Liability insurance covers medical care for those injured and property damage in an accident that’s your fault. Your policy will express liability limits as thousands of dollars for bodily injury to one person/more than one-person bodily injury total/property damage. For example, my state requires 25/50/10, which means that I have to maintain insurance coverage that provides up to $25,000 for one person’s medical care, with a total of $50,000 if more than one person is injured, and up to $10,000 for property damage. With the rising cost of medical care and few cars on the road worth less than ten thousand dollars, you can probably see how the state minimum might not protect you if you were found at fault in an accident. If you don’t carry enough insurance to cover injuries and damages that you’ve caused, you can be sued for those costs and be forced to pay out of pocket. If you own a home or have any other assets worth keeping, you might want to increase your liability coverage.
Personal injury protection (PIP),or medical coverage is to cover expenses for you or your passengers if you are injured in an accident. Many “no-fault” states require this coverage. Most PIP plans will cover medical care, hospitalization, lost wages, and possibly expenses incurred due to the accident, such as childcare or broken eyeglasses. Usually there is no deductible, saving you the out of pocket expense. If it’s not required by your state, and you have good medical and disability insurance, you may opt to pass this up to avoid paying for coverage you don’t need. Disability insurance often covers what PIP covers, but see what applies in your state. If you don’t have good medical and disability insurance, it is important to carry PIP to protect you in the case you were injured and missed work due to the injury.
Collision insurance pays for damage done to your vehicle if the accident is your fault, whether you hit another car or a tree. State laws don’t require you to carry this, it’s up to you to protect your own property, but if you have a lien on your car your lender will require you to carry collision insurance, and they will probably have a maximum allowable deductible. They want to protect their asset, and if you have a high deductible, you might not be able to afford to repair the car should it become damaged in an accident. On the other hand, if you own your car free and clear, you have options that can save you money on this part of the policy. If your car is worth less than about two thousand dollars, it’s probably a good idea to drop collision insurance altogether. The premiums you pay will end up being more in the long run than the car is worth. If your car is worth enough to keep it covered, consider increasing your deductible to reduce your premium. If you have a shaky driving history, make sure you can afford to pay the difference before you raise the deductible.
Comprehensive insurance pays to repair your vehicle in the event of natural disaster or other circumstances that are not your fault. The comprehensive portion of your policy will cover floods, fire, theft, cracked windshields, vandalism, and hitting a deer or other animal. Your lender will also require comprehensive coverage if there is a lien on your car. The premium for comprehensive insurance can be reduced with anti-theft devices and can be affected by your zip code. Keep in mind that submitting claims can increase your insurance premium; it might be better to simply repair a scratch or replace your windshield out of pocket than to submit it to the insurance company for payment. It may make sense to raise your deductible to save on the premium, and only use this portion of your insurance to cover major expenses like hail or theft. As with collision insurance, you probably don’t need this coverage if you drive a beat up old car.
Your premium can be affected by your driving record, your credit score, where you live, the type of car you drive, and other drivers in your household. Of course, if you get into accidents or get tickets, you are considered a higher risk driver, increasing your insurance premium. If you have one family member with a terrible driving record, you may want to exclude them from your policy to save money, and only allow them to drive the cheapest car with the lowest premium, or see if taking a defensive driving course can lower the premium.
A few more tips:
- Keep your credit score high; many insurance companies are using that number to determine what rates you’ll pay.
- You might not be able to change where you live, but auto insurance might cost more in high-traffic or high-crime areas.
- Typically, cars that are used as pleasure vehicles as opposed to commute vehicles tend to cost more to insure.
- Shop around for the best price, some insurance companies weigh factors differently; a speeding ticket might cost you more with some insurance companies than others.
- When you shop, be sure to understand what type of coverage you need and get a few quotes for the same coverage before you decide.