Auto insurance coverage recommendations can be incredibly complex, but we will attempt to lay out a clear list of available options in order for you to make an informed decision. The premise behind an auto insurance policy is a distinct level of coverage for bodily injury liability and property damage liability from homeowner’s insurance. Bodily injury liability provides protection for injuries caused by an automotive accident while property damage liability covers damage caused by an automobile to public and private property. The only area of overlap between homeowner’s and auto insurance policies comes with an automotive accident on private property.
Your search for how to get auto insurance should start and end with a low premium price. Insurance companies use a number of factors to determine insurability including past driving history and geographic pricing restrictions. You need to utilize a similar system to locate an auto insurer that provides adequate coverage from the accident through to the final bill.
Selecting the Right Insurance Company
Most drivers have a fairly good idea about what type of auto insurance coverage they need. Drivers with families and individuals who possess a large amount of personal property need to have policies that go well beyond state insurance minimum requirements so that their financial and personal assets are fully protected. Individuals who do not have a lot of assets would be well advised to carry higher financial limits on certain aspects of their insurance policy in order to maintain and protect their livelihood (income). Auto insurance premiums should be considered an investment towards a secure financial future.
While the overall cost of an auto insurance policy is an important factor when choosing your coverage, it should not be the only factor. You want to be certain that you are getting the best value for the money you spend and this means doing some homework and learning about the different types of coverage offered and what discounts you may be eligible for.
Your investment in an insurance policy means that you are purchasing a virtual stake in whichever company you select. A well-managed and financially secure company can provide better service to its policyholders- a very important consideration when and if you ever file a claim. Some simple research into public trading of a company’s stocks as well as a quick call to your state’s insurance regulator can help you recognize an insurance company’s value in the market as well as the company’s legal ability to sell policies in your state.
Your initial list of insurers will become smaller as you do more research about each specific company. A final list of three auto insurers is recommended before you progress into the premium quote stage to avoid excessive mailings, e-mails and phone calls from insurers to whom you have expressed interest. It is important to compare your three final insurers on the same level of insurance coverage and customer service to find the right policy for your needs.
It is critical that you have the right information when asking for premium quotes to get an accurate price. Your driving record, including any accidents and traffic violations in the past, is important to help an insurance company determine the level of risk involved in providing a policy. You also need to keep a tally of annual mileage and mileage from home to work and back as a measure of the amount of time you spend in your car. Insurance companies will also need the make, model, mileage and safety features of your car to help generate an honest premium quote.
Weighing Benefits and Coverage Using a Matrix
A good way to approach different benefit and coverage types is to make a benefits matrix. You can place combinations of benefit types in the vertical axis and the name of the insurer in the horizontal axis to keep track of premiums based on different coverage levels.
The key to choosing the right benefit and coverage types when formulating your new insurance policy is reviewing other insurance policies you currently possess. Your employer-provided health insurance may provide adequate financial coverage for emergency situations and you may be able to decrease your medical payments benefit to lower your premium. You also need to anticipate the billing and claims process following an accident to avoid unnecessary confusion. The relatively low expense of medical payments compared to other benefit types means that you may want to purchase medical payments with your insurance policy to streamline the claims process.
A Primer on Coverage Types
There are six main types of automobile insurance coverage which you should focus on and consider when formulating a new insurance policy:
- Liability Insurance – This covers property damage and bodily injury to others for which you are held legally responsible.
- Bodily Injury Liability – This coverage pays legal bills and claims fees if you are involved in an accident where your car contributes to the injury or death of another motorist. You can cover other drivers of your vehicle under this liability as long as you provide expressed permission.
- Collision – This coverage pays off bills for repairs of your vehicle if you collide with another vehicle or a piece of property without consideration of responsibility.
- Comprehensive Physical Damage – Comprehensive coverage for physical damage to your vehicle includes payment for repair bills made necessary by vandalism, natural causes and other issues falling outside the purview of other benefit types.
- Personal Injury Protection (PIP) / Medical Payments – This provides additional insurance protection for any subsequent healthcare costs that are a direct result of an accident, no matter who is at fault.
- Uninsured/Underinsured Motorist – This benefit type protects you and your family from accident-related injuries caused by a motorist who lacks insurance entirely, has inadequate insurance coverage or leaves the scene of the accident without contacting law enforcement.
Type #1: Liability Auto Insurance
Liability insurance is intended to cover property damage and bodily injury that you cause to other people; it doesn’t cover your own expenses.
Every state has their own minimum liability requirements needed to insure a vehicle. Some states absolutely require you to carry this protection while others may give you the option to meet your financial responsibility through other means such as a cash deposit or surety bond. However, liability insurance is the easiest way for most drivers to meet their state’s financial responsibility requirements.
Liability insurance is an important safety net no driver should take lightly. If you are ever involved in a serious accident for which you are found even partly liable or at fault, you could face serious costs or even face lawsuits if you’re not covered. Liability insurance protects you from much of this particularly if it is combined with other forms of coverage. As long as you carry enough coverage, you should be able to handle most claims and lawsuits lodged against you and your insurance will handle your legal defense if necessary.
Liability insurance is typically divided into two primary categories: bodily injury liability and property damage liability, which are discussed below.
Type #2: Bodily Injury Liability Insurance
Bodily injury liability coverage protects you when you are at fault in an accident against personal injuries to your passengers and other parties.
This type of coverage typically covers costs such as physician and hospital bills, long-term care bills, lost wages, rehabilitation, and more. Bodily injury liability does not cover your own injuries or anyone else named on the policy. For example, if you are driving with two passengers, one of whom is named on your policy, the other who is not, your coverage will only apply to the latter.
Bodily injury coverage is typically required by most states but regardless of whether it is or isn’t, if you’re in an accident wherein there are injuries and you are found at fault, you will be financially responsible and liable for all associated costs. Keep in mind that this can very quickly spiral beyond your control, especially if the accident is a serious one.
If you are looking for bodily injury coverage for you and the other policy members, you might consider Personal Injury Protection (PIP).
Type #3: Comprehensive Auto Insurance
Comprehensive insurance, as the name suggests, is all-inclusive covering pretty much everything that can happen to your vehicle, other than an accident.
Comprehensive pays to repair/replace damage for things such as flood or fire damage, theft, vandalism, and animal collisions. Drivers typically combine comprehensive insurance with collision coverage and thus have a fuller protective umbrella.
No one is legally required to obtain comprehensive insurance but if you drive a new/mint condition vehicle or leased/financed vehicle, then it is definitely a wise investment. While a state won’t require it, sometimes your bank or lien holder will. Nevertheless, when trying to decide, it is best weigh the actual value of your vehicle versus how much it’s going to cost to insure.
Type: #4: Collision Car Insurance
The difference between collision insurance and comprehensive coverage is simple: Collision coverage insures your vehicle from damage arising from collision with other vehicles, immovable objects, and often road hazards such as potholes. Comprehensive coverage protects you from damage and losses stemming from pretty much everything and anything.
It’s important to remember that collision insurance will only cover your vehicle’s Actual Cash Value (ACV) and not the amount you paid the dealership. You’ll want to weigh this carefully when deciding whether to carry this coverage.
For example, say your vehicle is only worth $2000, if it is damaged in an accident, it might not be worth repairing and having collision insurance may end up costing you more than the vehicle itself. You may also have to pay a deductible so unless your car is newer and/or a high-priced make and model, such coverage probably doesn’t make a lot of sense.
Type #5: Personal Injury Protection Insurance (PIP)
Personal Injury Protection provides additional insurance protection for any subsequent healthcare costs that are a direct result of an accident, regardless of who is at fault.
Commonly referred to as PIP, Personal Injury Protection provides up to 80% coverage for further expenses such as medical costs, lost wages, rehab, long-term nursing care, and more.
The only states that require PIP are Colorado, Delaware, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania, Texas, and Utah. If you live in any of these states, your coverage limits will be pre-determined. If you live in a non-PIP state then the amount you carry will be up to you.
When deciding how much or whether to even carry PIP, you should consider how much health insurance you have. Also, if you frequently carry passengers, you should carry PIP because you will be responsible for their medical costs if you are involved in an injury accident.
Type #6: Uninsured and Underinsured Motorist Coverage
This type of coverage protects you against damage and injuries caused by somebody who is not covered or inadequately covered by liability insurance.
UM/UIM coverage is applied when it’s determined that the other driver does not have insurance, not enough insurance, when the driver’s insurance company cannot cover your injuries or damages, or when you’re the victim of a hit-and-run.
Should you become the victim of a UM/UIM accident, this type of coverage will cover you and your passengers’ medical expenses, vehicle damage, and possibly rental car reimbursement.
UM/UIM coverage is a legal requirement in some states. Other states recommend carrying it and even require insurance companies to inform their customers of its availability.
9 Additional Optional Coverages
While the coverage options listed above are considered some of the best choices to include in a complete and comprehensive auto insurance policy, there are many other types of coverage which you should be aware of and consider. Your driving habits and personal circumstances are important factors in determining the overall content of your insurance policy. To put together a policy which is designed specifically with your needs in mind, you might want to look over the following auto insurance choices which are also available:
- Property Damage Liability – Your purchase of property damage liability helps pay attorney fees, court costs and other costs associated with an accident involving damage to another person’s property.
- Medical Payments – Medical payments cover hospital bills if you or your beneficiaries are injured in an accident. This coverage provides medical payments if you are a passenger in another vehicle or receive injuries from an automobile while acting as a pedestrian.
- No-Fault Auto Insurance – This coverage allows you to recover any losses to you and/or your vehicle regardless of who is at fault.
- Fire/Theft Insurance – This is usually included within a comprehensive policy and is the most expensive auto insurance available- but it gives you the most protection for your vehicle.
- Physical Damage Insurance – This coverage protects against most types of damage to your vehicle but does not include normal wear-and-tear or regular maintenance services.
- Guaranteed Auto Protection (GAP Insurance) – This coverage protects you from depreciation if your vehicle is damaged or totaled before you pay off your loan.
- Rental Car Insurance – This protects you from financial liability if you have an accident while driving a rental car.
- Pay-Per-Mile or Pay-As-You-Drive (PAYD) – This coverage is based on actual miles driven.
- Any Auto Liability Insurance – This provides coverage for all vehicles listed on a business owner’s commercial vehicle policy whether they are owned, non-owned, or hired.
Option #1: Property Damage Liability Insurance
If you are found at fault in an accident, property damage liability insurance will protect from damage costs to someone else’s property.
Property damage liability is typically required to some extent in most states and usually financial lenders will require you to have it. If you don’t have it, any damages you cause to someone else’s vehicle or property will have to come out of your pocket. Property damage liability coverage does not cover your own property so if you are involved in an accident wherein you are found at fault, you will have to pay to get your own car repaired or replaced.
It usually also extends to cover damage to things such as fences, utility and light poles, mail boxes, garage doors, buildings, and more. You’ll want to review your policy to see exactly what it covers. You will likely have a deductible as well.
Property damage liability comes in two flavors: Combined Single Limit (CSL) or split limit coverage.
CSL is applied to bodily damage, property damage, or both. For example, you may elect to have $70,000 coverage wherein, if you cause a lot of damage to someone’s vehicle but no injuries, your insurance will cover repairs up to $70,000.
Conversely, split limit coverage allows you to apply a different limit to bodily and property damage. For example, you may choose to have $50,000 bodily injury liability and $10,000 property damage liability. Keep in mind though that if you were involved in an accident and you cause $20,000 worth of damage to someone’s vehicle, you’d be liable for the remaining $10,000 plus your deductible, if you have one.
Option #2: Medical Payments Coverage
When you are putting together an automobile insurance policy, you might want to consider adding the Medical Payments option to your overall coverage.
This optional coverage normally offers wide-ranging protection from medical issues which arise from various different accident scenarios. This could be from an accident involving your personally insured vehicle or an accident when you are the passenger in another person’s car. It can even include if you or a family member are hit by a vehicle when walking.
Medical payment coverage typically protects not only you but also any passengers or family members riding in the insured vehicle at the time of an accident.
Even for those individuals who have health insurance through their employer, the addition of medical payments coverage to an auto insurance policy makes good sense. Most health insurance policies come with a substantial deductible- meaning you have to pay that amount out-of-pocket before your insurance company will authorize payment of any medical bills.
If you carry the medical payments option, it can help cover some, if not all, of the deductible amount. Additionally, most health insurance policies do not extend coverage to any passengers in the automobile at the time of an accident.
Here is what medical payments coverage normally helps pay for:
- Doctor visits
- Hospital visits/stays
- EMT and ambulance charges
- Professional nursing care
- Funeral costs
Medical payments coverage generally provides protection to you, your passengers, and any family members driving the insured vehicle when the accident occurs. This coverage is allowed no matter who is deemed at fault for the accident.
Option #3: No-Fault Auto Insurance
No-fault insurance coverage allows you to recover any losses to you and/or your vehicle regardless of who is at fault.
If you live in a no-fault state, you are covered financially because your insurance company will pay you no matter who caused the accident. Conversely, the other insurance company will pay for their customer’s injuries and damages to his/her vehicle.
Once fault is determined, the insurance companies have to work things out between themselves.
It’s important to check your state’s regulations regarding no-fault limits because sometimes they don’t apply to property damage and you could still be sued. In cases such as this, you may want to increase your property damage liability coverage.
It’s important to check your state’s regulations regarding no-fault limits because sometimes they don’t apply to property damage and you could still be sued. In cases such as this, you may want to increase your property damage liability coverage.
Option #4: Fire and Theft Insurance
Fire and theft insurance is usually part of a comprehensive policy.
Other than protecting a driver from theft and fire-related losses, comprehensive coverage also extends to floods, earthquakes, vandals, lightning damage, and more. Fire and theft protection, as part of a comprehensive policy, is the most expensive auto insurance you can buy but it affords you the most protection for your vehicle.
One of the best ways to save money on your premiums is to have a higher deductible; the higher the deductible, the lower the premium. Remember though, each time your initiate a claim, you will have to pay your deductible so if you incur $1200 worth of damage to your vehicle and your deductible is $1000, your insurance will only be responsible for $200.
Another good way to protect your vehicle(s) and lower premiums is to have any number of anti-theft devices such as an alarm or window etchings.
Option #5: Physical Damage Coverage
Physical damage coverage insures your vehicle against any conceivable type of damage that can happen to it; it does not cover everyday wear-and-tear or regular maintenance like oil and tire changes.
Typically physical damage coverage is optional unless you are leasing or financing a vehicle. That said, if you have a high-priced, classic/antique, or new car and you have the option, carrying physical damage coverage is highly recommended.
This type of coverage is typically paired with a deductible. It will be up to you when deciding how much a deductible to carry but it’s important to remember the lower it is, the higher your premium.
Option #6: Guaranteed Auto Protection Insurance (GAP)
Guaranteed Auto Protection or GAP insurance or loan/lease payoff coverage is essentially insurance that protects you from depreciation if your car is wrecked or totaled before you can pay off the loan.
Since new vehicles depreciate dramatically in the first year you own one, if you are involved in an accident and your vehicle is damaged beyond repair (totaled) your insurance policy will only pay for the actual cash value (ACV) of the car.
What this essentially means is if you buy a car for $50,000 and you put down $5000, you will have to take out a loan for $45,000. Let’s say you drive the car for 8 months paying $500 per month ($4000) and it depreciates by about $15,000. That means that the car’s ACV is only $35,000 and you’ll have managed to pay for $9000 of it. If at that point you are in an accident and your car is wrecked beyond repair, the insurance company will only pay you $35,000 for it. That means you still owe your financial lender $6000 out-of-pocket to cover the “gap” caused by depreciation.
GAP insurance plugs this hole and may even cover your deductible as well.
Option #7: Rental Car Insurance
Purchase rental car insurance that will protect from financial liability if you are involved in an accident while driving a rental car.
It differs from rental car reimbursement, which pays you to rent a car while your car is being repaired.
Rental car agencies offer many forms of coverage some which are as follows:
- Loss Damage Waiver (LDW) or Collision Damage Waiver (CDW) offers comprehensive-like protection and covers any number of potential calamities that can befall a rental car including and up to replacement costs. Depending on the policy, an LDW may cover other expenses such as towing as well.
- Liability Coverage is very similar to what you would carry for your personal vehicle. The rental car agency will automatically cover you with that state’s liability minimums.
- Personal Accident Insurance (PAI) essentially covers medical payments and other associated costs and is similar to the medical insurance you find with many personal auto insurance policies.
- Personal Effects Coverage (PEC) covers the cost of replacing any items stolen from a rental car.
If you have a personal insurance policy, then most of what a rental car agency offers is probably already covered. Of course, you should check your policy carefully before making this assumption. In any event, the only thing that won’t be covered for sure are personal effects, however you may be covered under your homeowner’s policy (if you have one). Make sure to check beforehand to see if your policy extends to rental vehicles.
Finally, many times credit card companies will offer free rental insurance if you use their card to rent a car. It typically covers only collision and theft coverage so make sure you check the policy specifics ahead of time.
Rental car insurance costs will vary from agency to agency and can cost renters anywhere from $5 to $20 per day, depending on what kind and how much coverage you elect to carry.
Option #8: Pay-Per-Mile Insurance
Pay-per-mile insurance or pay-as-you-drive (PAYD) is based on usage, that is to say, it only accounts for the miles you drive.
While it will depend largely on your insurance company, your driving habits may be tracked by GPS or regular odometer readings. Other devices will allow the insurer to record your speed, distance, and breaking habits. Each of these systems has its own drawbacks and merits. GPS can’t track driving habits while habit monitoring systems can’t track where you drive.
Pay-per-mile insurance is a good bet for people who don’t drive very often but bear in mind that your rates could increase depending on how and where you drive. You may also need to pay your insurer for a monitoring device or service.
Option #9: Any Auto Liability Insurance
Any Auto Liability Insurance covers all vehicles listed on a business owner’s commercial vehicle policy whether they are owned, non-owned, or hired.
It may also extend to those vehicles you add during the policy’s term even if you forget to inform your insurance company. Companies that typically carry any auto protection are one’s that rely heavily on vehicles such as builders, florists, landscapers, and others.
Any Auto may have exclusions and restrictions and may not be available in all states or situations. It also doesn’t cover physical damage such as with collision or comprehensive coverage.
Determining the best way how to get car insurance is a complex process that involves the constant evaluation of risk-vs-cost. Increasing protection for decreasing risks is always going to drive up your monthly costs. On the other hand, rare events and catastrophic accidents can happen. In the ideal world, we would not need insurance as we would self-insure, but in a world with increasing asset costs (risk), increasing wealth, the opposite trend of insuring more seems likely.
When in doubt, speak to property & casualty (home and life) insurance agent.