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An car insurance rate policy is actually a package
of different types of coverage. Most states require
you to purchase a minimum amount of some of these. But
if you're interested in protecting yourself from a lawsuit
or from wicked repair bills, it makes sense to buy more
than what's required.
Liability coverage is the foundation of any car insurance
rate policy, and is required in most states. If you
are at fault in an accident, your liability insurance
rate will pay for the bodily injury and property damage
expenses caused to third parties in the accident, including
legal bills. Bodily injury expenses include medical
bills and lost wages. Property damage expenses pay for
the repair or replacement of things you wrecked. The
third party may also decide to sue you in order to collect
"pain and suffering" damages.
Remember, if you cause a serious accident, minimum
insurance may not cover you adequately. That's why it's
a good idea to buy more than what your state requires.
The car insurance rate varies for this coverage yet
is generally the cheapest to get.
Insurance rate types usually refer to liability coverage
limits as a series of three numbers. For example, your
agent might say that your policy carries liability limits
of 20/40/10. That stands for $20,000 in bodily injury
coverage per person, $40,000 in bodily injury coverage
per accident, and $10,000 in property damage coverage
per accident.
Replacement cost vs. actual value
Replacement cost is the amount it would take to replace
your vehicle or repair damages with materials of similar
kind and quality, without deducting for depreciation.
Depreciation is the decrease in vehicle value because
of age or wear and tear.
Actual cash value (ACV) is the value of your property
when it is damaged or destroyed. Claims adjusters usually
figure ACV by taking the replacement cost and subtracting
depreciation. For example, an car that costs $5,000
may have a reasonable "life" of 5 years. If
it is destroyed after 10 years, its actual cash value
will be substantially less than $5,000 because of depreciation.
It's usually better to go with replacement cost coverage.
Although the rate is higher, in most cases the extra
protection may be worth it. Make sure to ask your agent
which kind of coverage you have on your car policy.
The car insurance rate varies for this coverage.
Collision
If you cause an accident, collision coverage will pay
to repair your vehicle. You usually can't collect any
more than the actual cash value of your car, which is
not the same as the car's replacement cost. Collision
coverage is normally the most expensive rate of car
insurance. By choosing a higher deductible, say $250
or even $500, you can keep your premium costs down.
However, keep in mind that you must pay the amount of
your deductible before the insurance company kicks in
any money after an accident.
Insurance companies often will "total" your
car if the repairs the company must pay exceed what
the car is worth. The car insurance rate varies for
this coverage.
Comprehensive
Comprehensive coverage will pay for damages to your
car that weren't caused by an car accident; damages
from theft, fire, vandalism, natural disasters, or hitting
a deer all qualify. Comprehensive coverage also comes
with a deductible and your insurer will only pay as
much as the car was worth when it got wrecked. The car
insurance rate varies for this coverage.
Because insurance companies normally will not pay you
more than your car's book value, it's helpful if you
have a rough idea of this amount. Most insurance adjusters
use the Kelley Blue Book. The National carmobile Dealers
Association also publishes the Official Used Car Guide,
which is updated each month. If your car is worth less
than what you're paying for the coverage, you're better
off not having it.
Medical payments coverage will pay for your and your
passengers' medical expenses after an accident. These
expenses can arise from accidents while you're driving
your car or someone else's car (with their permission)
and injuries you or your family members incur when you're
pedestrians. The coverage will pay regardless of who
is at fault, but if someone else is liable, your insurer
may seek to recoup the expenses from them. The car insurance
rate varies for this coverage.
Personal injury protection (PIP) and broader "no-fault"
coverage are expanded forms of medical payments protection
that may be required in your state. Some states have
optional PIP or no-fault coverage. Expanded features
include lost wages and payments for childcare.
Uninsured motorists (UM) coverage pays for your injuries
if you're struck by a hit-and-run driver or someone
who doesn't have car insurance. It is required in many
states.
Underinsured motorists (UIM) coverage will pay out
if the driver who hit you causes more damage than his
or her liability coverage can cover. In some states,
UM or UIM coverage will also pay for property damages.
The car insurance rate varies for this coverage.
Several supplemental types of coverage are available,
either as separate premium items or included in augmented
policies.
Rental reimbursement, a common add-on, covers vehicle
rentals required because your car is damaged or stolen.
Coverage for towing and labor charges in case of a
breakdown is also common.
car replacement coverage guarantees your car will
be completely repaired or replaced, even if these costs
exceed its depreciated value.
There are also some great ways to save so that you
can increase your coverage and still keep your carmobile
insurance premiums within your budget:
Driver's ed and burglar alarms
Consider installing an anti-theft device and buying
cars with passive restraints such as airbags. Take a
driver's education course. Driver's education is especially
important for teenagers or adults just learning to drive
because taking (and passing) the course will keep the
premiums down. Many states now require teenagers to
take driver's education before they can get a license.
Buy a low-theft car
Check out what your insurance premiums would be for
different models of cars you're considering before you
make a decision on what to buy. If you buy a car that's
considered a high theft risk, your premiums will be
much higher than if you settle on models less likely
to be stolen. Your insurance agent or company or your
state insurance department can give you a list of vehicles
on the "high theft list." The car insurance
rate varies for this coverage.
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