If getting your license was exciting, driving your own car meant you were really on your way. The first speed bump isn’t that far down the road though, and it can quickly let the air out of your tires: car insurance. Two little words with the power to make us grab our wallets and run for the hills. While we may begrudge every dollar poured down the insurance hole, even minor injuries from an accident can cause crippling financial setbacks. A safety net is an absolute necessity. The key to insurance is understanding how big of a safety net you need. Then you can tailor your policy to fit whatever stage you’re at in life.
Learn the Lingo
Insurance is protection against financial loss. You pay a regular fee and a premium for the assurance that if you experience a financial loss, the insurance company will help to cover it. Companies assess risk levels for different age groups, genders and lifestyles to develop a rate plan. This is why insurance rates for drivers under 25, people who statistically get into more accidents, are very high.
A deductible is a fixed portion of the accident costs you must pay before the benefits of the insurance plan kick in. Generally, the lower your premiums are, the higher the deductible you will have to pay when an accident occurs, and vice-versa. There are endless combinations of premiums and deductibles, and invariably there is one to fit your needs.
Liability is the most important type of auto insurance because most states require you to carry it. Bodily Injury Liability is going to protect you if you injure or kill someone. Property Damage Liability pays for the vehicle, building or mailbox you may damage in an accident. Many professionals recommend carrying high limits with liability to save money on your deductibles. It’s far easier to shell out a $500 deductible after a fender-bender than to come up with $250,000 to cover a lawsuit you didn’t expect.
Liability rates depend on where you live. Drivers in New York for example, are required to carry at least $25,000 for injury, $50,000 for death and $10,000 for property damage caused by any one accident, also known as 25/50/10. Check out insure.com for a list of minimum requirements by state or contact your state insurance department.
Collision is going to cover your car when you get into an accident, regardless of who is at fault. If you lease or finance your car, then you’re most likely required to carry it. However, if you drive an older car it might be wiser to skip this coverage and put that money in the credit union towards the purchase of a new one. Collision is generally the most expensive component of auto insurance, so check the Kelley Blue Book (kbb.com) to make sure your car isn’t worth less than what you are paying for in coverage.
Think of Comprehensive as the jack-of-all-trades coverage. Hailstorm? Covered. Riot? You bet. Comp covers almost any damage to your car aside from a vehicle-to-vehicle crash and requires a deductible. If you feel you can come up with $500 in the event of a freak tornado, you can keep your deductible high and save money on your monthly bill. Comprehensive costs vary depending on the city. For example, an area with a lot of car theft is going to spike your payments.
Wondering who’s going to pay for your hospital expenses should you need them? If the other driver doesn’t have any insurance, and the accident is not your fault, hopefully you signed up for Uninsured Motorist. Some states require this in addition to Bodily Injury Liability, so make sure you talk to a professional before you decide whether to decline this coverage. Uninsured Motorist generally costs less than Liability and Collision, and depends on your driving record, location and car.
Personal Injury Protection
Personal Injury Protection covers your medical expenses regardless of who is at fault. This covers lost wages as a result of your injury, as well as funeral expenses, if you’re unlucky enough to need them. It’s only available in some states, so check with a professional on this one. Personal Injury Protection should cost less than Liability and Collision, but is highly subject to all of the variables in your life.
The best things to do are to shop around and compare policies. Make sure to note the differences in limits and pay structures, or you will have a skewed view of which offer is the best. Rates can vary widely, even within the same city. Check with your credit union to see if they can offer you a great insurance rate.