Understand Your Car Insurance Policy

Your auto policy is broken down into different coverage types. The types are fairly standard company to company and across different states. There is some variation in exclusions and definitions between insurance companies. In addition, different states have different minimum requirements as well as some different coverage options and requirements.

 

What is Collision Car Insurance Coverage?

  • Collision: This is what most people think of when they picture car insurance. It covers damage to your car resulting from an accident (with another car or stationary object). Collision is usually required when you have a car loan. When you don’t have a loan, collision is usually an optional coverage. If you are driving a beater it may not be worth the money to insure, especially if you have an emergency fund to cover a new car in case of an accident. Deciding whether to drop collision is a personal decision. It is recommend talking to an agent. They can break down your quote and tell you what it costs to keep collision on your vehicle. This will help you decide if it’s worth it.

 

What is Comprehensive Car Insurance Coverage?

  • Comprehensive (Comp): Comp is similar to collision but this covers damage to your car caused by an ‘act of god’ (wind, hail, falling trees, deer, cracked windshield, etc.) Everything else said for collision applies here. However, note that you can have separate deductibles for comp and collision. Many people like having a lower comp deductible to cover the less severe cosmetic damage (hail, glass).

 

What is Property Damage Liability Car Insurance?

  • Property Damage Liability or Physical Damage (PDL or PD): If you’re deemed at fault in an accident, this covers the damage to the other car(s) and / or building / property you damage. This is a required coverage with the required limits varying state to state. I’d highly recommend getting at least $25,000 limits (if not more) even if your state requirements are lower. If the damage you cause exceeds your limits you will be legally obligated to pay the difference out of pocket.

What is Bodily Injury Liability  Car Insurance?

  • Bodily Injury Liability (BI): This is similar to Property Damage Liability but it covers the person you injure, not the car. BI pays for medical bills, pain and suffering, wage loss, and funeral service. It is primarily used for people in the car you hit but also covers pedestrians you hit and any passengers in your car. However, note that this coverage does not cover you (the at fault driver). The limits with this coverage get a little more complex. There are two limits. Per person and per occurrence. A common example would be 50/100. This means it will cover up to $100,000 for any given accident but each person is limited to $50,000. Like Property Damage Liability, you could be held liable for additional damages if your limits are insufficient. A minimum of 100/300 is recommended.

What is Medical Expense / Medical Payments Car Insurance?

  • Medical Expense / Medical Payments (Med Pay): This covers your (and your passengers’) medical bills. It is a no fault coverage so it applies regardless of who caused the accident. This is a great coverage, especially if you have no / limited health insurance. Even if you have health insurance this is nice because there are no deductibles / copays. In some PIP states (see below) med pay is not available.

 

What is Personal Injury Protection (PIP) Car Insurance?

  • Personal Injury Protection (PIP): This varies greatly from state to state and is not offered in some states yet required in other states. Like med pay, it’s a no fault coverage. It will cover your medical bills regardless of who is at fault. However, unlike med pay, there is sometimes a threshold; you must reach a certain amount of medical bills before this coverage kicks in. Another difference is that PIP also covers additional expenses such as wage loss.

 

What is Uninsured / Underinsured Motorist (UM/UIM) Car Insurance?

  • Uninsured / Underinsured Motorist (UM/UIM): This is an additional coverage and varies from state to state. It basically covers accidents where you’re not at fault but the other person doesn’t have any / enough insurance. You may be thinking that earlier this page mentioned under BI/PD that if you’re at fault you can be held personally liable if your insurance limits aren’t sufficient. So why would you need this coverage? If the other party is at fault either their insurance would cover it or they would pay out of pocket. But what if it’s a hit and run? Or an unemployed bum? The chances of you ever seeing a penny is slim. This coverage protects you when the liable party is unable to pay. The PD portion covers damage to your car and the BI portion reimburses you for medical bills, pain and suffering, and lost wages. So now you’re probably thinking well I have health insurance plus I already have med pay so why would I need this? Simple. This offers further protection. If you’re in the hospital, unable to work, after the accident this will cover your lost wages. If you require in home care, this will cover it.

 

What are other types of car insurance?

  • Other: Depending on the carrier, there may be other optional coverages such as emergency road side assistance. These are highly variable so they will not be covered here.

 

Ways to save money on car insurance

Here are a few tips on how to save on buying car insurance

 

Shop around for better car insurance.

  • Shop around. Talk to an agent. Get a quote online. There are dozens of factors that go into pricing and each company has a slightly different formula. Find the company whose formula works in your favor.

 

Pay Car Insurance Bill Upfront

  • Pay your bill upfront rather than monthly. Many companies give you a discount for paying right away rather than once a month. Additionally, if you’re able to use a rewards credit card to do this you could get additional cash back (just make sure to pay your statement in full to avoid paying interest).

 

Adjust Car Insurance Deductibles

  • Adjust your deductibles. Sometimes this makes sense, sometimes it doesn’t. It really comes down to how the company prices and how comfortable you are with risk. For example, if some cases, increasing the deductible from $500 to $1,000 would have only saved the driver $8 every 6 months or $1.33/month. In order for this to work out in that person’s favor, they would have to go 375 months without an accident. In this situation it wouldn’t be worth the extra risk and kept the lower deductible. However, if you feel you’re a safe driver and are unlikely to get in an accident, and also have an emergency fund big enough to cover a large deductible, go ahead and increase your deductible and save a few dollars.

 

Bundle Car Insurance with Other Insurance

  • Bundle. Try to get your homeowners / renters through the same company. Most places offer a large discount when you bundle. If you have children / dependents it could also be worth looking into term life as well.

Take a Defensive Driving Course to Lower Car Insurance Rates

  • See if you can get a discount for taking a defensive driving course. Just make sure the discount would offset the cost to complete the course.

Get Usage Based Car Insurance

  • Get usage based insurance (UBI), especially if you do not drive a lot. Many companies offer a discount for installing a device in your car that monitors your driving habits for a few months. On top of the discount offered for installing the device, most companies will then lower your premium further if you have safe driving results.

 

Ways not to save on car insurnace

We all try to save money, but there are some saving tips that could hurt you in the long run.

  • Do not lower your limits to save a few bucks. You can probably safely lower the collision / comprehensive if you have a large emergency fund but it is not advisable to lower any of the other coverages.
  • Make sure to check reviews before choosing a company. Going with a reputable, better rated company is worth a few extra bucks. When your car is totaled and you’re in the hospital, the last thing you want to deal with is an unresponsive insurance company.
  • Don’t lie about anything on your application (such as pre-existing damage, etc.). This is illegal can come back to hurt you.

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