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Before you hit the road, understand that nearly every state requires some form of financial responsibility from drivers. Most states require a minimum amount of car insurance, though some states allow drivers to prove financial responsibility via other means, such as filing a surety bond of a certain amount.
Liability insurance is a two-fold type of coverage:
Bodily injury coverage: This covers injuries suffered by another person during an auto accident.
Property damage coverage: This covers damage to another person's property during an auto accident.
Note that liability insurance doesn’t cover you or your car—unless you’re the injured party (and even then, it’s the other person’s insurance that covers you). Thus, it’s important to consider other types of optional coverage (see “Optional Coverages” below).
Because your car insurance provider is licensed to sell insurance in your state, your agent is schooled on your state’s minimum liability insurance requirements; still, you can prepare yourself by choosing your state in our section on Car Insurance.
There are many different kinds of additional coverage you can add on to your car insurance policy, and you can discuss additional coverage types with your insurance agent, who will talk with you about your specific needs.
Below are three of the most common types of additional coverage that drivers request.
1) Collision and Comprehensive Coverage
Where liability insurance covers damages to other people's property, collision and comprehensive is considered physical damage coverage and protects your property.Collision insurance: This insurance covers damages to your own vehicle in the event of a collision. Comprehensive insurance: This insurance covers damages to your vehicle in the event of theft, vandalism, natural disasters, animal collisions, and weather conditions.
Purchasing these two types of coverage is a good idea even if you're not required to do so. It can be especially useful if you live in a large metropolitan area, or you often commute in heavy traffic.
However, if your vehicle is older, collision and comprehensive insurance might not pay off; in the long run, you could end up paying more in premiums than you would to repair your vehicle.
If you are like many first-time drivers, your first car will probably be second-hand or low-value, so you might want to avoid these coverages. Also, remember that this may be just another reason to avoid that flashy new car. A cheaper car probably doesn’t need as much coverage, so you’ll save money on the purchase AND on your insurance!
2) Underinsured and Uninsured Motorist Coverage
Uninsured and underinsured motorist coverage protects you in the case that you get hit by a driver who doesn’t have coverage to pay for your damages and/or injuries.Underinsured motorist coverage: This insurance protects you if you're involved in an accident with a driver who doesn’t have high enough insurance limits to cover the damages sustained. Uninsured motorist coverage: This insurance protects you if you're involved in an accident with a driver who has no coverage.
3) Personal Injury Protection (PIP)
Similar to underinsured motorist coverage, personal injury protection (PIP insurance) is a medical coverage that covers the cost of your own medical expenses related to an accident, whether or not you were at fault.
PIP insurance coverage allows you to get your medical bills paid without having to wait for the conclusion of a lengthy accident investigation.
PIP is also referred to as no-fault coverage, and is required in some states. Check our Car Insurance section to see what types of insurance you must buy in your state.
There are multiple other types of coverages. These include:Medical payments coverage. Rental reimbursement coverage. Towing and labor coverage. Emergency roadside assistance coverage.
Car Insurance Rates and Premiums
Your car insurance rate, or premium, is the payment you make to have car insurance coverage.
Rates vary from provider to provider, but some of the most common factors car insurance companies use when determining your insurance rates include:The amount and type(s) of coverage you want (and need). Your driving record, also known as a motor vehicle record (MVR). Your MVR is a record of your driving history and helps car insurance companies determine the risk involved when insuring you. MVRs provide information including your: Current driver license status. Any at-fault accidents in which you’ve been involved. Your vehicle. This includes factors such as: The make and model. How at risk the vehicle is for being stolen or vandalized. How much it would cost to repair the vehicle. How many (if any) safety features the vehicle has installed. The vehicle’s overall safety rating. Where you park your vehicle (specifically, how safe the location is). Where you live. Vehicles in urban areas notoriously are more expensive to insure than those in rural areas. How often you drive. Vehicle owners who don’t drive much tend to get lower rates than those who spend a lot of time behind the wheel. Your credit score. Many auto insurance companies determine factors such as how likely you are to make payments on time or file a complaint based on your credit history. Some personal information, such as your age and gender. For example, females 25 years old and older tend to get lower premiums because they belong to two groups less likely to become involved in accidents: women and drivers over 25.
Again, because providers’ rates vary, it’s important to shop around for car insurance coverage. Get quotes from a variety of companies before choosing the best insurance policy and rates for you.
See “How to Shop for Insurance” below for more details.
Car Insurance Limits
Your car insurance limit is the highest amount of coverage your company provides on a specific coverage.
For example, if your collision limit is $10, 000 and you incur $15, 000 in damages to your vehicle, your car insurance company will pay $10, 000 and you’ll be responsible for the remaining $5, 000.