Shopping for Car Insurance 101
- a1forcellc
- Oct 19, 2024
- 5 min read
Updated: Jun 4
By: Destiny C
Shopping for car insurance can be overwhelming and frustrating, especially when you don't know what you are looking for. Some people may be required to have what financiers call "Full Coverage" because it's required when purchasing a new car, while others may only have liability insurance since it is the most basic requirement in most states. This blog on car insurance will aim to help provide a more basic understanding of what car insurance is, how to understand it, and why it is important.
What is Car Insurance?
Car insurance is the transfer of liability/risk to a provider/insurer. This means: if you have car insurance and you get in an accident that results in a loss, it's on your insurance company to take care of it. Of course, there are some conditions and limitations that come with the insurance, which I will explain later, but that is the most basic definition of car insurance. Investopedia defines car insurance as, "a contract between yourself and an insurance company in which you agree to pay premiums in exchange for protection against financial losses stemming from an accident or other damage to the vehicle." Both definitions are correct.
Why is Car Insurance Important?
If you're similar to me, you probably don't have a large sum of money readily available in case of an accident. Car insurance serves as a cost-effective way to safeguard your finances against the potential risks associated with owning and operating a vehicle. It's crucial to have car insurance to avoid facing substantial financial losses resulting from an accident. In addition to the financial implications, accidents can bring about emotional distress, medical issues, and other challenges. Bearing the financial burden on top of these difficulties could have a severe impact on your financial well-being, personal life, and mental health. Insurance provides a sense of security and peace of mind.
Different Types of Coverages
Below are a few coverages I listed along with explanations. Please be aware that not all insurance companies offer every coverage mentioned here, as they may have unique non-standard features. Additionally, there could be additional coverages not included in the list. It is recommended that you conduct further research from this point onwards.
Liability
Is a third-party coverage that covers injuries or property damage to other drivers if you're at fault in an accident. In plain terms, if you screw up, the insurance company will pay the victim driver on your behalf.
Collision
This coverage helps with the repair or replacement of your vehicle if it suffers a loss or damage, no matter who is responsible. For instance, if your vehicle is damaged by hitting another car, a pole, or if it rolls over, you would benefit from collision coverage in these situations. This coverage would help cover the expenses of repairing or replacing the vehicle.
Comprehensive
This coverage in some states is also known as "other than collision" coverage. This would cover you for anything other than collision, such as hitting an animal, hail, theft, etc.
Uninsured/Underinsured Motorist
Covers injuries or property damage in a scenario where someone without insurance (uninsured) or with not enough insurance (underinsured) injures you or damages your property, and they're at fault.
Rental Car Reimbursement
Reimburses you for the cost of a rental car while your vehicle is being repaired.
Roadside Assistance
Tows your vehicle to a nearby repair shop and may also provide other services.
Medical Payments
This insurance provides coverage for both you and your passenger in case of an accident. It is paid out to you regardless of who is responsible. It usually covers payments for dental, medical, funeral, and death costs.
Accident Forgiveness
This coverage will help waive the surcharges for your first at-fault accident. Normally, being in an at-fault accident leads to an increase in your insurance rates, but this coverage will help with those surcharges.
Ride Share Gap Protection
This feature offers protection for ride-share drivers who are between assignments with Uber, Lyft, and similar services. It does not offer coverage while actively engaged in an assignment (such as picking up or dropping off passengers or deliveries).
Car Replacement Assistance
This coverage will typically pay an additional percentage on top of the vehicle's actual cash value if the vehicle is beyond repair.
How to Read Insurance Limits
When reviewing insurance coverages, you will encounter two to three sets of numbers separated by slashes. This may seem confusing to first-time insurance buyers. However, they hold great importance. Below is an example of what you might come across:
It can also appear as:
Bodily Injury & Property Damage Liability: $25,000/$50,000/$20,000
Each Person
Take note of the initial figure of $25,000, which specifies that it applies per person. In the case of an accident resulting in injury, your insurance coverage will only compensate up to $25,000 per person. It is crucial to bear in mind that if the incurred expenses exceed this set limit, you will be responsible for covering the remaining amount personally.
Each Accident
The second figure shown in the image, $50,000, specifies that this amount is for each individual accident. This indicates that in the event of an accident, your insurance coverage would only provide up to $50,000 for all injured individuals in that specific accident. For instance, if three individuals were injured, where person one incurred $20,000 in damages, person two incurred $25,000, and person three incurred $10,000, each person falls within the per person limit of $25,000. However, your insurance policy sets a maximum limit of $50,000 per accident. When you add up the damages for each person, the total comes to $55,000, exceeding the $50,000 limit by $5,000. In such a scenario, you would be responsible for covering the additional $5,000 as your policy limits have been reached.
Property Damage
The last number is $20,000 for property damage per accident. This means your policy will pay up to $20,000 per accident in property damage.
Things to consider when choosing limits
I understand insurance may just feel like a requirement to drive, and you don't really care for it. However, it can provide peace of mind knowing you're covered in the event of a loss. When choosing limits, some people will prioritize saving money by choosing the minimum limits. I challenge you to factor in the cost of potential damages for cars around you, such as a Tesla. Also, consider possible injuries and fees that may come into play when choosing your limits per person/accident. For example, an ambulance ride can cost $10,000 in some cases. That amount is already deducted from the per person limit, leaving them with $15,000. After all the procedures and equipment used, you may end up closer to paying out of pocket, which you want to avoid. Cutting corners to save money in the short run has the potential to hurt you in the long run. That's the thing about pure risk; you never know what will happen. Apply this thinking when it comes to other limits and scenarios as well. Focus on peace of mind and try to find that balance with saving money.
Below is a link of car insurance companies so you can get comparable quotes:
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