What exactly is auto insurance?
At its core, auto insurance is a contract between you and a company which guarantees to pay for your losses in some kind of accident or damage to your vehicle, in return for which you pay an amount of money, either monthly, annually, or bi-annually. The amount you pay is called a premium, and the three main categories of losses for which you may be compensated by the insurance company are property damage, liability coverage, and medical coverage. Most states in the U.S. require drivers to purchase at least a minimum coverage from an insurance company, because the monetary cost of accidents or auto thefts is often considerable, and many drivers would ordinarily lack the means to pay for these costs out-of-pocket.
Auto insurance quotes
Auto insurance quotes with higher deductibles and lower limits will always be less than those with low deductibles and high limits. This means you can save on the rates you have to pay to for car insurance by accepting a higher deductible (your out-of-pocket amount), and opting for lower coverage amounts. In order to get the best quote for the kind of coverage you want, it’s best to compare the rates offered by several companies, and choose the best overall coverage.
Types of auto insurance
The components which make up an auto insurance policy are written into the contract between you and the insurance company so as to protect you from the various kinds of damage, theft, injury, and vandalization which may occur in the course of operating a motor vehicle.
Uninsured motorist – this kind of coverage protects you in the event that the other driver involved in an accident has either no insurance, or insufficient coverage to pay for the actual expenses incurred during the event. If the other driver was uninsured and you didn’t have this protection, all your costs would have to be paid out-of-pocket.
Collision – just like it sounds, this coverage is intended to pay for the costs arising from a collision with another vehicle. After subtracting the deductible amount, all expenses would be paid by the insurance company, even if you caused the accident. If you did not cause the accident, your car insurance company might seek reimbursement from the other driver’s insurance company. This kind of auto insurance is not mandatory in any state, although it will generally be required by a bank or financing company which lends you money to buy the car.
Comprehensive – this is a kind of catch-all coverage, which includes most of the other potential hazards which are not related to collision with another vehicle. Some of the possibilities in this umbrella coverage are fire, theft, falling objects, vandalism, deer collisions, storms, earthquakes, and windshield damage from flying objects. Like collision coverage, comprehensive is not mandatory by state authorities, but your auto lender will require you to have it on your vehicle.
Bodily injury liability – if you injure or kill someone in an accident, this type of coverage will pay for funeral expenses for the deceased individuals, and it also covers court costs, if any kind of litigation results from an accident you were involved in. This coverage applies to people only, and does not cover damage to anyone’s vehicle. Most states in the U.S. do require this type of coverage to be included in your car insurance policy.
Property damage liability – required in most states, this kind of coverage pays for damage caused to another person’s vehicle or property, in cases where you caused the accident and the damage. If the accident caused damage to property, either public or private, those costs are also included in the coverage.
Personal injury – known as PIP (personal injury protection), this coverage includes lost income from wages, medical expenses, pain and suffering, and it pertains to the injured parties in your vehicle, as well as those in the other vehicle.
Other insurance types
No-fault insurance covers damage to property and to vehicles, as well as medical expenses, for both you and other parties involved in an accident, without regard to who caused the accident. It is not available in all states however, so you would have to inquire with your insurance agent about whether or not it can be purchased in your state.
Guaranteed Auto Protection (‘gap insurance’), provides a type of coverage which is meant to ‘fill in the gaps’, i.e. it will pay for expenses and costs which do not fall under any other type of insurance coverage written into your policy. It would also handle situations where for instance, you had $10,000 of property damage coverage, but the actual damage costs were $12,000. In cases where your vehicle is completely destroyed, and the insurance company will only pay for its book value, GAP insurance will make up the difference between the book value and what you still owe to the lender on your auto loan.
Fire and theft insurance is an additional coverage you might include in your policy to provide much more monetary backing for a situation in which you might cause extensive property damage to a third party’s property, e.g. in the millions of dollars. It would also cover theft of your vehicle up to a prescribed market value for your car, so that you would not be left without a means of recovery. In the event of a fire which breaks out in your vehicle, that would be covered as well under this kind of car insurance, usually up to a fixed amount such as $10,000.
Insurance deductibles and limits
These elements serve as two of the most important factors in any car insurance policy, and they have a direct bearing on auto insurance quotes. Limits are the ceiling amounts that your insurance company will pay for any specific claim that you make, so that if the total cost of an accident you’re involved in comes to $80,000, and you have $75,000 of insurance coverage, you will be responsible for $5,000 yourself.
Deductibles are the out-of-pocket money you would be required to pay before the insurance coverage kicks in to supply the remaining amount. In a minor fender-bender for example, that might cost $1,000 of repair work, the deductible amount on your policy would have to be paid by you, and the insurance company would pay the rest. If your deductible was $250, in this case the insurance company would then be responsible for the other $750.