Whether you are buying car insurance for the first time or shopping around for the best possible renewal price, understanding the basics of purchasing auto insurance is the key to getting the right coverage at the right price. Here are some of the factors to consider when you are buying car insurance.
Unless you live in New Hampshire, you are required to have car insurance or prove your ability to cover a certain amount of liability losses in order to drive a car. However, each state has different requirements around how much insurance drivers must carry. Make sure you understand your state’s requirements before you start shopping around.
The amount of insurance the state requires is one thing, but it may not be enough insurance to meet your needs. The liability coverage within your auto policy is there to protect you from losses incurred if you are at fault in an accident. If you have liability coverage that is 50,000/100,000/50,000, the policy will cover a maximum of $50,000 per person who is injured in the other vehicle up to $100,000 total. It will also cover up to $50,000 in property damage to the other vehicle.
What most people don’t consider is that any liability over that limit is your responsibility. If you cause an accident that results moderately serious injuries to 4 people, you may not have enough coverage to pay for their losses. If someone is seriously injured, it is very unlikely that $100,000 will be enough to pay for medical expenses, lost wages, long term disability, etc. If the accident involves two other cars that are worth $30,000 each, you won’t have enough coverage to take care of those losses.
In the event that you are responsible for damages over and above what your policy will cover, your assets can be seized and your wages can be garnished in order to pay off the difference. For this reason alone, it is important to understand your policy limits and purchase a policy that protects you now and in the future.
Insurance rates are based on actuarial analysis and statistics and every company does this kind of pricing differently using different models. This means prices can vary dramatically between companies. It also means that your individual rate depends on many factors that change how you fit into the insurance company’s model. Things like your age and the age of the other driver’s on your policy, where you park the car on the policy, the type of car, and the experience level of all drivers can cause big differences in your rates. Your driving record also plays an important role in determining the amount you will pay for coverage.
The cost of your policy will also be largely dependent on the coverage you choose. Most states require a certain amount of liability coverage because it protects other people, but collision and comprehensive coverage’s are not usually mandated. These types of coverage protect you from loss to your own property and will increase the cost of your policy. The same is true for uninsured/underinsured motorist coverage.