Car Insurance 101


It can be hard to imagine your life without your car, right? It will not be possible for you to enjoy your experience as a motorist, nor make the most out of it, if you do not have proper vehicle insurance. What you probably have not realized yet is that there are different types of car insurance. Many of those are often determined by your state’s requirements on what makes a vehicle roadworthy. The options from which you can choose offer different protection in case of an accident so you need to be extra careful before you commit to any one of them. Take a look at our exhaustive and informative Car Insurance 101 guide to gain a better insight into this subject.

What is an insurance policy and how does it work?

In the United States, much like it is in the rest of the world, car insurance is designed to cover damages or loss of vehicles, as well as medical expenses for people who have had the misfortune to be involved in an auto collision. Each state has its own regulations regarding the type of insurance required from motorists, but typically it is something that is mandatory everywhere. There are exceptions, however, and those include Virginia, where you can pay a fee for an uninsured vehicle to the state. New Hampshire, Texas, Arizona, and Mississippi, on the other hand, offer the option to post cash bonds, instead of purchasing car insurance.

However, even if you are a resident of some of these states, it is highly recommended that you insure your vehicle, as that can be more cost-effective. Drivers operating a car without having an insurance card risk severe fines when discovered by the authorities, and are liable to pay for any damage and injury caused in a collision out of their own pockets.    

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Types of car insurance

You may find it surprising how little you know about the different kinds of coverage that your insurance agent can offer you beyond the minimum liability required by the state. There are several different types of policies that you can purchase:

  • Liability insurance
  • Personal Injury Protection (PIP)
  • Uninsured motorist/underinsured motorist coverage
  • Collision insurance
  • Comprehensive insurance
  • Gap insurance

Believe it or not, paying the insurance premium on any of those will not break the bank. At the same time, they will be of immense help.

Liability insurance

This is the most basic protection you get in the case you cause damage to someone else’s car or property. It covers both repair costs and potential legal fees. There are two types of LI. The Bodily Injury Liability will cover you in the unfortunate event that you hurt someone while driving. The Property Damage Liability will cover the costs for property damage caused by an accident when you are at fault.

Personal Injury Protection

Also known as no-fault insurance, this coverage will foot medical bills for you and any passenger of yours. It will be valid even when the accident was not your fault.

Uninsured motorist/underinsured motorist insurance

In case you are involved in a collision with an uninsured driver or become a victim of a hit-and-run driver, this option will have you covered. It will take care of your medical expenses, as well as a number of other costs.

Collision insurance

This type of coverage will pay for the repair of your vehicle even if the collision is your fault. That is why it is one of the most popular options out there. The downside is that it tends to be expensive.

Comprehensive insurance

There are damages that your car may suffer outside of a collision. Those can be caused by side factors such as hail storms or poor weather in general, thefts, vandalism, etc. This insurance will have you covered in each of these scenarios.

Gap insurance

If you have used an auto loan to purchase your car and it gets irreversibly damaged in an accident, this insurance will pay for the difference in the amount your car is worth and the amount you still owe on the loan. For example, if your car at the time of the collision is only worth $5000, but you still owe $7000, gap insurance will cover the $2000 difference. It works in cases in which you are unable to continue paying the loan too.

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Why vehicle insurance is important

No matter how safely you drive, there is no guarantee that the other people on the road will do the same. Statistics show that over 6 million traffic accidents occur each year in the United States. By analyzing the data available, one can draw several interesting conclusions:

  • Teen drivers are three times more likely to drive over the speed limit
  • 25% of car accidents occur due to texting while driving
  • Adults aged 15-44 account for half of the fatalities on the road
  • Uninsured motorists make up 16% of all active drivers on the road
  • High-risk drivers are 1% of all drivers on the road

Vehicle insurance protects you from out-of-pocket expenses related to damage caused to your car or bodily injury in case of a collision.

Costs of insurance programs

The premium is what you pay to your insurance agent toward the coverage of your car on a monthly basis. There is no fixed price. The money you will be required to set aside for insurance depends on a number of factors that include:

  • Type and age of the vehicle
  • Your age and gender
  • Your driving record
  • Average miles are driven per year
  • Zipcode

Basically, if car insurance companies determine that you are a high-risk driver, they are in their right to charge you extra for your coverage. Respectively, you may be able to use a number of discounts that agents typically offer in order to make their services more attractive. Those might include cuts in the price for being accident-free for a period of time, if you insure multiple vehicles with the same company, if you insure other property besides the car with the same agent, etc.

Why do men get charged more?

Simply put, it’s science. Analyzing the data concerning road accidents from a historic perspective, it becomes perfectly clear why men are subject to higher car insurance premium rates in most states. Male motorists are more likely to engage in high-risk behavior behind the wheel, including but not limited to: driving without a safety belt, drunk driving, speeding, not using turn signals and other instances of road-rage. Since the algorithms used by companies to prepare car insurance quotes take into consideration all those factors, they generally choose to charge male drivers more steeply.

Many people view such policies as discriminatory, however, and this is why several states have banned higher prices for car insurance coverage based solely on gender. Those states are California, Hawaii, Massachusetts, Montana, North Carolina, Pennsylvania, and Michigan.

Who’s considered an underinsured driver?

It is important to know that your policy has limits to the amount of money that you can receive as compensation for a collision. The same goes for the compensation of the motorist who suffered damage and/or injuries caused by you. This limit is determined by the premium rate that you pay every month.

Each state has its own policy regarding these so-called liability limits. If you are involved in a serious accident, those limits may not cover the bills you will amass as a result of the collision. That is when you become underinsured. It is highly recommended that you do not rely on the liability limits but instead opt for higher coverage, even though this means you will have to pay a little bit more each month.  

What else should I know about my insurance policy?

As you may have already guessed, insurance is not a simple matter. Even though many people view it just like they would view any other expense they make for their car each month, there are things that you should know if you want to make the most out of it and minimize the financial risks that you face each time you are on the road. Let’s take a look at several important terms that everybody seems to be talking about, but yet the former remain largely misunderstood.

Motor Vehicle Report

The pillar of the most basic insurance concept: low-risk motorists pay lower rates than high-risk drivers. This is a record kept by the state about your driving history in the past few years. The motor vehicle report includes information on all traffic violations, license suspensions, your current license status and any accidents you might have been involved in recently. The companies use those facts in determining whether or not you pose a risk on the road and estimate your premium based on that.

Named insured

That is the person who the policy covers. It is the name that appears on the insurance card.

Primary use

Basically, what you use your car for most of the time. Is it to commute to and from work? Are you using it to conduct business? Is it to run errands or just drive for pleasure? The main purpose of your vehicle may determine the premium you will be required to pay.

Principle driver

The person who uses the car the most. To put it in even simpler terms – if a traffic accident occurs, this is the individual who is most likely to be behind the wheel of the vehicle.

Having a better understanding of those terms and the way they work in the process of estimating your premium is crucial. Thus, if you have any questions or you do not understand a certain concept, do not be afraid to ask your insurance agent. The same goes for anything written under the Terms and Conditions of your insurance contract. It is much better to spend some additional time gaining the information first-hand than to be unpleasantly surprised if you find out that, for instance, your insurance policy does not cover certain damage when it is already too late to change anything.

When can an insurance provider drop you?

There are several instances in which you can be denied coverage by an agency with which you have already signed a policy. Make sure that you are not guilty of any of those offenses because they go on record, which will make it very hard and expensive to purchase insurance in the future:

  • If you fail to pay the premium
  • If it is discovered that you provided untrue information on your application form
  • If you get your license revoked/suspended due to offenses such as driving-under-the-influence or too many accidents

Please note that legislation differs from state to state. This means that in your place of residence, coverage providers may be able to drop you from their list for reasons other than the ones listed above. Ask your insurance provider or a state’s administrative body for further information on the laws regarding the issue.

Steps to Filing a Car Insurance Claim

As the saying goes: “Hope for the best but prepare for the worst.” In this particular case, it means that even though getting in an accident is a thing that we certainly wish you never have to experience, it is advisable that you are acquainted with the proper procedures in advance.

Being in an auto-collision is stressful, no matter whether you are at fault or not. Learning how to cope in such a situation on the go is not a good idea.  Fortunately, the steps you need to take are relatively simple.

Step #1: Call the police

This is Step One and it is of crucial importance. Having a police officer present at the accident site will help you in many ways. Their accident report serves as a proof for the insurance company that things happened the way you have described them in your claim. Officers will be able to help you assess the situation better since chances are that you might be quite shaken by the accident. They will deal with any potential problems you might have with the other motorist and determine whose fault the accident was.

Step #2: File an accident report

Most states will require you to file an accident report and submit it to the Department of Motor Vehicles. Ask the officers present about anything you do not understand in the report because you bear legal responsibility for the information you provide. You can check with your insurance agent or the state insurance commissioner’s office if you need additional assistance. It is part of their job responsibilities to help you.

Step #3: Prepare a car accident information list

Before you can file your claim, as per your car insurance policy, you have to be a hundred percent certain you have all the details about your car accident ready. Take a few pictures at the scene of the accident and capture the damages on the vehicles too, so that you have complete documentation of the situation.

Step #4: Contact the car insurance company

It is time to call your insurers. You can do that while waiting for the police to arrive too, but remember – first, wait to make sure that you are safe! The people at the agent’s office will tell you what the next steps toward your claim are and will give you tips on what to do, in case your vehicle is totaled and you cannot get home or to a garage with it. They can arrange for the car to be towed and even book you a rental car if that is covered by your insurance policy. The moment you call the company is the moment when your insurance claim is opened.

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Deal with a claim specialist

Once the claim is opened, your agent will assign a so-called claim specialist to assess the damage and the car accident. The adjusters, as they are also known, will investigate the collision and work as a mediator between you and the other party’s insurance company, as well as with anyone else involved. Their job is to process your claim and help you get your vehicle repaired.

It is possible to meet the adjuster in person, but in many cases, communication is done exclusively over the phone. Note that in case your vehicle is in a garage, they will contact the establishment and request a review on the damage costs. Many companies will provide you with a list of trusted garages where you are to repair your vehicle if you want the claim on your insurance policy to go through. They are responsible for dealing with personal injury claims as well.

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What if something goes wrong?

After you have completed those steps, the only thing that you have to do is repair your vehicle and wait for the compensation. If you feel like the whole process is taking too long or you find yourself in a dispute with the company providing your insurance, you might want to consider hiring a lawyer.

Before you do that, however, first check with the already-mentioned state insurance commissioner’s office.  It is their job to act as mediators in such disputes, protect the customer’s (i.e. your) best interest or at least provide you with information on how to proceed in the predicament in which you have found yourself. Calling the commissioner first will most likely save you a lot of money that would otherwise go for hefty lawyer’s fees.

How to save money on your vehicle insurance policy

That’s a million-dollar question, right? Turns out that there are several useful strategies that one might employ in order to bring their monthly premium rates down. What most people do is just pay the minimum required by law, but as we have already mentioned, that’s not such a good idea.

What we can advise you to do is to get car insurance quotes from as many companies as possible. You will notice there is some differences in the rates they offer. You will even be able to find some great deals for additional liability. At the end of the day, when you compare what you have to pay against potential expenses in case of an accident, the option to pay for an insurance policy becomes really attractive. Even then, paying more than you have to is not advisable, which is why you can employ some of the tested strategies below to bring your premium rates down.

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Directly ask for a discount

You may qualify for a number of attractive discounts without even realizing it. That is why it is always best to be straightforward and to-the-point when you talk to your insurance agent. Do not hesitate to ask for a price cut.

Gamble with the deductible

It is possible to reduce the premium rate by simply opting for a lower-bracket policy, taking the risk of having to part with some of your savings in case of an accident. This might be the perfect way to pay less for insurance for people who are generally cautious motorists and/or do not drive too often. You will have to pay a high deductible before you can claim insurance benefits, in case of an accident. So think things through carefully before choosing this option.

Tax deductions are an option

If you are using your car for business, you might be eligible for a tax deduction on your annual insurance policy. For example, if you are a self-employed traveling salesman and you use your vehicle to travel for business, you can ask for a tax deduction. Note that if you use your vehicle only half the time for work, you can get a deduction on just 50% of the premium you pay. Thus, you will be able to save money and still get a higher-bracket policy.

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Drive less

Since the number of miles you put behind the wheel is a factor in determining the insurance rate (see above), it is logical to pay less if you do not drive very regularly. Think about the ways in which you can minimize the distances you drive every month. Possible solutions range from riding a bike to walking or using public transportation and other lifestyle choices. All those options might not be a part of the traditional “American culture,” but they will save you money. Not to mention they are good for your health and the environment.

Do your research

Read carefully before you decide to sign with a certain agent. Your insurance coverage is important. It will not save your life, but it will also save you a lot of financial trouble and will help you look after your health, in case of an accident. That is why the most sensible thing to do is to ask as many questions as you can think of in advance. The more information, details, and estimates you collect beforehand, the better.

Summing it up

Now that we have taken the time to answer the most important questions concerning the car insurance policy and coverage, we are curious to find out about your personal experience on the matter.

Do you think that car coverage is important? Have you ever hard problems with an insurance agency? Share your thoughts and opinion. We would love you to give us your unique take on the subject!