Car insurance might seem complicated, but you can’t afford to put off learning how it works. The right policy can protect you financially in the event of accidents, theft, or natural disasters. By understanding the basics of car insurance, you can enjoy the peace of mind of being insured.
Is Car Insurance Really That Important?
It’s hard to overstate the importance of having car insurance. Not only is being insured a legal requirement for drivers in 48 of the 50 states, but it’s a no-brainer decision if you value your health and finances.
Generally speaking, car insurance can cover medical expenses, auto repairs, and insulate you from serious financial losses. Sounds like a handy piece of paper to have on you while driving, right? Unfortunately, there’s no one-size-fits-all policy, and this is where it gets complicated: you have to find a car insurance policy that offers the best coverage for your budget.
Types of Car Insurance
A variety of coverage types is available to cater to drivers’ diverse preferences. For example, most states insist that drivers possess minimum liability car insurance. This uncluttered policy covers medical and property damages when you’re at fault for an accident. However, it doesn’t provide financial relief for injuries or damages you sustain to your body or property. 1
Most drivers feel more comfortable with added protection, and that’s when it’s important to understand the car insurance types available. Let’s take a moment to review the ways you can fortify your policy and protect yourself.
Collision Insurance
Nobody intends to collide with a guard rail, telephone pole, or other vehicle while driving, but it happens all the time. In fact, the National Safety Council reports that there were 36,164 car crashes every day across the United States in 2021. 2 Fortunately, collision insurance can take the sting out of those instances, whether they’re fender benders or vehicle wrecks.
This type of coverage can pay for damages to your vehicle when you collide with anything from shrubs and potholes to buildings and other cars. However, collision insurance won’t protect your car if you strike a person or animal. It also doesn’t cover damages resulting from natural disasters, other weather-related occurrences, or theft. 3
Comprehensive Insurance
This type of insurance covers the dangers that collision insurance won’t, like vandalism, theft, natural disasters, and falling trees. It’ll even pay for car damages caused from striking an animal.
While a policy that covers nearly any environmental danger sounds attractive, comprehensive insurance might not be the best fit for every driver. For example, if you have an older vehicle that is paid off, or you live in an area where weather damage and theft are rare, it might not be worth the price. 4
MedPay and PIP Insurance
Medical payments coverage (MedPay) and personal injury protection (PIP) are smaller policies that focus on medical injuries. Both types cover any medical expenses for you and your passengers in the aftermath of a crash.
However, the big difference between these insurance types is that MedPay won’t cover lost wages as a result of downtime following an injury. PIP, on the other hand, can cover lost wages as well as funeral costs, if need be. 5
Uninsured and Underinsured Motorist Insurance
Uninsured and underinsured motorist policies are helpful if you’ve been in an accident with a driver who’s not only at-fault, but also doesn’t have the necessary liability insurance to cover medical expenses.
If the driver has no liability insurance, uninsured motorist insurance can be of service. If the driver has a limited policy that doesn’t cover the expenses, underinsured motorist insurance can step in to cover the outstanding costs. 6
Criteria to Consider Before You Select Car Insurance
As you explore car insurance options, there are some factors worth considering. Top of mind should be making sure that whichever policy you choose is in compliance with your state’s regulations. Additionally, you should make sure the insurance type is tailored to your particular driving habits.
Are you willing to take on higher deductibles? If you’re willing to pay out-of-pocket for more expenses, you can lower your monthly or annual premium significantly. It’s something to consider if your environment and driving habits suggest a lower risk for an accident.
The final factor to consider before choosing your car insurance is whether one insurer has better special offers than the rest. By reviewing the strengths and weaknesses of different insurance companies and comparing policies, you can determine which option provides the best coverage for less.
Tips To Lower Your Premiums
Luckily, you get to play a substantial role in how much you pay for car insurance. By maintaining a clean driving record, you can keep your rates low and even take advantage of ‘good driver’ discounts. 7 Alternatively, you can take a defensive driving course to improve your driving status in the eyes of insurers.
Another strategy involves bundling a number of insurance policies to unlock discounts. If you have homeowners insurance with the same company, you can enquire about bundling your policies. Likewise, if you have several vehicles and drivers on the same policy, you can be eligible for a discounted bulk rate.
How the Claims Process Works
While having the right amount of coverage is essential before you get into an accident, there are a number of other ways you can be prepared. Keep your proof of insurance in the car whenever you’re driving, as well as emergency items like road cones and flares.
Following an accident, it’s wise to call your insurance agent as quickly as possible. With all of the pertinent information available, they can oftentimes let you know if you’re covered for the damages. A “proof of claim” form is required.
Be sure to ask your insurance representative how to monitor your claim and whether there are any claim deadlines you need to know about. 8 Once the claims documents have been verified, your insurer will reimburse you for the insured portion of expenses.
Choose Your Car Insurance Carefully
The ramifications of being underinsured or not insured can cause extreme financial hardships, so it’s essential to choose your car insurance wisely. By understanding what each type of car insurance covers and what you need as a driver, you can get peace of mind knowing that you’re protected on the road.