If you’re interested in the basics of auto insurance and how you can save some money on your policy, you’ve come to the right place. We’re going to take a quick look at the coverages available under an auto insurance policy and how much you need.
This section includes bodily injury liability and property damage liability for yourself and any uninsured or underinsured drivers who hit you. Bodily injury liability covers the damages you cause to other people. The coverage will pay for their medical bills and lost income up to the limits. The coverage limits are usually listed as $XXX,XXX/$XXX,XXX – the first number is the maximum payout for any one person’s injuries and the second number is the maximum payout for all people involved in a single accident. I recommend you get coverage of $100,000/$300,000 for your bodily injury liability.
Property damage liability covers the cost to repair or replace someone else’s property that you damage in an accident. This is not limited to cars only but covers any kind of property. For example, if you crash into someone’s house, then your property damage liability coverage will pay for the repairs to their home. I recommend you get at least a $50,000 limit with this coverage, but $100,000 is better if that’s available to you.
These same types of coverages apply to the uninsured and underinsured motorist options. The uninsured and underinsured coverages pay for the damages caused by others who either have no insurance or too little to cover all the costs. You should get the same amounts for these as you do for your own bodily injury and property damage liability coverage.
Don’t skimp on these coverages because you want to save money. The state minimums will rarely be adequate if you cause an accident. You’d be surprised how little it costs to increase these coverage amounts.
Medical Payments, Personal Injury Protection, or First Party Benefits
This coverage may go by various names depending on your state and insurance company, but they all mean essentially the same thing. These coverages pay for the medical expenses and lost wages you or your passengers suffer after an accident. Some states require this coverage, but most do not.
If you have health insurance and disability insurance, there’s hardly any need for this coverage. The coverage amounts are generally insufficient unless you choose the most expensive options. So if your state requires this coverage but you’ve got decent health insurance and disability insurance, then choose the least expensive option available.
Collision and Comprehensive
Collision coverage pays for damages to your vehicle caused by collisions with another vehicle or stationary object. Obviously, this applies to situations where you are at fault and have damages to your own vehicle. (If someone else is at fault, their liability coverage will pay for your damages.) If repairing your vehicle is not reasonable (above a certain % of the car’s value), then the insurance company will declare it “totaled” and pay you the cash value of your vehicle. Their valuation of your vehicle may be quite different from what you think it’s worth. Collision does not cover anything covered by comprehensive.
Comprehensive coverage pays for damages to your vehicle caused by fire, theft, vandalism, hail, windstorm, riot, falling objects, flood, collision with an animal, or other events included in your policy contract. Each claim that falls under your collision or comprehensive coverage will be subject to a deductible. An easy way to save money on your insurance costs is to increase the deductible on these coverages. Just make sure you have enough money in your emergency fund to cover the higher deductible. (Yet another reason to have enough in your emergency fund!)
If your vehicle is older, it may not be worth carrying collision and comprehensive coverage. Consumer Reports recommends dropping the coverage if the premium you pay for this coverage (check your insurance policy statement) is more than 10% of the book value of the vehicle. You can get a good estimate of the book value by using the private party value on Kelley Blue Book. For example, if your car is worth $5,000 according to Kelley Blue Book and your comprehensive and collision coverage costs more than $500/year, you should drop it.
The Extra Stuff
Insurance companies offer a variety of extra options for auto insurance. These include rental reimbursement, towing and labor, and gap coverage. However, with an adequate emergency fund, you would be better off declining all forms of these special coverages. You’re better off saving your money for those emergencies than paying for such coverage.
The Top Tip for Saving Money on Your Auto Insurance
The best way to save money on your auto insurance is to shop around every couple years. Auto insurance rates are always changing, and you may be able to get a better deal with a different company due to competition. You can do a simple search online using InsWeb to get quotes from multiple companies. If you want a quote from Geico, Progressive, or Esurance, you’ll have to go directly to their web sites.
If you find a cheaper quote but don’t want to switch insurance companies, give your insurance company a call and let them know you’re shopping around. Tell them the insurance company you got the quote from and how much you were quoted. They may be willing to offer you a lower rate in an attempt to keep your business.
If you have any questions, comments, or tips for saving money on auto insurance, please leave them below. Thanks!