When it comes to choosing a car insurance policy, many of us are influenced by the insurance premium. However, cutting corners on costs may leave you underinsured and overexposed to road risks.
When you have the right information, it's simple to strike a balance between affordability and adequate car insurance coverage. Keep in mind that your car insurance representative is a valuable resource. Asking these five questions before purchasing a car insurance policy can help you get the coverage you need at a price that works for you.
1. Do I have adequate coverage?
The first answer to this question will be determined by the state in which you live. Most states require liability insurance at the very least, which covers the costs of accident-related injury, death, vehicle damage, property damage, and legal fees.
Once the minimum requirements have been met, ask your auto insurance representative to explain and recommend additional coverage options that are best suited to your specific needs. Collision, comprehensive, uninsured and underinsured motorist protection (UM/UIM) are common examples. Your representative should also explain how each affects your premium and "out-of-pocket" expenses following an accident.
If you have a lot of personal assets to protect, you should talk to your auto insurance representative about umbrella insurance. This is a separate personal liability policy that can cover costs where your car or home insurance leaves off.
2. Am I taking advantage of all available discounts and savings?
The cost of auto insurance is determined in part by the coverages, deductibles, and policy limits you select. It is also based on your "risk rating" — a calculation used to determine the likelihood that you will file a claim in the future. The age, gender, driving record, insurance score, and location of the vehicles on your policy will all play a role in determining the cost of your premium.
While there isn't much you can do to change your risk rating and thus the price of your policy premium, there are many discounts available to help you save money.
Safe driver, continuous car insurance, multi-policy, multi-car, and good student discounts are common savings for those who qualify. Additional savings may be available if you insure a new or hybrid/electric vehicle, or if you own a home. How and when you pay can also have an impact on your premium. If you pay in full, by electronic funds transfer (EFT), or by payroll deduction, as well as on time, your car insurance company may offer a discount.
Inquire with your car insurance representative to ensure that you are receiving all of the available discounts.
3. What Is Covered If My Car Is In An Accident or Damaged?
It is a common misconception that car insurance will automatically cover the replacement or repair of your vehicle after an accident, as well as towing or rental car fees. The reality is that without the proper coverage, you may not be able to enjoy these benefits.
If you cause an accident, liability insurance typically pays for damage to another driver's vehicle or someone else's property, and it is the minimum coverage required in most states. You will need collision coverage for accident-related damage and comprehensive coverage for non-accident incidents such as theft, vandalism, hitting an animal, or storm damage to cover the repair and replacement of your own car.
Ask your auto insurance representative if optional coverages such as roadside assistance and rental reimbursement are appropriate for you.
Uninsured/underinsured motorist insurance is another important coverage to discuss with your representative because it can help pay for damages and medical expenses if you are hit by a driver who does not have car insurance or has inadequate coverage.
Ask your car insurance representative about gap insurance if you have a lease or loan on your car. If your car is totaled, this coverage may pay the difference between what it is worth and what you still owe on it.
4. What happens if my car is involved in an accident and someone is injured or killed?
A top priority is to protect drivers, passengers, and pedestrians who are injured – or worse – in an accident. As a result, bodily injury liability insurance is the most important type of auto coverage a driver can have, as it covers accident-related expenses such as hospital and medical bills, lost wages, rehabilitation, and legal fees.
While bodily injury liability insurance is required in most states, the bare minimum may not provide adequate protection. Before purchasing car insurance, speak with your auto insurance representative about policy limits. Remember that you will be personally liable for any costs that exceed this limit.
In addition, ask your auto insurance representative to assist you in determining your need for additional coverage options and protections. These may include, depending on where you live:
Personal injury protection.
Medical payments coverage.
Uninsured/underinsured motorist coverage.
Total disability.
Work/income loss coverage.
Accidental death benefits.
Funeral expense coverage.
First party benefits.
5. What expenses will I have to pay "out-of-pocket" if I am in an accident?
The amount you will have to pay out of pocket for accident-related expenses is determined by your policy limits, coverages, and deductibles, as well as the specifics of the incident.
If you did not cause the accident, the other driver — and his or her car insurance company — is usually liable for any resulting damages or injuries. However, if the at-fault driver lacks car insurance or is underinsured, you may be on the hook for the bill. In this situation, ask your car insurance representative what you can do to ensure your policy will protect you, such as adding collision or uninsured/underinsured motorist coverage.
If you cause an accident, your auto insurance will typically cover repairs, medical, legal, and other related expenses up to your policy limits after you pay your deductibles. Assume your car is damaged in a covered accident that you caused, that you have collision coverage with a policy limit of up to $10,000, and that your deductible is $2,000. If the cost of repairing your car is $1,500, you will pay the full amount because it is less than your deductible. If the cost of repairing your car is $8,000, you will pay your $2,000 deductible and your insurer will cover the remaining $6,000. If the cost of repairing your car is $12,000, you will pay $4,000 (your deductible plus the $2,000 over your policy limit), and your insurer will pay the remaining $8,000.
Drivers frequently choose higher deductibles and lower policy limits to reduce monthly premiums. However, if you are unable to pay your deductible or accident-related expenses that exceed your policy limits, you may find yourself in financial difficulty. Before purchasing any policy, have your car insurance representative go over all of the possible outcomes with you. Work together to develop a policy that balances your individual needs with an affordable premium, deductible, and policy limit.