What grade did you receive in your Introduction to Auto Insurance class?
Wait – you mean you didn’t take such a class in high school or college?
So how are you expected to know the ins and outs of auto insurance?
Unfortunately, most Americans don’t receive any “formal” instruction on how to purchase auto insurance, even though these policies are necessary in order to drive legally. With that in mind, here are the basic concepts about auto insurance that you should know before signing your name on a policy:
1. The parts of an auto insurance policy.
Here’s a quick glossary of words and phrases:
- Term: The length of time your policy covers (usually one year).
- Declarations page: the page of your policy that summarizes your auto insurance. Think of it like the paper version of the “dashboard” for your policy.
- Endorsements: changes to your policy (i.e., an additional driver, roadside assistance coverage, etc.)
- Exclusions: the types of scenarios where your auto insurance policy will not pay out any money. Examples include damages incurred while using your car to make money (like Uber drivers), intentionally damaging your vehicle, damage incurred while drag racing, or damage from certain catastrophic events (like a nuclear disaster).
2. What the different monetary amounts mean.
- Premium: The amount of money you agree to pay for your auto insurance policy.
- Quote: An estimated cost of a policy issued by an insurer – it is neither exact nor binding, and it is subject to change based on the insurance company’s research into your driving record, credit score, etc.
- Deductible: The amount of money you agree to pay before the auto insurance coverage kicks in (much like a co-pay for health insurance). So for example, if you file a claim that totals $3,000 and your deductible is $500, the insurance company will pay out $2,500 to you.
- Limits: The maximum amount of money the insurer will pay for a given type of claim. So if you cause $50,000 in damage to another vehicle and your policy limit is $30,000, you could be on the hook for the remaining $20,000.
3. The minimum amount of auto insurance you are required to have by law.
This differs by state, but you can find what you need for your state here.
Almost all states require liability insurance to cover bodily injury and property damage inflicted by you in an accident. This insurance comes with statutory minimum limits, which are often expressed like this:
These numbers represent the number of thousands of dollars of coverage you must obtain in order to legally drive in a given state. The first number is for bodily injury to a single person; while the second number is for bodily injury per accident. The third number is for property damage per accident.
So for instance, if your state’s minimum liability coverage is set at 15/30/5, it means that you must purchase a policy that provides:
1. up to $15,000 of coverage for bodily injury to a single person;
2. up to $30,000 of coverage for bodily injury to all individuals involved in a single accident; and
3. up to $5,000 of coverage for any damage to property (including vehicles) in a single accident.
Many states also require:
Uninsured/Underinsured Motorist Insurance: This type of policy protects you against bodily injury costs that you might incur if you are injured in an accident that was the fault of a driver who does not have any (or enough) auto insurance coverage. The liability portion of this coverage does not apply to damage to your vehicle, but a limited amount of physical damage coverage is generally available for an additional cost. Generally speaking, the minimum limits for UM/UIM coverage are the same as those mandated for liability insurance – but check your state’s laws to be sure.
Personal Injury Protection: This type of policy protects you against bodily injury costs that you might incur if you are injured in an accident regardless of whose fault it is. PIP is common in so-called “no-fault” states, where every driver must be prepared to pay for his or her own medical costs no matter who causes a collision. Limits vary widely by state.
It’s important to note that you can choose to buy any of these types of auto insurance policies with higher limits than those legally required by states. This can help protect you from a lawsuit if you cause a serious accident that costs more than your maximum coverage limits.
4. The other types of auto insurance you can purchase if you wish to do so.
The two most common types of optional auto insurance are:
Collision insurance. Simply put, this coverage protects you against repair costs incurred in an accident that was your fault, or in the event of a hit-and-run or if the other party is uninsured.
Comprehensive insurance. This coverage protects you against costs incurred to you if your vehicle is damaged in some manner other than a collision – such as vandalism, fire, or weather. It also reimburses you for the current value of the vehicle if it is stolen.
Other types of optional insurance are:
Mechanical breakdown insurance – which pays for repairs if your vehicle breaks down
Roadside assistance – which pays for emergency service if you are stranded on the roadway with an inoperable vehicle
Classic car insurance – which takes into account the additional value of a classic car that has been well-maintained
Mexican auto insurance – which protects you if you take your vehicle to Mexico and are involved in an accident
5. The common types of auto insurance discounts.
- Obtaining coverage from the same carrier that provides you with homeowners, life, or other types of insurance. Many companies will give you a discount for “bundling” your policies in this manner.
- Paying your entire premium in advance, instead of making monthly payments.
- Choosing a higher deductible than a standard plan offers.
- Taking proactive steps to secure your vehicle, like parking it in a locked garage, purchasing an anti-theft device, or installing a vehicle recovery system (like LoJack).
- Maintaining a clean driving record – meaning no accidents or traffic violations
- Completing a driver’s education course – either online or in the classroom.
If you need help finding an insurance policy that’s perfectly suited to your needs and budget, ask an AIS Insurance specialist. They have the experience and the resources to help you find the right policy – and they could even save you some money! Contact an AIS Specialist today for a free quote.
The information in this article was obtained from various sources. This content is offered for educational purposes only and does not represent contractual agreements, nor is it intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.