Why do I need auto insurance?
In the event of an accident, auto insurance provides legal and financial protection for you, your spouse/relatives who live in your household, and others who have permission to drive one of your insured vehicles. Your policy can provide coverage for bodily injury and/or property damage that may be incurred during an accident. In no-fault insurance states, your policy can provide this kind of coverage no matter who is at fault for the accident.
What should I insure?
Most states require auto owners to purchase a legal minimum amount of liability insurance. However, there are other issues beyond this requirement to consider when tailoring your auto policy to your needs. In addition to protecting yourself when you do damage to others, you may want to consider insuring:
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- Damage to your car.
Your car may be damaged by collision with other objects, or by vandalism, theft, broken glass, storms or falling objects. Collision and Comprehensive insurance can help cover the repair costs associated with these accidents.
- You and your passengers against uninsured or underinsured motorists.
If someone who either doesn't have insurance or doesn't have enough insurance to cover the accident hits you, uninsured motorist coverage and underinsured motorist coverage may provide you with additional protection to cover auto repair and medical costs. In some states, this coverage is mandatory.
- You and your passengers for medical costs.
Your policy may provide coverage for reasonable and necessary medical and/or funeral expenses incurred as a result of injuries sustained in an accident if you purchase medical payments coverage and/or (if available in your state) personal injury protection coverage.
- Towing and rental reimbursement.
You may purchase coverage that will reimburse you (up to a specified limit) for the costs of emergency transportation resulting from an accident. This could include transportation from the place of the accident to a repair shop to your original destination, or transportation while your car is in the shop. This coverage does not apply to the towing of an auto due to a parking violation.
What type of coverage do I need?
Most states require that you carry a minimum amount of liability insurance. Liability insurance pays damages for which you may be legally liable due to the ownership, maintenance or use of your car. This coverage is sometimes expressed as a single number (single limit), or a string of three numbers (split limit), representing the limits to which you are covered. In split limit liability, the first number is the amount for which you are covered for any one person you injured in an accident (Bodily Injury/person). The second number represents the total amount for which you are covered for all persons inured in any single accident (Bodily Injury/accident). The last number is the amount for which you are covered for any damage you may have caused to another's property (Property Damage).
Although there are state minimums for liability insurance, you may want to consider purchasing more than the required amount. Remember, make sure you can afford the risk you are taking; you don't want to be caught short by a lawsuit and the expenses necessary to defend yourself.
When buying automobile insurance, in addition to liability insurance, you usually are buying a package of several different coverages to meet all of your individual auto insurance needs. The typical coverages to choose from are:
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- Bodily Injury (BI)
Bodily Injury (BI) coverage provides for your legal defense in the event of a lawsuit and for payment of whatever settlement is made - up to the limits of the policy.
- Property Damage (PD)
Property Damage (PD) liability insurance works the same way as BI, only it covers damage to other people's property.
Collision coverage pays you, regardless of fault, for damage to your car if it should hit something (other than bird or animal) or turn over. The amount of coverage is limited to the value of your car at the time of the accident, less your deductible. If you suffer property damage in a collision that was not your fault, you may use your collision coverage to repair the damage or you may collect for damages from the other driver's collision coverage (if he/she has any).
Comprehensive coverage reimburses you in the event of damage caused by fire or theft, glass breakage, falling objects, missiles, explosions, earthquake, hail, water, flood, vandalism or bird or animal. You may also be entitled to payment for personal belongings that were in the car that were damaged or stolen, and for reimbursement for a rental car for a limited period of time.
- Medical Payments
Medical payments coverage pays medical expenses that you and all members of your family living with you may incur if hit while in a car as either a passenger or a driver. It also covers guests riding in another's car you are driving with the owner's permission. Typical limits are $1,000 or $5,000 per person. If your family already has good medical insurance, you can save money by skipping this coverage.
- Uninsured/Underinsured motorist
Uninsured/Underinsured motorist coverage protects you, family members living with you and guests riding in your car, if injured through the fault of an uninsured or hit-and-run driver, or one whose insurance company goes broke before settling your claim.
- Personal Injury Protection (PIP)
Personal injury protection (PIP) is offered/required in no-fault insurance states. Coverage may be just a few thousand dollars up to $1 million in medical expenses and certain other benefits (i.e. death/funeral expenses, medical expenses, or loss of work), depending on the state. In addition to PIP, you will probably still need liability coverage in no-fault states, as you can still be sued if the injury you caused another exceeds a certain threshold of severity.
Do I need to wait until my policy comes up for renewal to switch insurance companies?
You can change insurance companies anytime, but in some states, you may be hit with a short-rate penalty for switching carriers before your policy expires. Check with your current insurance company before switching to determine if you'll be penalized. If so, do the math. Often the savings you realize from moving to another insurance company will offset any mid-term cancellation penalties. You can use your current coverage information to get a quote with another insurance company.
How can I reduce my auto insurance rate?
Auto insurance can be expensive, but with a little planning you may be able to reduce your costs. Take a few moments to see if any of these scenarios will help you get the coverage you need at a lower rate:
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- Choose the highest deductible you can afford
Paying someone to take risks you could afford to take yourself is paying for something you don't need. If you self-insure the small stuff, you save the hassle of filing a claim, submitting estimates, and you won't be paying for the insurance company's overhead or fraudulent claims. One note of caution, however, is to make sure you can really take the risk. Only choose a deductible as big as you can actually afford to pay.
- Consider skipping some coverage altogether
The biggest way to save is to not buy collision or comprehensive coverage at all, but this may not be the best option for everyone. Usually, this tactic only makes sense for owners of older cars with low resale values. Remember, only opt out of coverage if you can afford to pay it yourself should an accident occur.
- Ask for a discount
Many auto insurers offer discounts - if you ask. Often the higher-priced companies offer the most discounts, so keep your eye on the bottom line. Your insurer may offer discounts for:
- Policyholders of auto and homeowners insurance from the same company.
- Graduates of driver's education programs.
- Teenagers with good grades.
- Families with younger drivers going away to school.
- Families in which the only driver is a woman aged 30 to 64.
- Vehicles driven less than 7,500 miles a year.
- Vehicles equipped with air bags and anti-theft devices.
- Drivers who carpool.
- Drivers who insure two or more vehicles.
- Drivers who haven't been at fault in an accident in the past few years.
- Buy used cars
As everyone knows, the minute you drive a new car off the lot, it decreases substantially in value. To many people, the excitement of a new car is worth the extra money. Financially, however, it may be smarter to buy a good used car. You'll have less to insure and will lower your insurance costs. Someone who regularly buys used cars instead of new ones could save a considerable amount of money over his or her lifetime.
- Buy cars that aren't expensive to insure
Whatever kind of car you want to buy, it's worth the time to research what it will cost to insure. You can do this by calling your insurance agent or shopping for a quote on the Web. If economy is on your mind, be sure not to accidentally buy a car that's on insurers' "frequently stolen," "easily damaged," "expensive to repair," or "favored by reckless drivers" lists.
- Drive defensively
You'll save on insurance if you have a clean driving record and no accidents. It's not enough just to drive lawfully. Involvement in an accident, even if you were blameless, is often a strike against you when your rates are being determined.
- Take a course
Some states require insurers to give a discount for those who have completed a Defensive Driving course administered by the National Safety Council. Check with your insurer to see if there's a discount available and for help finding the course. (You can also call the National Safety Council at 1.800.621.6244 to find the nearest course location.)
What should I do if I have an accident?
If you have an accident, take your time to gather the information you will need to cover a claim correctly and quickly. Summon the police to file a report. Get the license and insurance information of the other driver, and the names, addresses and phone numbers of as many witnesses as possible. Write down everything you can remember about the accident while it's fresh in your mind. Call your insurance company or your agent right away. Finally, start a file for all the paperwork that will accumulate. Don't throw anything out. Make brief but clear notes of all your contacts with the insurance company, body shop, health care providers, lawyers, and anyone else involved, and keep all the information in the file for quick and easy access. You should retain this information for three to five years until the claim clears your record.
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