Auto Insurance Basics:
What is auto insurance?
An auto insurance policy is a contract between you and an insurance company. You pay a premium. In exchange, the insurance company promises to pay for specific car-related financial losses that you may have during the term of the agreement.
Do you need it?
You need auto insurance because it's a legal requirement. State laws typically say that as a driver, you either must have insurance, or be able to provide evidence that you have the financial resources to pay a judgment against you, if you should cause injury or damage to another person. An insurance policy is the easiest way to document that you can pay damages if you must.
You also need auto insurance to protect yourself financially. If you or anyone for whom you're responsible seriously injures another person, you can be held liable for the injured person's medical expenses, rehabilitative therapy, and long term nursing care, as well as for his or her lost earnings.
As an example, if you or anyone in your household should happen to injure a bright, young medical student to such an extent that the medical student is prevented from practicing medicine for the rest of his life, you could find yourself the object of a judgment that could force you into personal bankruptcy. However, even personal bankruptcy would not relieve you of the obligation of paying the judgment as a result of injuries to that young student. That judgment could follow you - - and you could have to pay - - for the rest of your life. That’s why adequate insurance is essential to your economic health.
Who is covered under an auto policy?
Your policy covers you, your spouse, and other family members who live in your household and are entitled to drive one of your vehicles.
What is covered under the policy?
Your policy covers injuries or damages you cause to someone else. Most state laws require that you carry a minimum amount of liability insurance, which pays for injuries or damages you cause to someone else. (We recommend that you carry much more than the minimum - - enough to protect all your assets.)
What else is covered? That’s up to you. Once you've met the legal requirements, you should select other types and amounts of coverage that will tailor your policy to your own needs. Here's what an auto policy can cover, above and beyond your liability:
- Your car
Your automobiles as listed on the policy, and any additional vehicles you buy over the next year.
- Your cars against collisions
Your car is covered against collisions it may have with any other object, no matter who caused it.
- Your cars against damage from almost anything else
Vandalism, theft, broken glass, storms, and falling objects.
- You, your passengers, and your car against uninsured or underinsured motorists
If you’re hit by someone who either doesn’t have insurance, or doesn’t have enough insurance to cover the accident, your loss is covered under your auto policy.
- You and your passengers for medical injury payments
Reasonable medical (and funeral) expenses incurred as a result of injuries sustained in an accident.
What affects your auto insurance rates?
- Where you live
Where you live and drive your car has a significant impact on the cost of your insurance. This is because the frequency of things like vandalism and car theft, and the cost of things like car repairs and medical bills, vary enormously from one region to another. For example, operating a car in Chicago, Illinois, can cost twice as much as operating a car from nearly anywhere in South Dakota.
- The make and model of your car
The cost of insurance depends a great deal on what type of car you drive, too. (It can be helpful to bear this in mind when choosing a car, especially if you're on a tight budget.)
- Your driving record
Your insurance rates will be affected by any tickets you've received and violations of which you've been convicted over the past several years.
- Your age
Statistically, younger drivers get in more accidents and tend to get more tickets.
What can you do to reduce them?
- Choose your car
Choose a car that’s less expensive to insure.
- Take a class
Driver safety classes can help reduce your rates.
- Contest that ticket
Fees for fighting tickets usually add up to far less than costs of having the ticket on your driving record. (It may even be worth your while in some cases to hire an attorney to fight a ticket!) And often a ticket can be reduced or thrown out if the police officer doesn't show up in court.
- Drive safely
There's no surer way to keep the cost of insurance down than to be a careful driver.
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