For the new driver, understanding and purchasing auto insurance for the first time can be a difficult process. Regardless of the minimum coverage offered by nearly every auto insurance provider, deciding on the additional costs of extra coverage can be like understanding a whole new language.
Even those who have driven for decades without so much as a parking ticket may have a difficult time looking beyond price when searching for auto insurance quotes. Does comprehensive coverage really matter after the car loan gets paid off? More importantly, is the stuff inside your car actually worth covering?
From someone who has done everything from watch a car catch on fire off an Amish highway, to dealing with the aftermath of a vehicle collision, I understand how difficult it may be to determine just how much auto insurance is needed to properly cover your car. However, by taking some time to understand what coverage is and how it affects your personal situation, everyone can make sure they are properly covered in the worst case scenario.
What is minimum coverage?
By definition, “minimum coverage” is the least amount of liability insurance every driver of an automobile is required to have under state law. In terms of auto insurance, the actual meaning of “minimum coverage” varies from state to state. While some states only require drivers to hold bodily injury and property damage liability insurance, others require drivers to also hold additional coverage, including uninsured or underinsured driver coverage, and personal injury coverage.
Before settling on purchasing just the “minimum coverage” auto insurance, consider what is required by your state, as well as any requirements your car loan company may have. Lienholders often require car owners to purchase comprehensive coverage on their cars, in addition to any state minimum requirements.
What does “minimum coverage” actually cover?
As the name suggests, “minimum coverage” auto insurance covers the bare minimum liability for licensed motorists in the state. By law, every driver in the United States must carry bodily injury and property damage liability insurance. Should a driver cause an accident to take place, their insurance would cover bodily injury for anyone they may injure, along with the price to repair or replace any property damage they may cause.
While “minimum coverage” comes with the lowest premiums, it also comes with the lowest coverage as well. Most “minimum coverage” plans may not cover your medical costs, or the value of your car if it is a total loss in the accident. This is where additional coverage levels come into play, and how they can protect drivers in the worst case scenario.
What do the extra coverages mean?
Many major insurance companies offer a number of additional auto insurance coverage options, in order to help drivers maintain their normal lives in the event of an incident. These coverage options can range from comprehensive insurance, to personal property coverage.
The most common of these extra coverage is comprehensive insurance. Under a comprehensive insurance option, the insurance company would pay for damage to a vehicle in the event of a non-accident loss.
For example: if a car were to get vandalized, stolen, or damaged due to a flood or fire, comprehensive coverage would cover the repairs, or the value of the loss. Many banks extending car loans will often require motorists to hold comprehensive coverage, in order to ensure the loan can still be paid in the event of an emergency.
Next to comprehensive coverage is collision coverage. Under this auto insurance option, motorists involved in an accident may be covered in the event of any accident, regardless of who was at fault. In the event of an accident that debilitates the car, the auto insurance company may either elect to pay for repairs less the deductible on the plan, or pay off the estimated value of the vehicle under a total loss situation less the deductible. Every insurance plan offers different levels of collision coverage, so be sure to understand the fine print before purchasing this benefit.
Finally, one benefit that is often misunderstood is the rental car benefit. Instead of covering rental cars driven by the motorist, the rental car auto insurance option covers the cost of a rental car if a repair is required, or a car is damaged beyond the point of repair. The amount of time the insured can hold onto a car is determined by the limits of the auto insurance policy.
Deciding how much auto insurance you actually need
Although every motorist has different requirements for their auto insurance needs, having a deficiency in auto insurance can result in major losses down the line. On the other side, paying for too much coverage can result in a high monthly premium, with little actual coverage in the end.
At the minimum, every motorist should hold the state minimum coverage, along with collision coverage. The amount covered should be based on your income, along with your personal savings plan. Those who do not have money saved or are just starting out should consider having higher levels of coverage, as their insurance will cover more expenses in the event of an emergency. Those who have some wealth built up and do not mind paying more for repairs may want to consider holding less coverage, in order to save money on their monthly premium.
In addition, those who add on expensive after-market items (such as stereo systems), or have concerns about their cars being broken into, should consider adding personal item coverage to their automobiles. While personal item coverage can add a cost to premiums, it can also cover the cost of replacing items stolen from a car after a break-in.
When should I shop for new coverage?
Although it is impossible to escape advertising for auto insurance companies, most motorists do not have a need to constantly shop for new insurance coverage. Rather, motorists should only consider shopping around for new coverage in the event of certain life changes. Moving to a new home, buying a new car, or adding young motorists can change the amount motorists pay for insurance premiums. If the insurance premium goes up by an uncomfortable amount, then it may be time to comparison shop for new insurance.
However, motorists should not shop for new auto insurance coverage in the event of an auto insurance claim. Filing a claim, getting into a traffic accident, or collecting a number of traffic tickets can all increase a motorists’ premium, and stay on their insurance record for years. Switching insurance companies after these times can cause underwriters to get nervous, resulting in either higher premiums, or contracts with many stipulations attached.
While searching for auto insurance can be intimidating, understanding the process can make it easier for everyone involved. By understanding what goes into auto insurance and why it matters, everyone can be an expert in controlling their monthly insurance costs – as well as those costs that come from an emergency.
What do you look for when shopping for auto insurance? What made your policy THE policy?