April 19, 2023

Auto Insurance 101 Basics Explained

What is auto insurance and how does it work

Auto Insurance 101 Made Easy

Aka - car insurance for everyday drivers

Auto insurance is something that most people have to deal with at some point in their lives.

From the driver's education course you took in high school, your parents probably drilled it into your head how important auto insurance is.

But now that you're an adult and are finally ready to take the plunge into getting yourself a car, you might wonder what all of these numbers mean when they talk about coverage limits and deductibles. 

Don't worry - we're here to help! This post will cover everything from personal liability to collision coverage so that by the end of this blog post, you'll know exactly what type of policy best fits your needs and budget!

Understanding insurance can often be like trying to learn a foreign language. Many find it confusing and intimidating. Fortunately, there’s help. Here is a quick reference designed to help you understand some of the most common kinds of coverage. Insurance Brokers put together the reference guide.

What is auto insurance and why do I need it

Car insurance is what you need if you own a car. It pays for injuries that might be caused by an accident, and it also pays to fix your car after an accident. You may have heard the saying "no one plans on being in an accident." That's true, but accidents do happen so it's important to be prepared. When accidents happen, auto insurance can help you out with medical expenses and vehicle repairs because no one expects them to happen either!

Types of coverage - liability, collision, comprehensive

Do you know what types of coverage your car insurance policy includes? If not, don't worry. This blog post will break down the different types and give a brief description of each. You'll also learn about when to purchase or add these coverages to your auto insurance policy!

Liability covers bodily injury and property damage (BI/PD). This covers your legal liability, up to the dollar limits you select, for damages caused to others in a covered vehicle accident. In most states today, liability insurance is mandatory.

Under BI/PD, your insurance company pays for damages to an injured person and for property damage that you are legally obligated to pay as a result of an accident. If your policy covers you in the event you’re sued after an accident, your insurance company will pay for a lawyer to defend you.

Liability limits generally appear as three numbers, for example, 25/50/25 or 100/300/100. The first number refers to the maximum amount, in thousands, that your insurance company is obligated to pay for bodily injury per person. The second number is the maxi-mum that would be paid out for bodily injury per claim and the third number represents the maxi-mum amount your insurance company is obligated to pay for property damage you cause.

What you should know about your auto insurance deductible

Collision. When you buy collision coverage, your insurance company pays for damages if your vehicle collides with another vehicle or object. Collision coverage involves a deductible amount you select when you purchase your policy. This amount is what you are required to pay before your insurance company starts picking up the tab. Remember, the deductible amount is the amount you need to pay in the event of a claim.

Comprehensive covers dam-age caused by events other than a car collision—such as fire, theft, vandalism, hail or flood. It also covers damage caused by your vehicle colliding with an animal. And if your car is stolen, it will cover the cost of a rental, subject to a daily limit. Like collision coverage, a deductible usually applies.

Medical Coverage. Depending on the state in which you live, you may have available to you Medical Payments coverage or Personal Injury Protection (PIP) coverage. While these both work differently, they provide coverage for medical care provided to you as a result of a car accident.

What you should know about your auto insurance deductible

A deductible is the amount of money you, as the car insurance buyer, agree to pay before your insurer will start paying for any damages.

The higher your deductible, the lower your premium will be. You should consider how much risk you are willing to take on when selecting a deductible.

If you think it's unlikely that anything bad could happen to your vehicle in one year or less (which would make sense if you drive an older used car), then go ahead and choose a high deductible like $1K or even $2K; but if something bad did happen, and you needed significant repairs after just six months of driving, then choosing a low-deductible policy might be wiser because it would be easier on your wallet in case of an accident

What are some of the most common myths about car insurance that you hear and how they're wrong

Do you know what your car insurance covers? There are a lot of myths out there about car insurance that people believe. I'm going to cover three common ones and give you the truth about each one.

Myth #1: My auto insurance pays for new tires when they wear out. Truth: Most auto policies will only cover tire replacement if an accident is involved or it's due to a flat tire or blowout, not just because the tires wore down from use.

Myth #2: If my bumper gets scratched, my auto policy will pay for me to get it fixed/painted. Truth: Auto policies usually only cover dents and such as part of their collision coverage (which usually comes with an additional premium).

Myth #3: If someone else drives my car they don't need their own liability coverage because mine covers them too. Wrong! Your policy only extends to accidents involving you as the driver, not whoever borrows or steals your vehicle.  Check policy details to verify if someone is covered if you give permission, as some carriers exclude coverage. 

Who is eligible for discounts on their auto insurance policy

Car insurance is a huge expense, but as an auto insurance buyer, you have the power to save on your premiums.

In some states, there are discounts available for those who maintain an excellent driving record and/or have completed driver's education courses. There may also be other discounts available based on where you live or work.

Our advice is to ask about discounts you might qualify for including multiple policy or multi-vehicle discounts.

An independent insurance agent can help you determine the price, coverage and service that best meets your needs. 

For car insurance quotes from the top agents in the country (Insurance Brokers Group), click on the link below.

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John Espenschied is a long-time veteran of the insurance industry. He's worked with thousands of clients over the years, helping to protect their personal and business needs. John's goal is to provide the best advice possible to assist customers in saving money while protecting their property and securing their financial future.
He truly enjoys helping others and takes great satisfaction in providing top-notch customer service. When he's not working, John has fun spending time with his family, golfing, bike riding, and blogging on insurance topics.