Because car insurance is new territory for first-time drivers, it might feel a bit overwhelming; however, car insurance is easier to understand if you approach it with four basic factors in mind:
1) Minimum Liability Insurance Requirements
There are two types of liability insurance:
- Property Damage Liability Insurance: This covers damage to another person's property during an auto accident.
- Bodily Injury Liability Insurance: This covers injuries suffered by another person during an auto accident.
Nearly every state requires liability insurance (though some offer alternative forms of financial responsibility proof, such as filing a surety bond of a certain amount―still, even in those states, purchasing a liability insurance policy is the most popular option).
The amount of minimum liability coverage varies by state, but no matter which state it is, the minimum might not be enough to cover repair and medical expenses in the event of a serious accident, in which case you could be sued for any expenses not covered by your insurance policy.
For this reason, you might consider purchasing more than the state minimum. The amount of liability insurance you need depends on several factors―including your age, personal assets, and economic situation―insurance professionals recommend carrying at least $300,000 in bodily injury protection and $100,000 in property damage protection per accident.
2) Basic Kinds of Additional Coverage
There are many different kinds of additional coverage you can add on to your insurance policy, and you can discuss additional coverage with your insurance agent, who will talk with you about your specific needs.
However, below are three of the most common types to get you started.
1) Collision and Comprehensive Insurance
Liability insurance is mandatory in all states, but collision and comprehensive coverage is typically optional―unless you financed your vehicle and your lender requires these coverage types until you pay off your loan.
And, where liability insurance covers damages to other people's property, collision and comprehensive protects your property.
- Collision Insurance: This insurance covers damages to your own vehicle in the event of a collision-specific accident.
- Comprehensive Insurance: This insurance covers damages to your vehicle in the event of theft, vandalism, natural disasters, and weather conditions.
Purchasing these two types of coverage is a good idea even if you're not required to―especially if you live in a large metropolitan area, or you often commute in heavy traffic.
2) Underinsured and Uninsured Motorist Coverage
Because not all drivers obey the law and purchase insurance, and because many drivers who do purchase insurance opt to carry only the minimum liability amount required, you might also consider purchasing underinsured or uninsured motorist coverage.
- Underinsured Motorist Coverage: This insurance protects you if you're involved in an accident with a driver who has enough coverage to meet the state's requirements but not enough to cover the damages sustained.
- Uninsured Motorist Coverage: This insurance protects you if you're involved in an accident with a driver who has no coverage.
3) Personal Injury Protection (PIP)
Similar to underinsured motorist coverage, personal injury protection (PIP) is a medical payments coverage that covers the cost of all medical expenses not covered by another driver’s liability coverage. For example, if you are involved in a serious accident that requires you to spend a week in the hospital, your PIP policy will cover all hospital bills and related expenses.
PIP is also referred to as no fault coverage, and is actually required in some states.
3) Choosing a Deductible
The auto insurance deductible is amount you agree to pay out of pocket, in the event of a car accident. You can choose a deductible as low as $250, but choosing a higher deductible will typically reduce your insurance premium, which is the cost of maintaining your insurance policy.
Be aware, however, that choosing a deductible you cannot afford could lead financial hardship in the event of a serious accident. For this reason, you should choose a deductible you can afford to pay at any time.
4) Comparing Auto Insurance Quotes
You can compare car insurance quotes online or by contacting the Insurance Department in your state.
When you compare auto insurance quotes, be sure to compare packages with the same types of coverage and deductible amounts. You might also inquire about any available discounts, such as a discount for completing a defensive drivers education course, driving a vehicle with a high safety rating or with plenty of safety features, or even being married or of a certain age.