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Auto Insurance Basics

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The first United States automobile insurance policy was purchased in 1898. Today auto insurance is the most widely purchased of all property-casualty insurance. There are very few drivers that have real knowledge of their particular policy. This guide should serve as a starting point only, as each state may have different requirements and laws.

First, you need to understand why you need auto insurance. You car is probably one of the most expensive possessions. Insurance is a way of protecting your investment and dealing with accidents, theft and possible medical bills, other people's lack of insurance and if you borrowed money to buy the car it covers your financial responsibility with that institution. Insurance ensures your ability to cover your responsibilities if anything should happen. Most states have laws requiring some amount of auto insurance and it is a prerequisite to registering your car. You most likely will have to buy liability coverage.

Auto insurance is separated into several types of coverage.

Liability-Covers damage you cause to other people's property and injuries to the people themselves. It DOES NOT cover you or your car.
Collision- Covers damage to your own car in an accident
Comprehensive- Covers fire, theft, and other non-collision damage such as break-ins, vandalism, and even natural disasters like earthquakes, hail, hurricane, flood etc. unless a vehicle is overturned then it is considered a collision.
Medical payments-Covers medical expenses for injuries. This coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile even if you are on foot, a bicycle or in someone else's car.
Un-insured motorist (UM) and underinsured motorist (UIM)-Protects you if you are injured in an accident with others who do not carry liability insurance or insufficient liability insurance.
Other or extra covered expenses include towing, labor, replacement car while yours is repaired etc. These coverage's are called endorsements to a policy

As you can see there are many types of insurance available for your car. Some are necessary and some are not and you can save money by only paying for the coverage required by your state or financial institution, but you should probably look for more coverage than just the basics.

Once you decide on liability coverage and remember to get plenty to cover your assets. It is generally accepted among insurance agents that the state minimum policy limits are not enough. Most insurance professionals would agree for the average driver the best liability limits to have are 100/300/100. This means:

100,000 per person for bodily injury
300,000 per accident for bodily injury
100,000 per accident for property damage.

You then may want to look at collision and comprehensive. Both of these options have what are called deductibles. A deductible is the amount for which the insured (you) is liable on each loss, injury etc. before an insurance company will make payment. In other words if you agree to a deductible of $500 then you have to pay the first $500 of the loss before your insurance will kick in any up to your policy limits. The higher the deductible you sign up for the lower your insurance cost will be. Ask how much the policy is at each deductible level.

Each insurance company has different rates and each person may fall into a different rate category within any one company. Insurance companies use a variety of ways to find out their risk factor in regards to you. The factors may include a combination of things such as your credit rating, medical health, occupation, driving record and any other criteria that company wants to use.

If you research insurance companies and find a few you want to get quotes from, the rates they give you maybe very different. Get at least 3 quotes. Remember it is not always good to go with the lowest. Research that company and find out if they are solvent, if they pay claims in a timely manner, do they answer all of your questions when you call. Ask friends, co-workers and relatives for recommendations. Ask for discounts such as, good driver, air bag, Group, anti-Theft, multi- car, etc.

Once you make a decision, read everything and if anything is not clear ask before you sign up. It is important to know how your policy works and how it can work for you.

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