By the End Of This Page, You’re Going to Understand Exactly whats in your Insurance Policy
If there’s one bill that we all hate paying for its car insurance. When you really think about it driving a car without insurance is risky: if something bad were to happen you would likely be out of thousands of dollars to fix or replace damages.
Instead, insurance companies assume all the risk but charge you a premium monthly based on how much of a risk you are to cover.
- How auto insurance works
- what kinds of things your policy can cover
- what questions to ask when shopping for insurance
- how to save money on insurance
How Insurance Companies Calculate Your Monthly Premium
Car Factors that Determine your Insurance Premium Include:
- car’s price
- repair cost
- overall safety record
- likelihood of theft
Insurance companies will charge you more if your credit history is questionable because it’s been shown that people with higher credit scores file fewer claims.
Personal Factors Include:
- drivers record
- credit score
How Insurance Companies Get Paid
We pay for the insurance company to cover the risk of what could happen to our vehicles. It’s the insurance companies job to make sure that they get clients like you and me that have the lowest risk of filing a claim. They’re looking for someone who doesn’t have a bunch of speeding tickets and accidents to pay them every single month in case you get in a car accident.
Insurance companies are in the business of risk management. That’s why they ask you so many questions when you sign up, like how old you are, drivers record, your credit score, and what car is going to be covered.
They take all this information and calculate how much of a risk you would be for them to cover. If you are an extremely low risk, you’ll be approved and pay a lower price. If you’re a little riskier they might require you to pay more money or even not approve you at all because of your past combined with other risk factors.
Part of getting a lower price for insurance is having low-risk factors like not having speeding tickets, being old, and driving a boring car.
Some of these factors aren’t controllable, but others like the credit score (link) are.
What Does Auto Insurance Cover?
Property: damage or theft to your car.
Liability: covers your responsibility for property damage bodily injury to others.
Medical: the cost of treating injuries, rehab, and funeral expenses.
All states require you to have property and liability coverage, only some states require medical payments or personal injury protection coverage in addition to uninsured motorist coverage.
Understanding Your Personal Auto Coverage
Your policy is priced to cover your needs.
Your auto policy will cover you and other family members on your policy, whether driving your car or someone else’s car, with their permission- of course. Your policy also provides coverage if someone who is not on your policy is driving your car with your consent.
Your personal auto policy only covers personal driving like driving to work and running errands. If you’re an Uber or lift driver you need special insurance coverage. If you use your car for commercial use you’ll need a separate policy.
What’s in Your Auto Insurance Premium
Most of the coverage you’re legally forced to have covers the damage your car causes but doesn’t protect you or your own car.
While required has different coverage limits for bodily injuries and property damage.
Liability insurance policies use 3 numbers to illustrate its coverage limits.
The first two numbers deal with bodily injury coverage. One is the maximum that your insurance company would cover per person involved in the accident, and the second is the maximum coverage per accident for everyone injured. The final number is your total property damage coverage.
For example, let’s assume your liability coverages is 25,000/50,000/20,000.
25,000 = how much your insurance would cover for damage to the driver
50,000 = the maximum amount your insurance would cover for any of the passengers in the other vehicle
20,000 = amount of property damage covered that was caused by your vehicle
Anything that exceeds 25,000/50,000/20,000 comes out of your pocket.
If you are at fault liability will not cover any damages to your vehicle or any of your medical bills.
Personal Injury Protection
Covers medical expenses when a car accident results in injuries to you and your passengers.
These expenses can include:
- Medical expenses
- Funeral expenses
- Lost income
- Child care expenses if you can’t watch your kids
- Survivors’ Loss to temporarily cover the income a lost one would have provided.
- And Household services can cover cleaning or lawn car if you are no longer able to because of an injury sustained from a car accident.
Personal injury is only mandatory in 15 states.
Similar to personal injury protection but only covers medical.
Personal injury works for you regardless of who is at fault.
Comprehensive coverage and collision are normally bundled together.
Comprehensive Covers things that aren’t cars that hit your vehicle while collision covers cars and other things you hit.
Comprehensive coverage protects you from:
- falling objects
- natural disasters
The cost of collision coverage depends on driving history, the value of your vehicle, and the amount of your deductible.
The lower your deductible the more you’ll pay monthly.
Is collision coverage worth it if you have an older car?
If three to five years worth of collision coverage premiums would exceed the value of your car, dropping collision coverage might be a smart move, as long as you have savings that you don’t mind using to repair or replace your vehicle.
If you have a loan on your car you probably have comprehensive and collision coverage to protect your vehicle that isn’t paid off yet from being destroyed.
Uninsured Motorist Coverage
1 in 8 Americans on average don’t care about risk at all and drive uninsured. In some states like Oklahoma, minimal it may be as many as 1 in 4 drivers.
About half of the 50 states make you purchase some form of uninsured motorist coverage.
If you purchase more the minimum for liability insurance you’ll receive uninsured motorist insurance to match.
If you have some of the other coverages mentioned earlier you may already be protected and not need uninsured motorist protection.
Both personal injury protection and medical payments insurance will cover your medical costs no matter who is at fault – including an uninsured driver.
And if you already have collision coverage, you can use that to cover damage to your own car so you don’t need protection from an uninsured driver because you already have it.
Gap insurance covers the gap between the current value of the car and the amount you have to pay back on the loan so you break even & don’t end up paying for a vehicle that’s destroyed.
Extra Liability Coverage Called Personal Umbrella
This is extended insurance for if you have a lot of money.
First, you have to max out your liability coverage. You can typically get personal umbrella coverage for $150 to $300 yearly for 1 million of coverage, every additional million adds $50 to $75 to the policy.
Personal umbrella can cover other things such as legal defense costs, Malicious prosecution, and false arrest.
Rental reimbursement provides you with a rental if you get in an accident and your car is in the shop.
- Generally covers towing
- Changing a tire
- Popping a lock
- Fuel delivery if you run out of gas
- Vehicle extraction if your car is stuck in the mud or snow
Roadside assistance can also be purchased through your cell phone carrier for $3 if you have AT&T or Verizon, your credit card provider, or other things like Triple A.
Car repair insurance is like an extended warranty.
The thing is car repair insurance doesn’t cover the car past 7 Year’s or 100 thousand miles, which is when your car is likely to break down.
You know about all your options you can ask better questions while building a better insurance policy that’ll work for you.
- Pro Tip: always call insurance before buying any car or motorcycle to see how much the insurance would cost monthly.
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