What You Need to Know about Buying a Car Insurance Policy

What You Need to Know about Buying a Car Insurance Policy

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If you’ve ever driven a car, chances are you’re at least vaguely familiar with car insurance. If you regularly drive a car, say your parents’ or your own, you’re likely already covered by a car insurance policy. In fact, car insurance is required by law in most states, so if you’re driving and aren’t covered, it’s time to get yourself an insurance agent, and quick!

Understanding Your Policy

Deductible: Like with any type of insurance policy, your deductible is what you have to pay out of pocket before your insurance coverage kicks in. Deductible amounts vary, often between $500 and $1,500, but you can choose based on what you can afford. The lower the deductible you choose, the higher your premium (your monthly, biannual, or annual payments). Higher deductibles result in lower premiums, but if you get into an accident, you must be able to pay the entirety of your deductible before insurance will step in to cover other costs.

Liability Coverage: Liability coverage is arguably the most important part of your car insurance policy. It’s what will pay for bodily injury and property damage that you caused in an accident if law enforcement and your insurance company determine that an accident was your fault. This will cover injuries to individuals who were not in your vehicle up to a certain amount per person and per accident, and will cover damage to their property up to a certain amount. Anything beyond that amount is your responsibility. Liability coverage will also cover your legal fees if you are sued by individuals in the other vehicle.

States require that their residents have certain amounts of liability coverage, but this amount may differ between states. For example, Louisiana requires that residents have insurance that covers $15,000 per person, $30,000 per accident, and $25,000 for property; but Virginia requires $25,000 per person, $50,000 per accident, and $20,000 for property. Before you purchase coverage, read up on the regulations in your state.

It sounds high, but Consumer Reports suggests buying “standard 100/300/100 coverage, which pays for bodily injury up to $100,000 per person and $300,000 per accident, and property damage up to $100,000. If you have a high net worth, boost bodily injury even further.” This amount of coverage will provide you with the highest level of protection should you cause an accident.

Collision Coverage: Collision coverage covers damage to your car up to what it is worth, provided the car was damaged in a collision (with another vehicle, a telephone pole, etc.). For a new car, this would be close to the original cost of the car, but as cars age, their worth decreases. If you own your car outright, this coverage is optional, but if you are leasing or still paying off your vehicle, you may be required to purchase collision coverage. If your car is old or worth very little, you could consider dropping collision coverage entirely.

Comprehensive Coverage: Comprehensive coverage goes hand in hand with collision coverage and covers damages to your car (up to what it is worth) that aren’t related to collision. Think: if a tree falls on your car, a storm causes flood damage, or someone breaks into your vehicle. Again, if you lease or are still paying off your car, you may be required to get comprehensive coverage, but it’s generally optional if you own your vehicle.

Personal Injury/Medical Payments Coverage: This will cover your initial medical expenses if you’re hurt in an accident, regardless of who is at fault. It may cover lost wages if you’re hurt so badly that you can’t work for a certain period of time. This type of coverage may or may not be required, depending on where you live. If it’s not required in your state, you may choose not to add it to your car insurance policy; if you have good medical insurance it may not be entirely necessary. Your medical insurance may cover costs beyond your immediate expenses if the accident was your fault, but the other driver’s liability insurance should kick in if you weren’t.

Uninsured/Underinsured Motorist Coverage: Uninsured or underinsured motorist coverage will protect you if you’re in an accident that is caused by someone who cannot pay for the damages that they caused, either because they have no insurance or because they don’t have enough insurance. You can get this type of coverage for bodily injury or property damage (or both). Bodily injury coverage will cover the costs of medical expenses and lost wages for you and your passengers. Property damage coverage will cover the costs of repairs to your vehicle. This type of coverage isn’t required, but if you live in a state with a large number of uninsured drivers, it’s a good idea to add it to your policy.

Purchasing Your Policy

Once you understand the basics of car insurance, it’s time to shop around. You can do this in a combination of three ways:

1. Call a captive agent. A captive agent is one who works for just one insurance company. They can give you one-on-one attention and will guide you through the purchasing process. If you have no idea what you’re doing, working with a captive agent might be the best place to start. Remember, though, they can only give you quotes from a single company. You won’t get competitive offers.

2. Call an independent agent. Unlike a captive agent, an independent agent can get quotes from multiple insurance companies, meaning that you can do some comparison shopping. If you have a good idea of what you want in your policy, but want some input and don’t want to do the work of finding the rates yourself, an independent agent may be your best option.

3. Go direct. Many insurance companies are allowing customers to build their own quotes online. This is the perfect option if you know exactly what you want included in your car insurance policy and don’t want to have to work with an agent at all. You can build as many quotes as you want from as many companies as you want before deciding.

Remember to ask about what discounts are offered. You may be eligible for one of more of the following:

  • Having a good driving record
  • Having good grades
  • Taking driver’s ed classes
  • Having multiple policies with the same company (e.g., both renters and car insurance)
  • Owning a car with built-in safety features (e.g., daytime running lights, anti-theft devices)
  • Driving fewer miles annually than the average driver
  • Maintaining a good credit score; all states except California, Hawaii, and Massachusetts allow insurance companies to use your credit score to set your policy costs; a low credit score results in high premiums

Always, always get more than one quote for the same level of insurance. It’s never a good idea to settle for the first quote; prices vary between companies and you want to make sure that you’re getting a good deal. Good luck, and safe driving!

About Megan Clendenon

Megan C. is obsessed with Cincinnati-style chili, Louisville basketball, and Scandinavian crime fiction. She has lived in six different states and held 12 different jobs since beginning her undergraduate degree at Carleton College in 2008. The wanderlust abated somewhat in recent years, as Megan settled in Texas from 2013 to 2016 to finish a master’s degree in geosciences, write a thesis on the future horrors that stem from climate change, and get married. During her free time, you will find Megan sitting on the couch, cheering for her Louisville Cardinals, planning future adventures abroad, and snuggling with her dog, Tiger. She currently lives outside of Washington D.C.

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