3 Beginner's Rules for Car Insurance
#1 – Do Your Research, Know the Terms
You can't strike a good bargain if you don't really understand the topic. Car insurance has plenty of terminology that you will have to get used to. Here's a brief look at some basic terms:
Coverage: The conditions under which the insurance company will pay for damages and injuries, including the maximum amount of money they agree to pay.
Deductible: The money you pay out-of-pocket for damages and injuries for which you file a claim. This is the portion of the damages on the claim that you pay yourself. You and the insurer agree to this when deciding the policy.
Policy: The total sum of conditions and agreements between you and the insurer. This includes the terms of coverage, premiums, deductibles, and more.
Premium: A recurring fee paid to the car insurance company by the policyholder to keep coverage active. Once every defined billing period, you must pay for car insurance. Premiums are based on the risk you represent.
#2 – Understand State Laws, Mandates
Car insurance is a bit different in each state. Firstly, there are two types of car insurance system in the US:
Tort Liability (fault): Insurance companies pay out claims based on degree of fault for collisions. Because insurance companies and policyholders do not often agree with each other, court cases tend to resolve disputes. Lawsuits are quite common in tort states.
No Fault: Rather than going to court, no fault insurance attempts to do away with the importance of determining fault. It eliminates degrees of fault. The authorities determine who is at fault, and that person is responsible for covering damages. Each driver is responsible for his or her own injuries, regardless of fault. You can only sue for damages if a certain threshold (defined by the state) is passed.
States will also require you to have certain types of coverage and mandate minimum amounts. Liability insurance of some sort is required in 49 of 50 states. The mandates will appear as three numbers separated by slashes. In California, for instance, the requirement is 15/30/5.
$15,000 for injury/death to one person.
$30,000 for injury/death to more than one person.
$5,000 for damage to property.
Make sure you have at least the minimum requirement for your state.
#3 – Understand Coverage Types, Contradictions
There are tens of coverage types, and you should understand each when taking out a policy.
The most important coverages are liability and bodily injury liability in tort states and personal injury protection in no fault states.
Collision and Comprehensive car insurance are used to cover damage to your vehicle regardless of fault.