Auto Insurance 101
No matter where you live or what type of car you drive, auto insurance is the law. If you are involved in an accident or if your car has sustained damage due to a major catastrophe, having auto insurance can help cover the costs to have your car repaired or replaced. Auto insurance can provide protection against theft and it can also help pay medical bills if you get hurt.
When purchasing auto insurance, most potential policyholders have some of the same questions. How much insurance should I buy? What does a standard insurance policy cover? What happens if I don't buy insurance? What determines the price of my insurance? Where can I buy insurance? Continue reading to find out the answers to these questions and more.
How much insurance should I buy?
Every state has its own minimum auto liability requirements and some state requirements are higher than others. Unfortunately, even the highest minimum requirements may not be enough to cover you in the event of an accident. Currently, state minimum requirements cover the following:
- Bodily injury damages to any single person per accident
- Total bodily injury damages caused to all people involved per accident
- Property damage per accident
If the state has a minimum liability requirement of 15/30/10, this means the policyholder is covered in the amounts of $15,000 for bodily injury damages to any single person, $30,000 total bodily injury damages caused to all people involved, and $10,000 for property damage.
It is important to note that state auto liability insurance limits rarely offer adequate coverage. Because of this, state insurance departments and insurance agencies highly recommend carrying higher coverage amounts than the bare minimum. Additional coverages are highly recommended as well.
What does a standard insurance policy cover?
A standard insurance policy covers bodily injury, medical payments or personal injury protection (PIP), property damage liability, collision, comprehensive, and uninsured/underinsured motorist (UM/UIM) coverage. Each type of coverage is priced separately.
What happens if I don't buy insurance?
If you do not purchase at least the minimum auto liability insurance in your state, in come cases you will not be permitted to register your vehicle or renew your registration. You may also be randomly selected to show proof of insurance by your state DMV. If this happens, you will have to provide proof of insurance within a certain amount of time. If you fail to do so, your license may be suspended, your registration may be revoked or you may have to surrender your plates to the DMV. If you are caught driving without auto insurance, your license may be suspended, you may have to pay fines and/or you may have to spend time in jail.
What determines the price on my insurance?
Insurance companies consider a number of common factors to determine insurance rates. They will consider:
- Your age
- Where you live
- The amount of coverage you need
- Your credit history
- Car model
- Driving record
- The number of miles you drive each year
Where can I buy insurance?
In any given state, there are literally dozens to hundreds of insurance companies to choose from. Some people prefer to deal only with large, nationwide insurance agencies, while others prefer to use their small neighborhood insurance company.
If you have an insurance company in mind, be sure to do a background check on the company before doing business with them. As an American consumer, you have access to companies' financial ratings and reviews from consumer reporting organizations such as the Better Business Bureau (BBB). If an insurance company has a shaky financial rating or an unacceptable number of bad reviews, you might want to try another agency.
If you do not have an insurance company in mind, contact your state insurance department to locate names of insurance companies doing business in your state. You can also find out about your state's minimum auto liability requirements and laws. Visit the National Association of Insurance Commissioners (NAIC) for a directory of state insurance websites.