Did you know about 2.44% of the average household income is spent on auto insurance? While your rates might be different, having a general understanding of auto insurance can help you out in the long run.
The majority of people are unaware of the importance of auto insurance, which can leave them vulnerable and cause serious financial difficulties if they are involved in an accident. The mandatory requirement for auto insurance is almost universal in every state, except New Hampshire. In order to better understand your potential coverage and to properly protect yourself in the event of an accident, please read on.
What you Need to Know About Your Car Insurance
- Components of an Auto Insurance Policy
- Common Types of Coverage
Components of an Auto Insurance Policy
When it comes to your car insurance, every insurance policy will contain a variety of components. These components make up your overall coverage, the rates you may be required to pay, and what to expect after an accident or claim.
Here are some of those components:
- Premium: Within your auto insurance, the premium will be the amount you will have to pay for your coverage.
- This means you will either be required to set up monthly, quarterly, or semi-annually payments.
- Deductible: An insurance deductible is an amount you will have to pay before your policy will pay anything in the event of an accident.
- Choosing a lower deductible will increase your insurance rates.
- With that in mind, it will be important for you to not only follow proper driving laws and regulations, but also to fully understand your deductible rates.
- Coverage Amounts: Your auto insurance coverage amounts deal with how much your insurance will pay out per accident or claim.
- Be sure to communicate with your insurance company to fully understand your coverage.
- Claim Filing: After an accident, you will have to file a claim with your insurance company.
- That's where this component comes into play.
- With this, you will be directed on how to file a claim.
Common Types of Coverage
When you buy a new car or shop for insurance, it is important to understand the types of insurance coverage you can obtain. Coverage for you, your passengers, and your vehicle is optional, but coverage for injuries and damage caused by you is mandatory.
While some of these coverage types are mandatory, others are optional. You will need to understand your state's insurance regulations before shopping for insurance. A local injury lawyer or insurance professional can help you to better understand your state’s regulations.
You can purchase some of the following types of coverage:
When you collide with another vehicle, the damage will be covered by collision coverage. A collision coverage policy will cover the repairs to your vehicle if you collide with another vehicle or a stationary object.
For instance, if your vehicle flips over and you need to get the windshield fixed, collision coverage applies. Despite this, collision coverage type will not cover anything related to the other property damage you caused.
Although comprehensive and collision coverage are often purchased together, there are some differences between the two. Comprehensive coverage does not cover accident-related damage to your vehicle.
In addition to coverage for natural disasters, comprehensive covers damage from fires, floods, earthquakes, and hail. Theft of your vehicle, vandalism, or an accident involving wildlife will all be covered by comprehensive coverage.
Auto liability insurance protects you in case you are at fault for an accident. Your liability coverage will pay for the medical expenses or property damage of someone else at your expense.
Most states require that you have liability insurance. A liability policy has three main aspects, and each one has a different policy limit:
- The maximum coverage amount that any one person can receive in an accident.
- The total amount of coverage for all injured parties in an accident.
- The maximum amount of coverage for any property damage in an accident you cause.
Personal Injury Protection (PIP)
In many cases, personal injury protection insurance is referred to as "no-fault" insurance. Personal injury protection coverage is mandatory in no-fault states. In the event of an accident, this type of coverage would cover your injuries and expenses, regardless of fault.
Your policy will extend coverage to other drivers, household members, and passengers. Insurance plans like PIP are more expensive, but offer coverage for more than just lost income, such as child expenses, funeral expenses and more.
Factors that Affect Your Insurance Premium
- The type of vehicle you drive
- How many miles you put on your vehicle each year
- How clean your driving record is
- Where you live
- Your age
- The length of your credit history
- Your marital status
- The coverage and deductibles you choose
- Number of prior claims
- Your insurance history
PRO TIP: Keeping these factors in mind will help you choose the right auto insurance policy. Comparing insurance rates before you buy a policy will help you determine which insurer offers the right amount of coverage for your budget.