What is car insurance? Car insurance is a contract between you and an insurance company that gives you financial protection against losses from accidents and injuries, vehicle theft, fire, natural disasters and other events that can damage your car. An average policy can cost anywhere from $150 to $1,000 or more a year, depending on the coverage you choose and your location, but it’s usually worth the money. Why do I need it?
What Is Car Insurance?
Car insurance, like home insurance and health insurance, is a form of protection that helps you protect yourself against financial losses due to unforeseen circumstances. Car insurance provides reimbursement in case your car is damaged or stolen, or if you’re held responsible for an accident in which you weren’t at fault. It also covers medical costs for injuries sustained by people involved in accidents with your car. In addition to personal liability, many auto policies cover claims related to vandalism and theft. Many car owners opt for comprehensive and collision coverage: Comprehensive coverage will reimburse you for repairs or replacement costs (less your deductible) if your vehicle is damaged by something other than a collision—for example, fire or hail.
Basic Liability Coverage
No matter where you live, it’s a good idea to have some basic liability coverage on your vehicle. If you’re in an accident, you should at least be able to cover any medical bills or repair costs for any damage you cause to another driver or pedestrian. Keep in mind that if your car is worth less than $3,000 it probably doesn’t make sense to pay for coverage. In all states, drivers are required to carry some level of car insurance in order to legally drive. The minimum amount will vary from state to state, but basic liability coverage generally includes $25,000 in medical payments for an individual, up to $50,000 for a family per accident, and property damage costs. It also covers any legal fees that may arise if you’re sued. Most experts recommend getting at least as much coverage as what’s required by your state; higher amounts can be added on later if needed.
Comprehensive Auto Coverage
Comprehensive coverage is a must, not only to recover costs after an accident but also to protect your vehicle from theft and other risks. Because comprehensive covers everything that’s not collision or medical-related, consider it your safety net. It’s worth noting, however, that it’s expensive (about 10% of a premium) and only pays up to your car’s actual cash value. If you have an older car with depreciated value, comprehensive insurance could cost more than its benefit is worth. If you want full protection, check out gap insurance—it helps pay for the difference between what your insurance company would pay for a totaled car and what you still owe on it (provided you bought gap coverage when you purchased your policy).
Uninsured/Underinsured Motorist Coverage
If you’re in an accident caused by someone else and that person doesn’t have insurance, uninsured/underinsured motorist coverage is a good way to protect yourself from those medical costs. In some cases, you may even be able to recover lost wages or other expenses. If you live in an area where the fault isn’t always clear—like a hit-and-run accident—this can be especially important. Uninsured/underinsured motorist coverage could potentially cover your injury and any damage to your car.
Personal Injury Protection (PIP) Coverage
PIP is available in all states and is intended to cover medical expenses resulting from an accident, regardless of who was at fault. PIP often covers lost wages as well. Policies vary, but typically you’ll receive $10,000-$50,000 worth of PIP coverage through your car insurance company for free. In certain states, if you carry only PIP instead of liability insurance, your medical payments are capped at that amount; some states’ laws require a minimum level (usually around $2-3K) to be carried in order to drive legally.
Vehicle Replacement Cost Coverage
When you get your car insurance quote, look for replacement cost coverage. This type of insurance offers maximum compensation in case your vehicle is totaled and has to be replaced with a new model. Usually, there is a deductible amount that comes into play. The higher your deductible, or out-of-pocket expenses you’re willing to take, typically means lower monthly payments on your auto insurance policy premium. Of course, if something bad happens and you have $10,000 worth of damage to your car, it doesn’t really matter how much money you saved upfront because you still won’t have a car until it’s fixed or replaced…and that could be months away!
Bodily Injury Liability Limits
If you’re sued by someone you’ve injured in an accident that you caused, bodily injury liability insurance can protect your personal assets (e.g., savings, real estate). Without it, if they win a judgment against you, they may be able to take those things and sell them to pay for your damages. In most states, bodily injury liability insurance will cover up to $250,000 per person for injuries or death and $500,000 per accident. Be sure that it also covers damage done to the property. You don’t want to be sued for millions after causing only thousands of dollars’ worth of damage. Bodily injury limits are sometimes set as low as $50K/$100K or lower in New York State because there’s so much coverage from other sources.
Property Damage Liability Limits
If you get into an accident, your property damage liability limits will determine how much you have to pay for any resulting damage. The typical limit is $100,000 per accident, but some states may require a higher limit. Check with your insurance company if you are unsure what your state requires. A high limit isn’t going to cost much extra because most people don’t exceed that amount in any given year. Property damage liability insurance is required by law and having it protects other drivers as well as yourself.
Legal Fees Coverages / Additional Insureds
In nearly every state, you’re required to carry bodily injury liability coverage to protect others from harm if you cause an accident In most states, you must carry a minimum amount of liability coverage: $15,000 per person and $30,000 per accident for personal injury and death. This means that if you cause an accident and hurt or kill someone else (or damage their property), your insurance company is on the hook for damages up to these amounts. But what about your own injuries? If there’s no one else involved in an accident caused by your negligence, then how will you be compensated for costs related to injuries suffered?
Non-Owned Automobile Liability Limits
These policies provide coverage for individuals who borrow or rent cars. Before you borrow someone’s car, check to see if they have their own policy first. If they don’t, you could be liable in case of an accident that causes bodily injury or property damage. Most states require drivers to carry at least $25,000 worth of non-owned auto liability insurance. If a driver without his or her own policy has an accident and leaves others injured or with damaged property, he/she is personally responsible for paying medical bills and damages—no matter how much money he/she might not have in their bank account at that moment.
Collision and Comprehensive Deductibles
Collision and comprehensive are often included in a single insurance policy, so it’s important to know what each is. Collision insurance covers damage caused to your car when you hit another vehicle or object, like a tree or pole. Comprehensive coverage protects against theft, fire, vandalism, and other damages not related to accidents with other vehicles. If you’re financing your vehicle, collision and comprehensive may be required by your lender as part of your car loan agreement.
Car Repair Expenses
If you’re leasing your car, most of your maintenance costs will be covered by your monthly payments, but if you own it outright or are financing, you’ll have to pay for repairs out-of-pocket. These expenses can add up quickly. For example, if your car needs a new set of tires, that could cost anywhere from $250–$1,000 per tire—an expense that can easily sneak into hundreds of dollars every time you visit a mechanic. You should always know what spare parts and supplies are included in your plan so you don’t end up paying any extra unnecessary expenses down the road.
Thinking about car insurance is easy. Getting it right? That’s another matter entirely. There are a lot of factors to consider, including your age, location, type of car, and driving record, so be sure to do some research and ask for help if you need it. You want a policy that fits your needs so you can drive with confidence on U.S. roads. With patience and dedication, you’ll be able to find that policy at an affordable price—and save money in the process! Finding good car insurance.