Purchasing Car Insurance can be an intimidating process, full of bizarre terminology and conditions that exist only in the world of auto insurance.  In order to get the cheapest car insurance you need to go with a reliable brand that will be able to support you if needed, but still prices services competitively and has great bonus features (Accident Forgiveness, New Car Replacement, etc.).

Understanding the terms of the deal is essential to get the most for your money.  Read on to learn about the most important aspects of buying car insurance.

Common Elements of Car Insurance Coverage

Liability

Collision

Comprehensive

Premium

Deductible

About Liability Coverage

Car insurance exists to protect you against financial loss that may arise from the use of your car.  Many states require a certain amount of liability coverage.  This is the kind of insurance that pays for damage caused to others when you are at fault in a wreck.  This will NOT pay for your car repairs.

All car insurance plans require liability coverage at a level determined by the legally required minimum in your State.

What If I Don’t Have Liability Coverage?

If you don’t have Liability Coverage with your Car Insurance Policy, then you will likely be penalized, or even have your license and vehicle registration suspended

Also, you will be held personally responsible for any injuries you cause to others in a car wreck.  This means you could be sued and even forced to sell belongings, empty your savings and other sell assets in order to pay for a judgment against you.

Even if your state doesn’t require Liability Insurance Coverage it is still recommended that you get it to better protect you and your assets.

If you do have Liability Coverage, but with low limits, you could still be putting yourself at risk financially, since if you cause a serious accident where injury expenses exceed your Liability Coverage limits you can be held responsible for the amount in excess of your limits.

Liability Terms Example

The limits on liability coverage are displayed as three numbers, such as 50/100/25.

• 50:  Maximum amount, in thousands of dollars, of benefit paid for bodily injury per person in an accident ($50,000 in this example).

• 100: Maximum amount, in thousands of dollars, of total benefit paid for bodily injury in an accident ($100,000 in this example).

• 25: Maximum amount, in thousands of dollars, of benefit amount paid for property damage ($25,000 in this example).

About Collision Coverage

When you get in a wreck, Collision coverage pays for the damage to your vehicle. Collision coverage also may extend to cars you don’t own but are driving. Certain exclusions may apply.  Refer to your policy.

What If I Don’t Have Collision Coverage?

If you don’t have Collision Coverage as a part of your auto insurance policy and you are in a wreck than you may have to pay for your car’s repairs IF

• you are at fault, or

• you are NOT at fault AND the party at fault doesn’t have enough Liability Insurance Coverage.

Fortunately you can purchase Uninsured Motorist Protection as part of your plan!  This protects you against damage caused by uninsured or under-insured motorists even if you don’t have Collision Coverage.

If you have a relatively new or high-value car you definitely want Collision Protection.

If you have an older car of lesser resale value (without a lease or loan), you may not consider Collision Coverage necessary, since the cost of premiums may someday outweigh the potential payout.

About Comprehensive Coverage

Pays for your vehicle, and sometimes the cars of others, in incidents that are not wrecks. Comprehensive coverage protects against damage to your car if it is stolen; or damaged by flood, fire, or animals. It pays to fix your vehicle less the deductible you choose. To get and keep premiums as low as possible choose as high a deductible as you feel comfortable paying out of pocket. This coverage is not required by a state, but your lender or lease company may require it!

What If I Don’t Have Comprehensive Coverage?

Without comprehensive coverage, you are unable to make a car insurance claim if your vehicle receives physical damage that is considered “other than collision” damage by your insurer.  This leaves you personally responsible to pay for the damages, unless there is someone else found liable for the damages (such as a vandal or car thief) that are known and available for you to go after for the repair costs.

With a newer, high valued car, you will usually want this added protection for your vehicle, whether you have financed it or not.

If you have an older car with a low value (without a lease or loan on it), you may not want to pay for this coverage since if the car is damaged, or totaled, the low insurance compensation amount may not be worth the premium paid out.

What is a premium?

The premium is what you pay to maintain insurance coverage.  Different payment arrangements exist.  You may pay it once or twice a year or in regular installments.

What is a deductible?

This is the amount you pay out-of-pocket if you make a claim covered by your purchased car insurance policy.

If you deductible is low then you won’t have to pay much when you need to make a claim, but a lower deductible means a higher premium. And, of course, increasing your deductible lowers your premium payments, but increases what you’ll have to spend if you ever need to make a claim.

An example can help. Let’s say there is an accident, and the cost of repairs comes to $1500. If your deductible is $500, then you’ll pay the first $500 after which your car insurance company should pay the remaining $1,000 to repair your car and get you back on the road safe and sound.

There’s no magic bullet here, just consider what you would be comfortable pay in the event damage were to occur to your car.  If you drive rarely and just want to maintain some decent coverage beyond the legal minimum then select relatively high deductibles in order to keep your premiums low.  You only pay the deductibles if you need to make a claim.

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