Friday, August 30, 2013

You have the car you want, now you must decide on the insurance coverage you need. Deciding on the right type of car insurance can be very confusing, but important. Your amount and type of protection depends on the type of coverage you purchase.
Be careful when choosing coverage. Car insurance terminology can be misleading. For example, full coverage insurance isn't truly full coverage. It usually means physical damage coverage. Full coverage insurance is usually a combination of collision and comprehensive coverage. Collision insurance covers damage to your car caused by a collision with another object. Comprehensive insurance covers damage to the insured car from theft, broken glass, vandalism, and weather damage.

Your insurance policy should cover the costs of repairing your car after you pay your deductible, which is decided when you purchase your coverage. For a lower payment, choose a higher deductible and vice versa.

Full coverage usually covers towing, rental reimbursement, uninsured motorist coverage (which is when an uninsured driver damages the insured car), and medical payment coverage. All of these are subject to the specific insurance company's coverage.

When choosing your car insurance, consider the condition of your car. For older cars, full coverage might not be the most affordable solution, especially if the cost of the insurance exceeds the value of your car. However, if your car were new, full coverage would be the best coverage because it would cover repairing or replacing the car.

Once you have your car, you need to take care of it by buying the right type of insurance. With full coverage insurance, you get the protection offered by collision coverage and comprehensive coverage. With all insurance policies, make sure you read the terms and conditions. All of them can vary on specific coverage and limitations.

Understand the basics of auto insurance

Choosing auto insurance that fits your needs and the needs of your family is important, so get to know the basics. Here you'll find information about auto insurance and answers to some common questions. If after reviewing this material, you still have questions, use our handy "What's Your Question" button on the right.

What is auto insurance?

Auto insurance is meant to protect you if you cause injuries to others or damage their property in an auto accident. It can also provide protection if your car is damaged in an accident or is stolen. What protection you have is spelled out in your auto insurance policy.
An auto insurance policy is a contract between you and an insurance company. You, the customer, pay a certain amount ("premium") to the insurance company in exchange for a set of coverages you selected. Your policy sets forth what the insurance company will or will not cover.

What does auto insurance cover?

At a high level, auto insurance typically provides four basic things—liability coverages (for injuries to others and damage to their property), coverage for damage to your car or cars, coverage for medical expenses and uninsured motorist coverages (for situations where someone without enough insurance injures you or a family member). There are a variety of coverage options available; they may vary by state and company.

What are the common auto insurance coverages?

Below are some simplified descriptions of common auto insurance coverages. All coverages are subject to the limits, terms and conditions of the actual policy you purchase.
  1. Bodily injury liability coverage generally pays damages for bodily injuries to the driver and passengers of the other vehicle when you are responsible for an accident. It also provides coverage to defend you if you are sued because of an auto accident.
  2. Property damage liability coverage generally pays for damages to another person's property (e.g. their car) when you are responsible for an accident. It also provides coverage to defend you if you are sued because of an auto accident.
  3. Medical payments coverage generally covers you, household relatives and your passengers for medical expenses that result from injuries sustained in an auto accident. It also covers you as a pedestrian if you are hit by a vehicle.
  4. Some states have personal injury protection (PIP) in place of, or in addition to, medical payments coverage. This is also known as no-fault coverage. PIP can generally pay for medical expenses, funeral expenses, loss of income and other expenses for injuries or death due to bodily injury sustained as the result of a car accident.
  5. Uninsured or underinsured motorist bodily injury coverage generally pays for damages for bodily injury to you and your passengers when caused by another in an auto accident and the person legally responsible either has inadequate or no insurance. This coverage varies greatly by state. In some states it may be a combined coverage, while other states may offer it as two separate coverages (e.g. one for uninsured motorists and one for underinsured motorists).
  6. Collision coverage generally pays for damage to your car if it hits another car, object, or overturns. A deductible applies to this coverage.
  7. Comprehensive coverage generally pays for damage to your car if it is stolen or damaged by certain causes other than collision, such as fire, theft, hail or vandalism. A deductible applies to this coverage.

What should I consider when purchasing auto insurance?

When purchasing auto insurance, make sure you find coverage that fits your needs. Think about you and your family's specific circumstances, including your risk tolerance and your budget. If you aren't sure what type of things you should consider, read below. Or, get help by working with an insurance agent or by calling an insurance company directly. You could also use our Auto Coverage Guide. Below are a few simple questions to help you start evaluating your needs.
What is my household salary? What are my assets? How much in savings and equity do I have?Generally, the higher your salary and net worth, the more you stand to lose if you are ever found liable for an accident. The more assets you have, the more coverage you might want to consider.
How old is my car and how much is it worth? Do I own my car outright or is it leased or financed?The model year and original cost of your car helps determine the approximate value of your car today. If the value of the car is low and you own it outright (i.e. no loan or lease), you may want to think about whether you really want comprehensive or collision coverages. On the other hand, if you lease or finance your car, your lender or car dealership probably requires comprehensive and/or collision coverage.
How much am I willing to pay out-of-pocket?Deductibles are applicable to certain coverages, such as comprehensive and collision coverages. In the event of a loss, a deductible is the amount that you must pay out-of-pocket before your insurance kicks in. A higher deductible could lower your premium.
Do I have health insurance?Auto insurance can include medical payments coverage for you and your passengers. If you don't have your own health insurance, you should consider purchasing some type of medical payments coverage on your policy.
Do I have children of driving age?Children are generally more inexperienced drivers and can present a greater risk on the road. If you have children of driving age, you might want to consider purchasing higher limits of liability coverage.

What does an auto insurance policy consist of?

An auto policy generally consists of three main parts, which together, form your auto policy:
  1. Declaration page - the declarations page (or "declarations" or "dec page") displays information specific to you and your policy. This will usually include the name of the policyholder, your policy number, the policy term, limits of liability and deductibles you selected and the policy premium. It can also display other items such as discounts applicable to your policy, other drivers on your policy and specific vehicles insured. In addition, it will show the other documents that form your policy (in other words, it will tell you what base policy and endorsements make up your policy). The declarations page is usually longer than just one page.
  2. Base Policy - this document spells out the basic provisions of the insurance coverage and the responsibilities of the insurance company. It also sets forth your responsibilities, which include paying your premium and telling the company when you are in an accident.
  3. Endorsements - endorsements alter the base policy, just like an amendment alters a contract. Endorsements can add, broaden, limit or delete coverage or change the base policy in any other way.

It is important to read your declaration page, base policy and any applicable endorsements together, as they collectively form your insurance policy.

Note, auto ID cards, which generally arrive with your policy, do not actually form part of the policy. Rather, they provide a convenient way to show that you have insurance. They contain some basic details about your policy, such as your policy number, policy effective date and the specific vehicle insured. Some states require that you keep these in your car as proof of insurance.
This is the third part in a short series about insurance basics. In the first part, I explained how insurance works. In the second, I shared some general tips about how to save on insurance of all types. Today’s article offers info about auto insurance.
Car insurance protects you financially.You’ve had car insurance since you were old enough to drive, but how much do you really know about it? At its heart, your policy probably contains a few basic types of coverage.
Liability insurance
In most states, you at least need to have liability insurance, which covers the cost of any damage you do to other people or things with your car. (But note that liability insurance doesn't cover injuries to you or other people on your policy; for that, you need PIP insurance, which I’ll cover in a moment.)
Insurance companies like to quote liability coverage as a series of three numbers, like 50/200/25. If that’s Greek to you, here’s a break-down:
  • The first number is how much, in thousands of dollars, the policy will pay for each person (besides you) injured in an accident ($50,000 in this example).
  • The second number is the total that the policy covers for each accident ($200,000 here).
  • And the last number tells how much property damage will be reimbursed ($25,000 in this case).
But there’s more to auto insurance than just liability coverage.
Tip: Many experts recommend that you carry automobile liability insurance coverage equal to your net worth — the total value of everything you own. This can be expensive to do on individual policies. Instead, it may be more cost effective to buy an umbrella policy, which gives you extra liability coverage above what your home and auto policies provide. I don’t know much about umbrella policies, but I’m actually hoping to learn more about them. If you’d like, I can share what I learn. must checkout Why Auto Insurances in Important
Collision and comprehensive insurance
As you can probably guess, collision insurance covers damage to your car when it hits (or gets hit by) another vehicle or object. But because collisions aren’t the only way for your car to get banged up, comprehensive insurance covers damage from events other than collisions: floods, fire, theft, alien invasion, and so on.
Collision and comprehensive coverage make more sense for newer vehicles, and are generally required if you’re still making payments on your car. They’re less necessary — and may actually be a waste of money! — on older cars. So, if you’re still driving around that 1970 AMC Gremlin, ditch the collision and comprehensive.
Personal injury protection (PIP) insurance
PIP insurance is sometimes called “no-fault” insurance and is required in certain states. It covers medical costs (and possibly lost wages) if you’re injured in an accident. Your policy may also cover passengers and pedestrians.
Uninsured motorist insurance
No surprise here: Uninsured motorist insurance covers you and your passengers if you’re in an accident caused by a driver who doesn’t have insurance. It also covers hit-and-run accidents.
Tip: For more on the different types of auto insurance coverage.
How to save on car insurance
Every year, you spend hundreds — maybe even thousands — on car insurance, and chances are, you’re paying too much. The August 2008 issue of Consumer Reports estimated that the average family could save $65 per month by shopping around for car insurance.
Last week, I gave some general tips to save on insurance of all types. Here are some other ways to lower your costs on car insurance:
  • Ditch towing coverage. Towing — or “emergency roadside service”, as it’s sometimes called — is an easy cost to self-insure. (You likely pay $10 to $30 a year for towing insurance, and one tow costs about $100, which you can save quickly by not paying for towing insurance.) Sometimes your car will break down, but if it’s well maintained, that won’t happen often. Also note that if you’re in an accident, towing is usually covered under collision insurance — but check your policy to be sure.
  • Plan ahead. Compare auto insurance quotes before you buy your next car. Insurance costs are based on how likely a car is to be stolen, damaged, or to inflict damage, and how badly occupants tend to be hurt in accidents. Repair and replacement costs are also factors. Many insurance companies list cars with lower insurance costs on their websites.
  • Watch your credit. Most insurance companies now look at parts of your credit report to determine your premiums. This sucks, I know, but parts of your credit history have been found to correlate to what the company has to pay out. They can’t adjust your rates on yourcurrent car if you pay on time and in full, but anytime you add a new vehicle, its premiums can be affected by your credit.
  • Don’t pay monthly. Insurance companies charge a few bucks each month for monthly billing. To avoid that fee, pay every six months or even once a year, if possible. If you have to pay monthly, use your insurance company’s autopay program, which costs less because they don’t have to send you a paper bill.
Though it’ll always cost more to insure a new Corvette than a used Corolla, one of the best ways to keep costs low is to maintain a clean driving record. Insurance companies charge you based on how likely you are to file a claim — and accidents are the biggest source of claims.
Some insurance companies offer discounts for taking safe-driving courses. Others give low-mileage discounts — the less you’re on the road, the less likely you are to be in an accident. Be sure to ask about all the discounts you qualify for!
It is extremely important that you have Auto insurance so that you can protect yourself in case you have an accident. It not only protects you, but it also safeguards others that may be riding in your Auto. In addition, Auto insurance covers family members that may also drive the Auto.
Auto insurance does not just protect you. If an accident occurs, the insurance covers you, your vehicle, and any other people that may have been involved. There are different policies that you can purchase depending on what amount of coverage you want. For example, you can choose to guard yourself against accidental harm, burglary, and fire. Your insurance agent can help you choose the policy that meets your needs and your budget.

auto insuranceYour monthly payment is known as a premium. The premium is determined based on factors such as they type of Auto driven, age, sex, and your past driving history. If you drive a luxury sports Auto, then you can expect to pay a higher premium than someone driving a lower cost vehicle.

A deductible is the amount of money that you are required to pay if you have an accident. The insurance company will pay for the cost of the repairs, but you must pay for the initial deductible. If the accident was caused by the other driver, then their insurance company may be responsible for paying your deductible.

It is important to make sure that you are covered by Auto insurance because if you are not, then the expenses to repair your vehicle can be really high. You will also be responsible for paying the other party's damages as well.

There are many insurance companies to choose from. Do your research to find a company that will offer fair rates and full coverage. Researching the insurance companies online is a great way to find out the information that you need. By reading reviews and learning about the guarantees and services that are offered, you will be able to choose a Auto insurance company that will work for you.