What is car insurance?
Car insurance is an insurance policy that protects you from the cost of damages to physical property and bodily injuries resulting from incidents related to your car. Accidents involving your car occasionally happen, and car insurance (also referred to as auto, motor or vehicle insurance) provides drivers with the peace of mind that the costs of the risks involved are covered. Depending on your specific circumstances, you may require a specific type of driver insurance - such as if you are a foreign driver, a learner driver or an additional driver to the main registered vehicle owner.
Drivers today have a variety of options at their disposal - giving them a wide range of coverage options.
Why do I need car insurance?
All motorists in the USA are required, by law, to have car insurance. This means it is illegal to drive in any state without car insurance. The specific requirements of the insurance policy can vary between states but, it is absolutely compulsory that you have car insurance wherever you are in the nation.
You are required to provide proof of vehicle insurance when you carry out your vehicle registration. It is also mandatory in many states to carry proof of insurance in your vehicle at all times in case an accident occurs.
How does car insurance work?
Buying car insurance means that in exchange for a regular fixed payment (usually monthly or annual) all or some of the costs of vehicle accidents and related damages are covered by the insurance provider. The regular payment you make to your insurance provider is referred to as the insurance premium of your policy. When an auto accident or damage occurs, the insurance provider will pay all or some of the costs, so you will not have to pay a large amount out of your own pocket at that time.
The exact proportion of the costs covered by the insurance provider depends on your specific policy details. Each policy is different and every insurance provider will offer you different amounts of coverage. This is why it is important to shop around for a good value deal on your car insurance – if you do not select your policy carefully you could end up paying a lot of money in insurance premiums as well as high costs in damages in the unfortunate circumstance that an accident occurs.
When you buy a car insurance policy, the insurance company will provide you with an insurance card for the coverage term of your policy – this is your proof of insurance and you should carry it with you at all times in the vehicle.
How can I get car insurance?
There are a number of different ways to buy car insurance in today’s competitive marketplace. This is great for the buyer – who has the option to shop around and find the best deal for them.
Direct from the Insurance Company
One of the most common ways to buy car insurance is directly with a local agent of a large insurance company. The largest car insurance providers in the US are State Farm Insurance, Liberty Mutual Insurance, Allstate, Geico and The Travelers Companies. These are reputable firms with local offices nationwide. By consulting directly with a local agent from a recognised insurance company you can get guided and trustworthy advice on what various options that particular company can offer and also they are good at maintaining long term relationships with customers. You can get familiarity and a long lasting relationship from these providers. However, keep in mind that these types of agents will only offer you the products available at the company for which they work.
Independent Broker/ Insurance Agent
If you want more options, an effective alternative is to buy your car insurance from an independent insurance agent or broker. These types of insurance agencies also have local offices but can offer you products from many different insurance providers (including the big names listed above) instead of just one. This can be the best option for you in getting the most competitive price and the best policy coverage for your circumstances. These agents can also offer advice and guidance on the contract details of your policy. Before buying any car insurance with an independent broker or agent, it is vital that you check they are properly licensed to sell insurance policies. Do not hesitate to ask them at the very first meeting to see their licence documentation.
You can also buy car insurance online – both directly with the insurance company or through an insurance comparison tool. By going directly to the insurance company website, you can buy your car insurance online or over the phone with Geico, Progressive and Esurance and many other accredited, reputable names. This can be very convenient. However, the downside is that you lose face to face contact with your agent.
Online insurance comparison sites can find you a car insurance deal that may be better suited to your individual circumstances. These sites provide comparison services - considering the many options the various insurance companies each have to offer. Quote.com is a popular choice for buying car insurance online in this way. This type of site can also highlight policies that you really want to avoid.
How to pick the right car insurance policy?
Whichever route you take to actually buy your car insurance there are a few key features that you should look out for in your specific policy details before making your final selection. Your policy should include coverage for all of the following areas of insurance and you should keep a close eye on the exact amounts of coverage various policies can offer you:
1. Liability Insurance
One of the most important elements to your car insurance policy is the liability insurance – this covers bodily injury liability (injuries you cause to another party) and property damage liability (damage caused by you to someone else’s property).
WARNING: It is important to keep in mind that if the liability after an accident exceeds your amount of insurance cover you are liable for the remaining costs. In some cases this can lead to lawsuits where the opposing party will attempt to acquire your personal assets (including your home) as payment. Hospital costs and legal fees can even lead to bankruptcy.
SOLUTION: For a small increase in your premium you can get a lot more liability coverage and protect yourself against these kinds of astronomical damages. For even more peace of mind, if you can afford the marginal extra cost, the best option is to also take out a personal liability umbrella policy. This type of policy will raise your liability limit to a level that covers almost any event.
2. Collision Cover
Collision cover is for damage caused by you to your own vehicle. In this case it does not matter who was responsible for the damage. This type of cover usually has a deductible - keep in mind that the higher the deductible the lower your premium.
3. Comprehensive Cover
This element of your cover is for damages caused by incidents other than collisions – such as fire, theft, vandalism, weather – and will usually also have a deductible.
4. PIP Cover
PIP (personal injury protection) cover gives you additional flexibility in your insurance policy claiming process – but it is for bodily injury only, not vehicle damage. It is sometimes referred to as “no-fault” insurance and means that if you are involved in an accident that is not your fault you can claim for the damages from your own insurance company for personal injury instead of having to take the opposing party to court and prove it was their fault. PIP insurance is now compulsory in many states – including Texas, New York and Florida.
5. Uninsured Motorist Insurance
This part of your policy covers you for accidents with uninsured motorists and hit-and-run accidents. It is compulsory in most states. In many policies this will be covered within collision cover and you should double check this in your policy wording before paying for the same cover twice.
6. Under-Insured Motor Insurance
This covers you when the other party is responsible for your damages but has insufficient levels of insurance coverage to meet the costs.
When looking at different car insurance policies the above six areas of cover are vital. However, you have the ability to add on a number of extras to suit your personal circumstances – including cover for towing or the cost of a rental car for when your car is being repaired. These costs can add a significant amount to your premium so carefully consider whether you think you will ever actually need these extras before adding them to your policy.
What are the costs?
The amount you pay for your car insurance, the premium, can vary by a wildly based on a lot of different factors. Insurance companies will charge more based on how risky they assess your circumstances to be. For example, insurance premiums will be higher in inner city areas, where theft and accident are statistically more likely. The standard factors taken into account when calculating your premium include: age, gender, number of years of driving experience, make and type of car, your health, the type of insurance you require, your accident history, the age and value of your car alongside other factors.
Each insurance provider uses their own methods and models for calculating exactly how risky they think you are so your premium can vary a huge amount between providers - even though you have provided them with exactly the same personal information. It is therefore immensely valuable to shop around for the best deal.
How can I keep the costs low?
There are a few steps you can take to minimise your car insurance costs, including the following.
Shop around Car insurance is a market where you can end up paying more than double for the same amount of cover. You can make significant savings by taking a bit of time to compare policies and find the best one to suit your circumstances.
Maintain a good driving record This will keep your premiums lower and also over time you can accumulate a “no claims bonus”. This bonus is earned by maintaining a record of not making certain types of claim. The bonus reduces your car insurance premiums over time as you are classified as less risky by insurance providers.
Increase your deductible.
If you agree to shoulder part of the costs when an accident occurs, through a pre-agreed deductible, your regular premiums will be lowered.
Get a quote from your home insurance provider If you already buy home insurance from a company that offers car insurance they will often reward your loyalty with a discount on your car insurance policy.
Look out for discount policies Some insurers will offer up to a 10 percent discount for certain vehicle security features. For example, if your car is fitted with air bags or anti-lock brakes. Certain insurance providers also offer low mileage discounts.
Avoid Unnecessary Extras Do not buy the miscellaneous cover extras if you will not ever realistically need them – such as towing and car rental.
How to avoid possible pitfalls?
Car insurance is supposed to protect you as the buyer. Avoid these pitfalls to ensure you stay on the winning side of the equation.
- As the owner of the vehicle you must be the buyer of the car insurance policy – be certain that the documentation of your policy is in your name to avoid any extra costs later down the line.
- Do not make the dangerous and common error of lowering your premiums by choosing cover with lower liability limits. This can end up costing you a lot more in the long run and can even lead to bankruptcy.
- Do not under any circumstance give false information on your insurance paperwork. You must be upfront about previous driving accidents and offences – if your insurer later discovers any inaccuracy (including even the most irrelevant details) they can refuse to pay out in the event of a claim. Again - this can end up costing you a lot more in the long run and can even lead to bankruptcy.
- Follow the law. If you are found guilty of speeding or drink driving that results in injury or death then your insurance provider may revoke your cover and cancel your policy.
What if I have a bad driving history?
Insurers are reluctant to cover high risk individuals and will often charge two or three times a standard premium charge to drivers that have a bad driving history –such as those who have previously been banned for dangerous driving. Some insurance providers will be altogether unwilling to insure high risk drivers with risky histories. As car insurance is compulsory for all drivers, state regulators have set up a market to serve these customers – known as “Residual Market” programs. Through these state regulated programs insurance companies offer some level of car insurance to the parties they classify as high risk.
Buying car insurance does not have to be overly complicated or expensive. With a little bit of effort you can find the right deal for your circumstances and will have peace of mind that you are covered when you are out on the road. It is well worth the effort of doing a bit of research and comparing insurance providers – you could end up saving yourself a lot of money both now and in the future.