Auto Insurance - Learn Basics and Compare Rates
By Julie Bawden-Davis | Money Rates Columnist
When disaster strikes on the road, your auto insurance policy should be ready to protect you against financial losses. But choosing the best auto insurance policy for you requires understanding the various facets of common policies.
There are two common types of auto insurance, and choosing between them involves considering your monthly budget, vehicle cost and driving record (continued below):
1. Liability insurance
If it's determined that you are legally liable for an accident, liability insurance protects you financially by covering the cost of vehicle repairs, medical expenses, property damage, and other expenses for the other parties in the accident.
All states require that drivers purchase a minimum amount of liability insurance, but it is often advised that you carry more insurance than is required.
Two types of liability insurance comprise the typical policy:
- Bodily injury liability This offers financial protection in the event that you are responsible for the injury or death of an individual because of your driving.
- Property damage liability This pays for damage caused to another person's property by your vehicle.
2. Collision and comprehensive insurance
Unlike liability coverage, the cost of repair damage to your car is covered under collision and comprehensive insurance. Collision refers to damage that occurs to your car as a result of an accident while the vehicle is in use. Comprehensive is a catch-all coverage that pays for a wide variety of potential damage to the car, including vandalism, theft and natural disasters.
A deductible of $250 to $1,000 is often applied to collision and comprehensive insurance, which means the insurance company doesn't make any payments until you pay this predetermined amount toward the repair.
While you may likely want collision and comprehensive insurance when your car is newer--and it's generally required if you're still making payments on it--you may not want such coverage if your car is older and less valuable.
In the event that the vehicle is totaled, the insurance company only pays you the actual cash value of your car, and if the car isn't worth much, you may be better off investing that money in high-yield savings accounts or another sensible investment. Then you can use the money to pay for a new car if your old one becomes unusable after an accident.
Car insurance cost factors
Regardless of whether you choose liability or collision, these factors can all affect the amount you pay each month for car insurance:
- Driving record The better your record in terms of traffic convictions and accidents, the lower your insurance premium will usually be.
- Car model Certain types of cars are considered riskier because they cost more to repair, are more attractive to car thieves or become involved in more accidents.
- Age Drivers under the age of 25 and over the age of 65 statistically have more accidents, so their rates tend to be higher.
- Gender Young men are typically involved in more accidents than young women, and their rates reflect this.
- Where you live Insurance companies also consider location when it comes to factoring accident rates and repair costs.
- Marital status Young married drivers tend to have fewer accidents than young single drivers, and they enjoy lower premiums because of it.
- Academic performance Student with good grades may also pay less for car insurance.
- Auto features Items such as anti-theft devices, air bags and anti-lock brakes can reduce premiums as well.
To gauge your auto insurance pricing options, obtain quotes from several insurance companies. By comparing rates and reviewing features on multiple policies, you can increase your chances of getting the best deal possible on car insurance.