If you’re looking for the best coverage for your vehicle, you should be familiar with car insurance categories and their various policy terms. Whether it’s your first car or it’s the first time you’re getting auto insurance, the concepts may be perplexing.
You may be wondering: How do I find car insurance near me? What kind of coverage do I need? How much does car insurance cost? What is a deductible?
These questions and more are answered in this guide as it reviews what to know about car insurance and what you should know before choosing a coverage plan.
1. Types of Coverages
Possibly the most important thing you need to know about car insurance is the type of coverage plans available based on your needs. Typically, there are three categories of insurance coverages.
Depending on your state, some of these options may be optional, while others may be mandatory. Before you choose a coverage plan, you need to know what your state requires and how a certain option can cover you for your particular situation.
Coverage for Others
These insurance plans cover others in case of an accident that causes property damage or bodily injury. Liability coverage is compulsory in most states across the United States. Drivers are required to get at least the minimum amount of auto liability coverage as per the law. There are two major components of liability coverage:
- Bodily Injury: Bodily injury liability may help the driver pay for expenses if they’re a result of an accident caused by the driver.
- Property Damage: Property damage liability helps the driver pay for the damage they cause to someone else’s property while they’re driving.
Keep in mind that liability insurance has coverage limits based on what you’ve chosen; the insurer will cover the liability according to these limits. All states have a minimum coverage limit for property damage and bodily injury liability that is mandatory.You can buy additional coverage based on your needs. Typically, there are three limits on a car insurance policy:
- Bodily Injury Limit (Per Person): The limit establishes a cap on the amount an insurer will pay for the medical expenses of each individual you injured in an accident.
- Bodily Injury Liability Limit (Per Accident): It is the maximum amount your insurance company will pay for the medical expenses of people injured by a single accident you have caused. Since this amount may have to cover multiple people, it’s best to set a larger limit.
- Property Damage Liability Limit: It is the maximum amount your insurance company will pay to repair the damage caused by you to someone’s property. The maximum payout will be below the limit you’ve set.
Torian Insurance recommends limits of at least $100k for per person liability coverage and $300k per accident for bodily injury. Meanwhile, the recommended minimum for property damage is $100k. Although some providers have minimum limits of $25k to $50k, we rarely work with them. We’re seeing many of our clients offering higher minimum limits of $250k or even $500k.
Coverage for Others
These plans cover medical payments and bodily injuries for uninsured motorists. They also cover Personal Injury Protection (PIP), which is also called no-fault insurance.
It covers the healthcare expenses for the passengers and the injured policyholders in the case of an accident, even if some of them don’t have health insurance.
- PIP: This coverage is offered by insurance provided in no-fault states. These states have higher thresholds, limiting your ability to sue the other driver for your injuries. The coverage protects everyone in the vehicle, irrespective of the fault.
- Med Pay: Medical Payment or Med Pay is offered regardless of fault and protects the people in a vehicle. It offers coverage for medical costs immediately without wasting time on identifying the fault.Most insurers offer $5k to $10k limits for Med Pay. But you can also buy Med Pay for some companies that offer limits as high as $100k. Medical payments coverage helps pay for costs like surgery, X-rays, hospital visits, and more. Additionally, Med Pay is mandatory in some states and optional in others.
- Uninsured & Underinsured Motorist: Uninsured & Underinsured motorist liability insurance protects you in the event of an accident with an at-fault driver who doesn’t have liability insurance or whose liability insurance limit is too low to cover the medical expenses of the injured parties.Uninsured motorist property damage insurance covers for replacement or repair of your vehicle in case you’re in an accident with an at-fault motorist who doesn’t have insurance. The limit for this coverage is dependent on your insured vehicle’s value.
Our clients mainly choose $50k for uninsured motorist property damage as it’s sufficient to replace most vehicles. You can also increase the limit at a meager cost if you drive a higher-value vehicle.
Rental Reimbursement Coverage is another insurance option for drivers. It helps you pay for public transportation or rental expenses when your vehicle is being repaired in the event of a covered insurance claim. The coverage does not apply for routine maintenance work or if you need a rental car for vacation. Rental reimbursement coverage generally has a daily limit. For instance, your insurer may cover you for $30 a day up to a month or until your car is repaired.
Coverage for the Vehicle
You need insurance coverage for your vehicle in certain circumstances. It’s also called Physical Damage coverage. When you see the term ”full coverage”, keep in mind that it means physical damage plus liability coverage.
Agents use this term to explain the availability of physical damage and liability coverage for a vehicle. You shouldn’t take the term for its face value since it doesn’t exactly offer ”full coverage”.
Each company’s policy has certain exclusions, which means no policy guarantees 100% coverage of an accident. Make sure to read through the policy guidelines beforehand.
Physical damage coverage includes the following.
- Comprehensive Coverage: It covers damage to your vehicle from things like hail, fire, theft, and vandalism. Comprehensive coverage has a deductible, which refers to the amount you must pay out of your pocket before your insurer reimburses you for the covered claim. In most policies, there’s no limit on comprehensive coverage. The insurer will merely pay the cost for repairs. If the vehicle is damaged beyond repair, the insurer will research its current value and make payments accordingly.
- Collision Coverage: It covers the repair or replacement of your car in case you hit an object, like a fence. Most insurers don’t have a value or limit for collision like comprehensive coverage. They will simply pay you the cost of replacement or repair according to the vehicle’s current value.
You need both of these coverage options if there’s a lease or active loan on your car. If there’s no loan or lease, these options become optional, although highly recommended.
Classic Car Insurance is another type of coverage that you can get for your vehicle. It covers the costs of repair for a classic car, such as modified vehicles, modern classics from the 80s or 90s, custom builds, antiques, muscle cars, race cars, sports cars, old military vehicles, and classic trucks or SUVs.
It’s important to speak with an insurance agent thoroughly when getting this type of coverage. Some classic car insurance policies have mileage limitations since the longer your car is on the road, the higher its chance of getting in an expensive accident.
Coverage for Specific Curcumstances
These coverage options are mandatory for people in certain circumstances. An example is Rideshare Insurance coverage.
If you’re a driver for a ridesharing company, like Lyft or Uber, you must know that your personal car insurance does not cover your vehicle’s ”business use”. Simply put, if you’re in an accident during work hours, you may have to pay the medical and repair expenses on your own.
State laws typically require ridesharing companies to have insurance for their drives. But if you use your car for business and personal purposes, you should consider getting additional coverage.
2. How Quotes Are Calcuated
Car insurance quotes are the estimated price you have to pay for an auto insurance coverage plan.
The insurance companies calculate these quotes based on multiple factors, such as gender, location, vehicle, general driving behavior, the value of your car, annual mileage driven, etc.
The national average car insurance premium is $2,646. However, this figure can be different, depending on the state you live in and other factors. Here are some factors that affect car insurance quotes.
Where you live matters a lot in terms of determining your auto insurance quotes. Insurance in some states, such as Ohio and North Carolina, is cheaper than insurance in Louisiana and Michigan.
As a rule of thumb, states with a higher annual number of accidents tend to have more expensive auto insurance.
Car insurance companies use your personal information, such as age and gender, to calculate your coverage costs, too. For instance, young male drivers statistically get into more accidents, whereas female drivers are less likely to perform reckless driving activities than men. Thus, the premiums for female drivers are usually lower than that for male drivers.
Insurance companies see married individuals as safer drivers. Moreover, these individuals tend to be more financially stable. Therefore, they often get lower insurance quotes than unmarried individuals.
Owning a home may help lower your insurance costs as companies see homeowners as more risk-averse and financially stable. Homeowners can also bundle coverage plans and buy home and auto insurance together for a lower policy premium.
Insurance companies also use your accident history to determine how prone you are to getting into another accident. If your driving record is clean, you’re likely to get a lower quote.
Meanwhile, someone with one or several at-fault accidents will have to pay a higher premium.
Some insurers also use credit scores to determine a customer’s risk level. Car insurance is often cheaper for individuals with good credit scores.
However, it can be more expensive for people who have poor credit scores. If you keep your credit in shape, it will result in you getting a better price on your coverage.
The type of car you drive also determines the cost of your insurance premium. High-end or high-value cars are more costly to repair or replace in case of an accident.
Therefore, these cars tend to have higher insurance quotes than cheaper cars. But if your car has remarkable anti-theft and safety features, you’ll likely get a reduction in your insurance costs.
Similarly, driving a classic car or a custom build will qualify for Classic Car insurance coverage, which has higher premiums and may come with mileage limitations.
3. What to Know About Deductibles
The word ”deductible” comes up a lot when there’s talk of any kind of insurance. A deductible is an out-of-pocket expense you have to pay before your insurer takes over.
Insurance companies have deductibles in place to mitigate moral hazards. A moral hazard is a risk where a policyholder may feel tempted to drive recklessly and get into an accident due to insurance coverage.
For instance, a policyholder may leave their vehicle unattended in a theft-prone area because they have auto insurance. With no deductible, there’s somewhat low accountability and the need to be responsible.
A deductible mitigates this risk and ensures that policyholders are responsible.
By carrying a car insurance deductible, you lower the insurance company’s expenses when they’re covering a claim. Companies save this money and pass it over to consumers who have higher deductibles.
For instance, if your deductible is $1000, it means you have to pay the first $1000 on your car’s repairs yourself. Your insurer will take responsibility for the rest.
Typically, we see deductibles ranging from $250 to $1000, with $500 being the most common, depending on the insurer you choose. But you can also opt for higher deductibles of up to $5k or $10k for specialty or high-value vehicles.
Even though deductibles offset the insurance costs to some extent, they are not always favorable to customers. Thus, you should pick an appropriate deductible according to your driving patterns and lifestyle rather than choosing the one that’s the lowest in price.
4. Learn About the Discounts
When you search for ”car insurance near me” online, you should also check for discounts offered by the insurers. Here are some ways you can get a discount on your auto insurance:
- Multi-Car Discounts: If you have multiple cars insured with the same company, you are likely to have a lower premium than if you get insurance for each of them separately. Generally, multiple drivers must be related by marriage or blood and live at the same address to qualify for this discount. Ask your provider as blood or marriage isn’t always a requirement.
- Multiple Policy Discounts: If you’re insuring your home and car with one insurer, you’re likely to get a discount on both policies.
- Good-Student Discounts: If you’re in college, you can qualify for a discount by maintaining a set GPA and scoring high academically.
- Claim-Free Discounts: Drivers who have gone two or three years without filing any claims are likely to get discounts on their future policies. However, the number of years varies according to the insurer and policy period.
- Vehicle Safety Discounts: You could be eligible for discounts on auto insurance if your car has safety features like a steering wheel lock, a security system, an alarm, backup cameras, auto braking, lane departure warnings, collision avoidance warnings, etc.. For instance, some insurers will give you a discount on your coverage plan if you have anti-theft devices in your vehicle.
A relatively new way to get discounts on your auto insurance is via telematics. It allows the insurance company to monitor your behavior and offer discounts for safe driving practices. For instance, you can get a discount for not speeding or staying away from particular areas.
You will be required to install a device in your vehicle or download an app on your phone. The app or device will then monitor aspects of your driving behavior, like quick acceleration, hard braking, time spent driving, speed, and mileage driven.
It will report these things to the insurance company, and they’ll offer discounts based on how ”well” of a driver you are. In some cases, you’ll get a discount simply for agreeing to the idea.
Since not all companies offer telematics, you may have to shop around to find a company that does. It will likely become an option in all policies a few years down the line.
5. Gap Insurance
The previously mentioned insurance coverages are either mandatory or highly recommended in most states. However, you can also opt for optional car insurance coverages, such as gap coverage.
If your vehicle is stolen or totaled, gap coverage covers your auto loan and if you owe more money than the car’s depreciated value. It’s also called lease gap coverage since it covers the gap between the amount required to pay off the lease/loan and the car’s value.
You don’t need this insurance if you don’t have a lease or active loan on your car. Here’s an example of how it works.
Suppose you buy a car for $30,000. You still have to pay $20,000 in auto loans when your car gets completely damaged in a collision. Your collision coverage will pay off the car’s depreciated value to the lender.
Let’s say it’s $17000 in this case. How do you pay the remaining $3000? Without gap insurance, you’ll have to pay this amount yourself. In this scenario, gap coverage essentially helps you bridge the gap in paying off the loan.
6. Vehicle Replacement Cost Coverage
Replacement cost coverage is a relatively new option that you can buy instead of gap coverage. Insurers offer this plan for newer vehicles, preferably within two years of the current model year.
The replacement cost coverage pays for a vehicle’s replacement if it’s damaged beyond repair. The insurer replaces your vehicle with a current model that’s similarly equipped.
Since it can be a bit tricky to grasp, let’s explain the difference between actual cash value and replacement cost insurance.
In replacement cost insurance, your plan covers the cost of replacing the car with a model similar to the one you had. The insurer does not have deductions for depreciation.
For instance, if your two-year-old car is deemed a total loss, the insurer will pay for a new car with features as similar as possible to the car you lost.
Meanwhile, in an actual cash value policy, the insurer pays for replacing your vehicle with one that’s in a similar condition to the one you lost. In this case, depreciation comes into play.
For instance, if your two-year-old car is deemed a total loss, the insurer will determine its current value in used condition and give you that amount as payment.
Although these plans have lower premiums, replacement cost coverage options are more likely to adequately replace your vehicle.
You should now know the important facts about car insurance. The type of insurance coverage you may need depends on many factors, like the make and model of your car, its age, mileage, how much you drive, and more.
What is mandatory in most states is third-party liability insurance plans that cover damages to other people and/or property resulting from accidents involving your vehicle.
Other options include comprehensive coverage, which covers damage to your vehicle caused by natural perils like collisions, storms, and fire, and collision coverage that covers damage to your vehicle resulting from collisions with other vehicles or stationary objects like trees and guard rails.
What’s more, there are various methods to get a discount on your car insurance premium and the factors that determine your quote. So, be sure to check out what discounts car insurance companies offer. Contact Torian Insurance today to discuss your car insurance needs. We have representatives standing by ready to answer all your questions.