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A Beginner’s Guide to Understanding Auto Insurance

If you are new to the world of auto insurance, this could be the perfect way to gain a better understanding of what it is all about. In fact, even if this is nothing new to you, now may be a good time to forget everything you thought you knew and start all over.

The bottom line is that although the topic of car insurance may sound like it has the potential to be nothing but a bore, you may be surprised. There are actually quite a lot of little details drivers end up going their whole lives without ever knowing. In order to be an informed driver and make the best decisions about your auto insurance policy coverage, it’s time to get a basic understanding of what it’s all about. With our car insurance calculator you will be able to find and compare estimates with different coverage.

Quick Glossary

Although the glossary usually goes at the end, it doesn’t make much sense because you need it before you start diving in and reading all those words you may not fully understand. For that reason, here are a few of some of the common words you may come across that can help you better understand car insurance.

  • At-fault – If you are the at-fault driver, it is usually your policy that will be covering the expenses for both parties, as long as you have more than liability or do not have PIP insurance.
  • Deductible – The amount of money you must pay out of your own pocket before an insurance company pays on a claim. Generally, a deductible may be as low as $250 or as high as $1,000, and the lower the deductible the higher the premiums usually are.
  • Premiums – These are your car insurance costs for a specific amount of time.
  • Totaled Out – If a car is damaged beyond repair or the repair would cost more than replacing it, the car is totaled out. This could be from a major car accident or even a hail storm in which cosmetic damage causes damage that is too expensive to repair.

Types of Insurance

Keep in mind that some of the details can vary depending on the car insurance provider or by state regulations. When in doubt always double check items that may be related to your own policy coverage or coverage needs. This is meant to serve as an overview to get a basic understanding.

  • Liability Insurance – Liability coverage may also be referred to as bodily injury liability. This type of insurance is mandatory in almost every state as part of a minimum requirement. The amount of coverage you may be required to have varies, so make sure you have the facts about what your state requires. The purpose of liability is to make sure that if you are the at-fault driver you can cover the cost of damage you cause.

Gruesome as it may be, drivers have this to cover bodily injuries or death they are responsible for. Generally, you can also get yourself covered for the cost of legal defense if you should need it. However, your own medical bills and other related expenses are usually not included under this type of policy.

  • Property Damage Liability – In some cases, this may be included in your standard liability but you should always make sure instead of assuming so. If you are at-fault this auto policy covers expenses caused to another person’s property, which could be their vehicle, house, fence or other possible property. Remember, the main drawback of any type of just liability insurance is that all of your own expenses such as medical treatment or vehicular repairs will be your responsibility, out of your own pocket.
  • Collision Coverage – Sure, it sounds strange because all insurance is meant to cover collisions, right? That’s how some people get confused. Collision usually covers you and your vehicle, and others if you are the responsible driver, in the event of an accident with another car. Unlike liability insurance, your own medical bills and car expenses will also be included, up to a certain amount and after your deductible. The trick is that some policies do not cover collisions if it involves anything other than another car and this would move over into the world of comprehensive coverage.
  • Comprehensive Coverage – With a name like that it should be easy to understand, or so you would think. In order to shed a little light in an otherwise grey area here is a better idea of what it’s all about. This is also one area of car insurance where it is very important to check with your provider to see what is covered because different companies include different things. Storms, floods, fire, theft and even vandalism are a few examples of what could be included. Be sure to clarify if your policy covers what could be considered “Acts of God” or not.
  • Uninsured or Underinsured Motorist – Like liability, some polices don’t include both  bodily injury and property damage, so make sure you have both included in your policy. While it may not seem fair that you go through all of this effort to understand car insurance, compare rates and then pay for coverage just to end up hit by someone who doesn’t have a policy, life is not always fair. This type of coverage is intended to cover your expenses in cases where you are struck by a hit-and-run driver or a motorist who lacks coverage or does not have enough coverage for all the resulting expenses.
  • Personal Injury Protection or PIP – This can also be referred to as no-fault coverage, and it all basically means the same thing. In some states this coverage is required, so make sure you are aware of whether or not your state is a PIP state. In order to make sure every driver is covered and to try to cut down on the amount of resulting lawsuits, PIP was conceived. The general idea is that each driver has his or her very own PIP coverage and in the event of an accident each person’s car insurance covers their own medical expenses or car repair bills.
  • Full Coverage – This is another term that can be a bit tricky because it sounds perfect. It sounds as though if you simply call your insurance provider and place an order for full coverage to go, and you won’t need another thing on your policy. Usually what this means is that based on your state’s minimum requirements, you have coverage for everything you need. You can drive legally, but it probably leaves a lot of spaces for finances you could still be responsible for, especially if you have a leased or financed car.
  • GAP Insurance – A common misconception is that this stands for the gaps it covers where other policies fall short. The truth, however, is that it stands for guaranteed auto protection, and if you have a leased or financed vehicle in your driveway it could be your best friend. In addition to your other car insurance, collision, comprehensive or both, GAP covers what these polices don’t on cars with outstanding loans or leases.

You drive that shiny new convertible off the lot and during the first night in your driveway a tree falls on top of it smashing it like a bug. Being beyond repair, it will need to be totaled out. Remember no matter how much you loved that sporty vehicle, the minute you drove it off the lot the value depreciated and your auto policy provider only intends to pay your lease or loan up to the amount it was valued at. That difference between the value and the amount owed would still be yours to pay out of pocket, unless you have gap coverage.

  • SR22 Insurance – This may also be referred to as a certificate of financial responsibility. In some cases drivers end up deemed high risk and are required, by law, to have this coverage in order to drive legally. We’re not talking new driver at 16 kind of high risk, but more like driver who can only be on the road by using this to get their driver’s license reinstated. Some common examples of drivers who might need SR22 include:
    • DUI or DWI
    • Drivers who have accumulated too many driving infractions in too short an amount of time
    • Drivers who are caught without insurance or who have an accident or cause a fatality without insurance

Actually the SR22 is the form your car insurance provider would complete and send back to your state to show proof that you have secured car insurance. From there, your driver’s license may be reinstated and you can drive again legally. Usually, you must keep this coverage for a minimum of three years. If you let this type of coverage lapse, your policy provider is required by law to notify the state and you will have your driver’s license revoked. Not all states require SR22 insurance.

A Few Last Words

That’s the rundown and overview of all things related to the types of policy you may want to have to protect yourself as a driver on the open road. But wait – there’s more.

Aside from the terms you learned in the glossary and types of coverage available to learn about, there are a few last details to consider.

In most cases these are additions you may include with your policy. In fact, you may even have them included in your policy already but should at least know what they are. Having an understanding can help you decide if they are details you want to make sure are included in your policy or left off to save you a few dollars on your premiums when you calculate the price.

  • Work Loss – Like most types of coverage this can include –you, others listed on your policy, your passengers or anyone you hit. Obviously, this is a way to ensure that whoever is covered is compensated partially or fully for any wages missed following an accident. It could be during a long stretch in a hospital stay or even for the occasional follow up office visits that could result but would cause the injured person to miss work.
  • Rental Car Reimbursement – If your car ends up in the repair shop, you are still going to need transportation in the meantime. Aside from cashing in all your favors from others or relying on public transportation, you will probably want a rental car. In order to make sure this is not a cost you incur from out of your own pocket, rental car reimbursement can help keep you covered.
  • Towing – Although most road side assistance inclusions in the average policy these days includes towing, you are not going to want to find out the hard way it’s not covered. Make sure you have this included in your policy so whatever tow costs result from your accident are not from your own pocket.
  • Mechanical Breakdown – You can even make sure you are not left broken down and broke financially if you should have a breakdown. Get your towing, parts and labor covered by adding this to your standard car insurance policy.

There are other things to know about and keep in mind when it comes to your auto insurance coverage. For instance, if you are planning to borrow a car, you can actually get car insurance as an occasional driver. You should also have coverage when you rent a car. The bottom line is that anytime you get behind the wheel it should be with your own car insurance policy acting as your safety net.

The same thing holds true for letting someone borrow your car. Even if you think your policy would cover them, never let someone drive your car who does not have coverage of their own to be behind the wheel of your car. Being a smart driver is about more than having skills in the driver’s seat, it is also about knowing what you need when it comes to your car insurance. Even more importantly, it is making sure you have your policy in place. Use the car insurance calculator to find which coverage packages match your budget.

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