For newly licensed drivers, it can be difficult to understand auto insurance basics. The technical jargon used to describe auto insurance policies can be very confusing, so our experts at Affordable Insurance have put together a guide to auto insurance basics for our new customers, or for those who want to get up to speed on the terminology used in the insurance industry.
When you start looking at insurance packages, you will see that most offer a variety of different coverage options. These options will usually fall into one of the following six categories:
1. Bodily Injury Liability
2. Property Damage Liability
3. Collision
4. Comprehensive
5. Uninsured Motorist
6. Medical Payments
Any time you see the word “liability” mentioned, this indicates that the coverage will cover the expenses of other people. If you cause an accident involving damages to another car or injuries to people in another car, your liability insurance will be used to cover their costs.
The other four categories of insurance cover your own expenses when you suffer an accident causing damages to your automobile or injuries to yourself or your passengers. Some of these categories of insurance are required by law for all drivers, and some are optional. The law governing insurance requirements varies by state, so it is best to check the requirements for your own state.
Some terms that can confuse first-time insurance customers include premium, coverage and deductible:
• The premium is the cost of the policy. This figure is reached by adding up the individual premiums for each of the coverage options in your insurance package.
• The coverage of the insurance is the upper limit or maximum amount that can be paid out to you by the insurance company in the event of an accident, defined per person or accident.
• The deductible is the amount of money you have to pay out of pocket before the insurance coverage will start covering the costs.
For example, you can pay a premium $75 per year for medical payments coverage of $10,000 with a deductible of $100. This means that if you have an accident resulting in a need for medical treatment, the insurance company will pay out a maximum of $10,000 to cover the costs, but if the cost is below $100, you will have to pay for this yourself.
Usually, a higher premium will buy you a higher coverage limit and a lower deductible. When shopping for insurance, you need to weigh out the benefits of high insurance coverage with the risks of having an accident and the value of the assets you are trying to protect. If you can afford to pay out of pocket in an emergency, it may be worth choosing a higher deductible in order to get a lower premium on your insurance policy.
You may want to pay a higher premium and receive a better payout for comprehensive or collision coverage if you have an expensive, new vehicle. For an old vehicle of relatively low value, paying a high price for insurance may not be worthwhile.
Understanding auto insurance basics makes it easier, faster and less stressful to make the right decision when it comes to choosing or renewing your insurance. If you have any questions or need help choosing the right coverage, feel free to talk with one of our experts at Affordable Insurance. We know the auto insurance basics, as well as all the little details. We’ll make sure you get the right coverage.