Understanding Auto Insurance

Over the course of your life, you may spend tens of thousands of dollars on auto insurance, but are you spending it where it's most needed? Look for the following important features when searching for an auto insurance policy.

Bodily injury/property damage liability
As with homeowner's liability insurance, auto liability insurance provides insurance against lawsuits. Especially in a car, accidents happen. Make sure that you have enough bodily injury liability insurance to cover your assets. (Coverage of double your assets is preferable.)

If you're just beginning to accumulate assets, don't mistakenly assume that you don't need liability protection. Many states require a minimum amount — insurers can fill you in on the details for your state.

Property damage liability insurance covers damage done by your car to other people's cars and property. The amount of property damage liability coverage in an auto insurance policy is usually determined as a consequence of the bodily injury amount selected. $50,000 is a good minimum to start with.

Uninsured or underinsured motorist liability
When you are in an accident with another motorist and he doesn't carry his own liability protection or doesn't carry enough, uninsured or underinsured motorist liability coverage allows you to collect for lost wages, medical expenses, and pain and suffering incurred in the accident.

Should you already have comprehensive health and long-term disability insurance, then uninsured or underinsured motorist liability coverage is largely redundant. You do give up the ability to sue for general pain and suffering if you drop this coverage and to insure passengers in your car who may lack adequate medical and disability coverage.

Deductibles
To keep your auto insurance premiums down and to eliminate the need to file small claims, take the highest deductibles you're comfortable with (most people should consider $500 to $1,000). On an auto policy, two deductibles exist:


Collision applies to claims arising from collisions (note that you can generally bypass collision coverage when you rent a car if you have collision coverage on your own policy).


Comprehensive applies to other claims for damages not caused by collision (for example, a window broken by vandals).

As your car ages and is worth less, you can eventually eliminate your comprehensive and collision coverages altogether. The point at which you do this is up to you. Remember that the purpose of insurance is to compensate you for losses that are financially catastrophic to you. Insurers won't pay more than the book value of your car, regardless of what it costs to repair or replace it.



Special discounts
You may be eligible for special discounts on auto insurance. Don't forget to tell your agent or insurer if your car has a security alarm, air bags, or antilock brakes. If you're older or have other policies or cars insured with the same insurer, you may also qualify for discounts. And make sure that you're given appropriate "good driver" discounts if you've been accident- and ticket-free in recent years.

And here's another idea: Before you buy your next car, call insurers and ask for insurance quotes for the different models that you're considering. The cost of insuring a car should factor into your decision as to which car you buy because the insurance costs will be a major portion of your car's ongoing operating expenses.



Little-stuff coverage to skip
Auto insurers have dreamed up all sorts of riders, such as towing and rental car reimbursement. On the surface, these riders appear to be inexpensive. But the riders are expensive given the little that you'd collect from a claim plus the hassle of filing.

Riders that waive the deductible under certain circumstances make no sense, either. The point of the deductible is to reduce your policy cost and the hassle of filing small claims.

Medical payments coverage typically pays a few thousand dollars for medical expenses. If you and your passengers carry major medical insurance coverage, this rider isn't really necessary. Besides, a few thousand dollars of medical coverage doesn't protect you against catastrophic expenses.

Roadside assistance, towing, and rental car reimbursement coverage will only pay small dollar amounts and aren't worth buying. In fact, if you belong to an automobile club, you may already have some of these coverages.

Where to buy auto insurance
To obtain quotes for auto insurance, compare any of the following major providers that may be in your area:


Amica


GEICO


Liberty Mutual


Nationwide Mutual


State Farm


Progressive

Coping with teen drivers
If you have a teenage driver in your household, in addition to worrying a lot more, you are going to be spending a lot more on auto insurance. Best parental advice: Keep your teenager out of your car as long as possible.

If you allow your teenager to drive, you can take a number of steps to avoid spending all of your take-home pay on auto insurance bills:


Make sure that your teen does well in school. Some insurers offer discounts if your child is a high-academic achiever and has successfully completed a nonrequired driver's education class.


Get price quotes from several insurers to see how adding your teen driver to your policy affects the cost.


Have your teenager share in the costs of using the car. If you pay all the insurance, gas, oil changing, and maintenance bills, your teenager won't value the privilege of using your "free" car.

Of course, letting teens drive shouldn't just be about keeping your insurance bills to a minimum. Auto accidents are the number one cause of death for teens. So, before you let your teen drive, be sure to educate him or her about the big risks of driving and the importance of not riding in a car driven by someone who is intoxicated. Also be sure that your teens drive in safe cars.