Today, regardless of where you live, there’s a good chance you need a vehicle to get to where you’re going. Therefore, auto insurance is something that you need to understand, because the cost can be significant, especially in the long term. On this episode we break down auto insurance so you are better prepared next time your policy needs renewing.
Facts About Auto Insurance
The average cost of car insurance is $1,426 per year, or $118.63 per month.
Cost varies a lot based on:
Where you live
The cost of your vehicle
The coverage you choose
And, whether you’re a male or female.
Liability: If you are deemed at fault in a car accident, liability coverage will pay for repairs, medical costs for injuries suffered by others in the vehicle, plus other expenses related to the accident such as legal fees.
Your liability limits are set at the time you purchase your policy. There are two parts to liability coverage: Bodily injury liability and property damage liability. The limits are the maximum amount the policy will pay out; anything above that would come out of your pocket unless you have other insurance.
If you buy insurance to meet the state's financial responsibility law, you must buy at least the minimum amount. The current minimum liability limits are $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. This basic coverage is called 30/60/25 coverage.
Collision: If you hit another vehicle or an object, your collision coverage will pay for damages or repairs to your vehicle after you pay a deductible (up-front amount). In other words, if you have collision coverage with a $500 deductible and you suffer damage that costs $1,500, your collision coverage will pay $1000 after you pay the first $500.
Comprehensive: Comprehensive coverage, which is also known as "other than collision," pays for losses to your vehicle if it suffers damage from something other than an accident. For example, if a tree falls on your car or you hit a deer while driving, some portion of that loss will be covered if you have comprehensive coverage. Like collision, comprehensive has a deductible attached to it.
Additional Coverage Options:
Medical Expenses: This coverage pays for injuries that you, a family member or anyone else riding your vehicle may suffer in an auto accident, regardless of who is at fault. It also pays for injuries you or your family members may incur while riding in other vehicles.
If you have good medical coverage this may or may not be necessary.
Passengers not covered under your own health benefits will need coverage of their own or may expect you or your policy to cover any expenses they have.
Uninsured/Underinsured Motorist: This coverage pays for injuries and property damage you suffer in an accident when the driver at fault either is uninsured or does not have enough insurance to cover your injuries and damage. It will also cover you in the event that a hit-and-run driver flees the scene and you cannot file a claim against that driver’s insurance company.
Options that may not be worth the cost:
Roadside Assistance: Many insurance companies offer this optional coverage. If you need a tow or service for a flat tire or dead battery, roadside assistance will provide that service for a nominal premium.
Rental Reimbursement: If your car is in the shop for several days and you need a vehicle, this coverage will provide that for you for a nominal premium.
Glass Breakage: In general, this coverage is not worth the long-term cost because:
Your deductible is usually higher than the cost of the windshield repair.
Unless you drive on a gravel roads a lot your chance of cracking your windshield are small.
Many of the chips and crack can be fixed relatively inexpensive, instead of replacing the entire windshield.
Gap: If you demolish that $30,000 vehicle the day after you drive it off the lot, the amount the insurance company pays is likely to less than what you paid for the vehicle.
Gap insurance pays the difference between the blue book value of a vehicle and the amount of money still owed on the car. If you are leasing a vehicle or purchasing a vehicle with a low, or no, down payment, gap insurance is unfortunately a necessity.
We recommend you put down at least 20% when buying a vehicle. Not only will this help you pay off the car sooner and pay less in interest, but it will remove the need for gap insurance.
Other things to consider
Comparison shopping is always a smart thing to do, and there are many websites designed to help consumers compare insurance policy prices. Compare rates, if not every year, at least every other year.
Independent agents often offer policies from multiple carriers and can help you find the policy best suited to your needs.
Your agent has an incentive, in the form of your repeat business, to provide good service, while an online service may come up short, so consider this option carefully.
Before you buy a policy, research your policy provider - regardless of who it is.
Numerous firms rate the financial health of insurance companies, and your state also has an insurance website that rates firms based on the number of complaints they have received. (A.M. Best Rating / Moody’s Rating)
Best way is to google your insurer and add AM Best rating in the search.
If you stick with well known and reputable companies you’re less likely to have problems when a claim or getting your car repaired.
How to save money on your auto insurance policy
Make sure that you review and understand your policy before you sign on the dotted line. You’ll be glad you did, should you ever need to file a claim.
Do you need full coverage or just liability coverage?
Consider the age and value of your car.
Cost of coverage over the time you plan on keeping the car.
Insure yourself by having a “next car” fund just in case your car gets wrecked in an accident. This eliminated the need for full coverage.
Avoid the “add on’s” to your policy, especially those that you can get from somewhere else at a lower cost.
Chose liability over collission when price of car is worth less
Increase deductible to save on the premium