A Beginner’s Guide to Auto Insurance
If you’re buying a car for the first time or are coming off your parents’ auto insurance policy, you might not completely understand what auto insurance is all about. This quick guide gives you the basics so you can talk to an insurance provider and get set up with what you need.
What is Auto Insurance?
Auto insurance is a product that protects you from the risk of a financial loss due to automobile use or operations. As a consumer, you pay a premium to the auto insurance carrier. The cost of your premium is based on your age, your vehicle’s age, your driving record, the geographic location where the vehicle is housed, the coverages you intend to purchase and other risk factors. In exchange for the premium, the insurance carrier issues an insurance policy that provides you the coverage you need.
What is an Auto Insurer?
An auto insurer is an insurance company that underwrites and issues the auto policy of insurance to the insurance customer. Auto insurance products are designed to protect both consumers and businesses.
Auto insurance companies come in different sizes and have different appetites in terms of the types of risks they insure. For example, some carriers sell only personal lines auto insurance products, and some only underwrite business auto policies. Others offer both personal and commercial lines options. In addition to providing different products, auto insurers also come in different sizes. We are all familiar with national players like Allstate, Geico and Progressive, but there are also a significant number of state-specific or regionally based auto insurance carriers that also underwrite auto insurance policies.
What Kinds of Auto Coverage are There?
There are various types of coverage available under personal or commercial automobile insurance policies. The premium for each coverage type is calculated based on your risk factors and is then aggregated for all coverages to generate the overall annual cost of the auto insurance policy. Here are some of the most common coverage types and their broad definitions:
- Collision – If damage occurs because of your vehicle’s impact with another vehicle or object, this first-party coverage is applied, regardless of fault. It covers any damages to your vehicle minus applicable deductibles.
- Comprehensive – This coverage ensures against loss or damage to your vehicle resulting from any cause other than collision and circumstances specifically excluded by the policy. For example, comprehensive coverage provides loss protection from fires, theft, windstorms, floods, glass breakage and vandalism. Like collision coverage, comprehensive coverage usually carries a deductible.
- Property Damage – This liability coverage pays for the cost of repairs —up to the limit of coverage purchased—to other vehicles or non-vehicular property (Ex. houses, buildings, fences or other personal properties) if you are fully or partially at fault for an accident. This coverage does not pay for damages to your vehicle, which is handled by collision coverage (if you included that as part of your policy). This coverage type on personal lines policies rarely has deductibles.
- Bodily Injury – This liability coverage pays for damages—up to the limit of coverage purchased—associated with injuries other people have suffered because of an auto accident where you are fully or partially at fault. If you were at fault for the loss, bodily injury coverage is not applicable for your injuries. Damages include medical expenses, lost wages, pain and suffering and permanent impairment. Deductibles are rarely associated with this coverage type on personal lines policies.
- Uninsured Motorist – This covers you or your passengers for damages caused by an operator of another vehicle who doesn’t have an auto liability policy of insurance. Suppose you are injured or your automobile is damaged in an accident where the uninsured driver is at fault. In that case, this coverage will pay for your vehicle repairs and your injuries—up to the limit of coverage.
- Personal Injury Protection (PIP)/Medical Payments – PIP coverage or “no fault” insurance helps cover medical, funeral and lost wage costs incurred—up to the limit of coverage—for you, your passengers and, in some scenarios, pedestrians, because of an auto accident or auto operations. While some states require that auto insurers offer PIP coverage, in states that do not mandate PIP coverage, you have the option to purchase a similar coverage called medical payments. This coverage pays for medical expenses for you and your passengers up to a certain limit of coverage, regardless of fault.
- Roadside Service – This coverage reimburses costs associated with mechanical breakdowns such as a tow to a repair shop or jumping a dead battery.
- Loss of Use – Also referred to as “rental reimbursement,” this coverage provides daily and overall limits of coverage to rent a replacement vehicle if your insured vehicle cannot be driven because of damages sustained in a covered collision or comprehensive loss.
How Much Coverage Do I Need?
It depends on your risk profile, risk factors, appetite for risk and the type of vehicle you seek to insure. If you own a 20-year-old car with 300,000 miles that is only worth $1,500, you will certainly need to carry liability coverage per state regulations, but it may not make sense to purchase collision or comprehensive coverage since the premiums paid may exceed the value of the vehicle.
Where Do I Start?
All 50 U.S. states and the District of Columbia require that owners of motor vehicles carry mandatory minimum liability insurance via a liability insurance policy or a bond to ensure that vehicle owners can take responsibility for any damage they cause because of motor vehicle usage. To find out what liability insurance is required in your state, check out this chart from the Insurance Information Institute.
To determine what coverages to purchase, you should connect with an insurance agent or insurance direct writer salesperson who can help you assess your auto risk factors and coverage needs to determine the most appropriate coverage strategy. The agent or salesperson can also help you navigate and understand the Personal Auto Policy to provide deeper explanations of potential gaps in terms of what is and is not covered in the context of your potential risks.
In addition to finding out what coverage you need, consumers often look to reviews to see which companies offer the best customer service, communication and transparency. Gaining an understanding for how an insurance provider treats customers will give you a better idea of how they may handle your claim in the future.
Learn more about auto insurance and how Hi Marley is accelerating and simplifying auto claim resolutions, by emailing me at [email protected]!