family and how to find the best price for that coverage. We’ll cover these issues in the next article in this series.