Auto Insurance – Understanding the Basics

   What is there to know about car insurance? Well the first thing to say is that if you drive a car, you need it. There is no way around it. Now that you know that you need it let us examine the major parts of your auto insurance policy. These parts are: liability, property damage, comprehensive, collision, and uninsured/underinsured motorist.

   Liability protects you in case you are at fault in an accident which results in damages to someone else’s property and/or bodily injury to someone else. In other words if you were the one who caused the accident where someone else was hurt or the accident caused property damage to someone else’s property, this part of your policy paying for their expenses up to the limits on your policy. This part does not cover you however. Every state is a little different, so make sure you find out all the details when you speak to your insurance agent.

   Commonly, you’ll find standard coverage amounts listed at $100,000/$300,000.  This means that for any one individual you are covered to pay for up to $100,000 in their medical expenses. With 300,000, your policy will cover up to $300,000 in combined medical expenses for additional folks
hurt in any accident (again not including you). You can reduce the amount you owe in your premium by lowering these amounts. Again, check with your individual state laws for the minimum required amounts that you need to have for adequate insurance.

   Liability insurance also includes paying for other people’s property damage if you are the cause of the accident. Again, most car insurance policies have a limit of $100,000 that they cover.  If you want more than that, you most likely can get it, but it will come with a more expensive premium.

   You will also have comprehensive coverage in you finance your automobile. Your lender will want the car insured for any type of damage while you still owe money.  This coverage includes damages to your car that are not related to an accident. An example of this might a hail storm, or a tree falling on your car, theft of your auto etc. You will have a deductible to pay. What is a deductible? A deductible is the amount of money you have to pay first to fix your car or pay for someone else’s car to get fixed if you are at fault before your insurance company starts to pay. Generally the lower your deductible (the less you have to pay first) the more expensive your insurance premium will be.

   Next, what about paying for your car if you are in an accident and it is your fault? This situation is covered with collision insurance. If you finance your vehicle, you will be required by your insurance company to have collision coverage in your policy. Typically, your insurance company will pay for the costs of the repairs. If you "total" your car, your insurance company will pay for the cash value of the car without consideration of whether you have the car financed or not. Therefore, if you have financing on your car and you total your car and the value of the car is less than your loan, you will still have to cover your loan unless you have GAP insurance.

   Simply put, GAP insurance in this case is an insurance policy that will pay off your loan if you total your car and the money you get from your insurance company does not completely cover paying off your loan. GAP insurance will make up the difference.

   The last major part of an auto insurance policy is the uninsured and underinsured motorist coverage. This saves you more than you might know as there are many drivers out there who do not have insurance even though they are supposed to. If you are in an accident where it is not your fault and the other driver either has no insurance or does not have enough insurance to cover your damages. This section of your insurance policy is great for fixing your car as it will not raise your rates if you have to use it. I heard it from an agent once who put it like this: "your rates will not go up if you have to make a claim under your under insured/uninsured clause.  You can look at it like this, we cannot expect you to pay more if you have to pay for your car when someone else hits you and they do not have insurance."

   So these are the major parts of car insurance policy. Of course, for every driver, state, insurance company there are variations of these terms, standard policies etc. so make sure you ask questions so that you understand your policy. The worst thing to happen is to think you have coverage for something and you find out that you do not.