Understanding Car Insurance
Your car is an important investment, so you want to make sure it’s protected. Accidents happen, and when they do, insurance helps you protect your asset. Insurance is required for drivers in most states, and is also required by most lenders. When you start shopping around for car insurance, it helps to know the basics so you can determine how much coverage you need. This can vary depending on your driving behaviors and the level of protection you want for your vehicle. We’re here to help with this guide to understanding car insurance so you can avoid any bumps on the road to finding your ideal insurance policy.
Types of Insurance Coverage
Here are the types of coverage offered by most auto insurance policies:
- Liability Insurance – Most states require drivers to have liability insurance before they can drive a car. This covers the damage done to another person’s vehicle or property should you be found at fault for an accident. It also covers their medical expenses in case of injury. Think of it as mandatory insurance to cover other people and their property.
- Collision Coverage – This pays for damage to your vehicle resulting from a collision with something (in other words, an accident). This includes a collisions with another vehicle or with an object like a mailbox, a fence, a tree, etc. Your car is covered if you accidentally hit another car or object, or if another car runs into you. Lenders typically require at least this type of coverage until your car has been paid off.
- Comprehensive Coverage – This is a fancy term for “everything” – meaning it covers theft, loss, and damage from everything else that isn’t an accident: vandalism, fire, flood, hail, earthquakes, other extreme weather and/or natural disasters, etc. Some companies include glass coverage in their comprehensive plan, however some may list glass as a separate coverage item. Though comprehensive coverage isn’t legally mandatory, most lenders require you to have comprehensive insurance coverage until you have finished paying off your car loan.
- Personal Injury Protection – This covers expenses for the policyholder and any passengers in the car who are injured in the event of an accident, regardless of who is at fault. It can cover medical expenses including treatment for injuries, ambulance bills, emergency room charges, follow-up visits, prescription costs, and even lost wages.
- Uninsured and Underinsured Motorist Coverage – This coverage protects you if you are involved in an accident with an uninsured driver if they are found to be at fault and either don’t have insurance or don’t have enough insurance to pay for your damages. This coverage can also be used for medical expenses and lost wages.
- Guaranteed Asset Protection (GAP) Insurance – This coverage provides extra insurance in case your car is totaled in an accident and you owe more money on your loan than what your vehicle is currently worth.
Factors to Consider
Car insurance policies can vary greatly between providers as well as states, so there are a few factors you’ll need to take into consideration when selecting your insurance policy. You want to make sure you get the policy that best suits you and your driving habits. Here are some questions to ask yourself as you’re deciding:
- How much money do you make? How much do you have?
Typically, the more income and assets you have, the more you have at stake should you be in an accident and found responsible and someone sues you.
- How old is your car? How much is it worth? Do you own it?
If you own your car outright, meaning that it isn’t leased and it’s not under a loan, you may not need comprehensive or collision coverage. But if you don’t own the car, many lenders or leasing companies require you to have comprehensive and/or collision coverage.
- How much can you pay out-of-pocket?
You’ll want to be able to pay your deductible if you ever have to, but policies with lower deductibles usually have higher premiums, which are paid in monthly installments. You’ll need to find a balance between your ideal deductible amount and ideal monthly payment depending on your budget.
- Do you have kids who drive?
As the policyholder, you can also add eligible drivers from your immediate family to your auto insurance policy. Young drivers are often considered to be inexperienced, and can thus be a greater driving risk. If you have a young driver, you may want to have greater liability coverage on the policy. Many insurance companies also offer discounts for young drivers with good grades, so make sure you ask about any possible discounts when you set up or make changes to your policy.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.