The Complete Guide to Buying Car Insurance

A Complete Guide to Buying Auto Insurance

It takes a lot to claim something is the “Complete Guide,” especially about a topic as robust as car insurance. But that was not going to stop me from writing Policy Matters, which can be found below, in its entirety.

Whether you are a car insurance newbie, or have owned dozens of policies over your lifetime, I am confident that the information below will provide some insight which will help you in making a better decision about your future insurance needs.

If you have any questions or additional insight you would like to provide for other readers, please leave your feedback in the comment section at the bottom of the page.

Sincerely,
Eric Stauffer

Table of Contents

Overview

A Brief History Lesson on Auto Insurance

Car insurance is so ingrained in today’s society that we may assume it has been around forever. It can be hard to imagine that the first auto liability insurance policy was written just over 100 years ago.

Since its debut back in 1897, car insurance has changed dramatically and become one of the most important financial tools available to individuals and families today.

Auto insurance got its roots from ancient maritime insurance, which protected seafarers from financial losses by pooling money together to cover those who experienced an accident. The principal has not changed much over the years, despite the rise in auto insurance popularity.

Modern insurance policies can be bundled with many add-ons like roadside assistance and rental car reimbursement, but the core function of car insurance remains the same:

Protect the policyholder from large financial losses.

Why Car Insurance is Important to You

For many people, car insurance is “just something you have to buy” and is never top-of-mind unless they are paying their premium, in an accident, or asked to show their proof of insurance to a police officer. The truth is that auto insurance is one of the most powerful tools in an individual’s financial arsenal and most do not even realize it.

Insurance (especially liability) allows individuals and families to leverage the size and strength of large financial institutions (insurance companies) for just a few dollars a day. What that means is by simply paying a premium, a policyholder can place a giant barrier of financial protection between themselves and the rest of the driving public.

Imagine for a moment that you woke up tomorrow and there were no insurance companies to cover the cost of an accident. Imagine if every cost from an at-fault crash landed on your front door. Entire life savings and homes could be wiped out in the blink of an eye. Car insurance offers individuals and families the peace of mind that their lives can continue in a relatively similar manner even after being held liable for an accident.

State Minimums are a Recipe for Disaster

Talk to any licensed auto insurance agent and they will tell you that many people request the cheapest policy they can possibly get. In order to legally drive, a policyholder must have minimum levels of liability insurance as set by the specific state they live in. The inherent problem here is that the majority of states have minimums so low that even a moderate accident can be financially devastating.

Example

At the time of this writing, the state of California has minimum liability insurance requirements that look like this:

  • $15,000 for injury or death to one person
  • $30,000 for injury or death to more than one person
  • $5,000 for damage to others property

Let’s first take a look at the “damage to others property” limit. This is the TOTAL amount an insurance company will pay out for all damage to other people’s cars, buildings, etc. in the case of an at-fault accident.

If a driver who carries the state minimums in California gets into a moderately severe accident with a newer BMW 325i, how far do you think $5,000 will go?

Probably not that far.

Now imagine there were a couple cars that ended up being totaled. After the insurance company pays out its $5,000 as stated in the policy, the at-fault driver is liable for the rest of the damages. That means savings accounts, investment accounts, homes, etc. are all up for grabs when the damaged party sues them.

The damage done to property can really add up, but the big league costs start showing up when you injure or kill someone else in an accident.

In California, an insurance policy issued with state minimum liability coverage will pay up to $15,000 TOTAL per person for any injury or death claim. If you put someone in the hospital with any sort of broken bones or worse, $15,000 could barely make a dent in the overall cost. The rest of the burden falls on your doorstep.

Coverage Types

Liability Coverage

Car insurance is required in all 50 states for anyone who wishes to operate a motor vehicle on public roads. Each state has its own requirements for the types of insurance and minimum coverage amounts, but the common prerequisite between them all is liability insurance.

According to Princeton’s WordNet, liability insurance means:

Insurance that provides protection from claims arising from injuries or damage to other people or property.

Auto liability insurance is no different.

It pays for harm done to another individual or property by the operator of an insured vehicle. So if driver A is at fault for an accident with driver B, driver A’s liability insurance would pay for damages to driver B’s car as well as their medical expenses. (There are exceptions here, such as no-fault state laws. But for now we will stick with the basics.)

However, most policies do not simply have a “liability” coverage amount that pays for all types of liabilities (except combined limit policies). They are typically broke into two separate parts; Bodily Injury Liability and Property Damage Liability.

Bodily Injury Liability

Bodily injury liability covers the cost of hurting someone else, outside of the driver’s car. This could be a pedestrian, a person in another car or even someone on a bike. The coverage will pay for the medical bills associated with the incident as well as legal costs that arise from it. So if the individual sues the driver, their bodily injury liability coverage will help pay for it.

Who Needs Bodily Injury Liability Coverage?

Nearly every person who operates a motor vehicle on public roads is required to have bodily injury insurance. There are a few exceptions, such as motorcycle riders in some states, but it is a good idea for anyone who is on the road to have coverage.

Liability insurance is one of the most affordable ways to protect an individual or family, as one accident can bankrupt someone without the proper protection.

Example

Bob is driving to work when he rear-ends Ted at a stop light. Ted’s airbag deploys, breaking his nose and sending him to the hospital where the bill comes out to $10,000. In addition to the broken nose, Ted sues Bob for the pain and suffering the accident has caused him, totaling an additional $20,000.

Bob has an insurance policy which includes bodily injury coverage with a policy value of $250,000 per person. His insurance company pays the $10,000 for Ted’s nose, covers Bob’s legal fees, and pays the additional $20,000 to Ted for his pain and suffering. All Bob was responsible to pay for was his insurance deductible, and the bodily injury part of his policy paid the rest.

Property Damage Liability

In an automobile accident there is often property which gets damaged. This can be another car, a building or even a light pole. While the bodily injury liability part of the policy pays for the people involved, the property damage liability pays for the other stuff.

Of the two types of liability insurance generally found on a car insurance policy, the property damage section usually comes with less coverage. Some states have requirements as low as $5,000, which can quickly be exceeded if running into an expensive car.

Who needs property damage insurance?

Just as everyone should have bodily injury insurance, nearly every person operating a vehicle should have property damage liability coverage as well.

Property value can add up very quickly in a severe accident, especially when there is more than one car involved. With the average price of new cars over $30,000, a big accident could send an individual or family into serious financial hardship if they are not property covered.

Example

Tina takes a left into the wrong lane and runs into Jeff who is waiting at a stop light. Jeff just bought a new BMW which cost $35,000. Tina hit him very hard and caused a lot of damage to the car. After the repair shop looks over the vehicle, they determine it is a total loss, and the car must be replaced.

Luckily, Tina has a good insurance policy that contains $100,000 worth of property damage liability coverage. Her insurance company issues a check to Jeff for the replacement value of his car, and Tina pays her deductible.

Personal Injury Protection (PIP)

Personal injury protection, or PIP for short, is an additional protection added to an auto insurance policy that is available in some states. It is often referred to as “no-fault” protection, because claims are paid out to the policyholder regardless of who was at fault in an accident.

The primary role of PIP is to cover reasonable medical costs that occur due to an auto accident. The people covered are generally the driver and passengers in the car, but in some cases can extend to other individuals, like a pedestrian that is struck by the insured vehicle.

Medical bills associated with the covered individuals are paid by the insurance company without regard for fault, up to the policy limit. Certain states have different rules about how insurance companies can be reimbursed by an at-fault party, but this is often done behind the scenes so the policyholder is unaffected.

In addition to medical bills, personal injury protection can cover extended costs associated with an accident. For example, wages lost due to a covered auto accident can sometimes be covered by PIP. Other extended costs like child care and lawn care can also be covered if the accident is preventing the insured from performing those tasks.

Who Should Have PIP

For people residing in states where personal injury protection is optional, it is a good idea to consider adding it to their policy.

Since PIP is primarily medical care coverage for those that sustain injuries during an accident, it is important to understand how it fits with a health insurance policy. Individuals or families that have very good health care coverage which requires little out of pocket costs may do fine without PIP altogether. On the other hand, someone who has very little health insurance coverage or has very high deductibles may want to consider adding PIP to their policy.

Individuals that regularly drive non-family members in their cars should consider having high PIP coverage. The driver and family may have a good health insurance plan that covers them in the event of an accident, but other passengers may not. Personal injury protection will help cover the passenger’s health care costs, regardless of their health insurance situation.

States With Mandatory PIP Requirements

Since auto insurance is regulated at the state level, every state has their own guidelines for how PIP should be handled and who has to have it. Here is a list of states which require personal injury protection to be a part of all car insurance policies:

  • Delaware
  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Oregon
  • Pennsylvania
  • Utah

Medical Payments Coverage

Medical payments coverage, often shortened to med-pay, is a first-party coverage that offers protection to a policyholder in the event of an accident. In general, med-pay covers the insured driver and any passengers in the vehicle. It also provides protection to individuals who are passengers in another person’s vehicle, hit as a pedestrian or injured by a vehicle in a non-collision way.

For example, a policyholder who is injured while working on his or her insured vehicle may have those medical payments covered by the insurance policy.

Med-pay covers reasonable and necessary medical expenses including doctor’s visits, hospitalization, prescription medication and physical therapy as a result of vehicle-related injuries.

In cases where a driver has no medical insurance, med-pay can cover many of the on-going costs of accident-related treatments. If a driver does have medical insurance, the auto policy’s medical payments coverage is usually applied to the bill first, with health insurance taking care of any excess expense.

No-Fault States

Different state laws govern the way insurance claims are handled across the country.

There are 15 states with some type of no-fault insurance law in place, and medical payments coverage is necessary in these states. In these no-fault states, a driver is not held liable for another driver’s injuries after a collision, even if he caused that collision. Instead, each driver’s own insurance is responsible for paying for his or her injuries.

Some states are completely no-fault, while others will have a monetary threshold.

For example, Massachusetts has a $4,000 threshold. The first $4,000 in medical expenses are paid by an insured’s own policy; over that amount, the other party may be held liable.

If you live in a state with no-fault laws, you must purchase medical payments coverage and/or personal injury protection insurance. If you live in a state without no-fault laws, these coverages are typically optional but still recommended.

Medical Payments vs PIP

In some ways, medical payments coverage is similar to personal injury protection coverage. Many insured drivers choose one coverage or the other, but it’s often advisable to carry both for maximum protection.

The primary difference between PIP and med-pay is the way the coverages are applied to your policy. PIP will cover lost wages and other secondary medical costs, whereas med-pay covers only direct medical expenses. PIP may also have a higher limit, but it will have a deductible; med-pay generally does not. In cases where both coverages are carried, med-pay can often be used to cover the PIP deductible.

Uninsured & Underinsured Motorist

Uninsured motorist coverage is one of the more complex parts of an auto policy, and the laws governing it vary significantly from one state to the next.

In general, there are two types of uninsured motorist coverage: bodily injury and property damage. Uninsured motorist bodily injury coverage, or UMBI, is a necessity in some states. It pays for your medical expenses in the event that someone without insurance injures you in a car accident. In essence, the UMBI coverage compensates for the other party’s missing liability insurance.

Uninsured motorist property damage, or UMPD, works on a similar premise but with property damage rather than injuries. It compensates for another person’s missing property damage liability insurance whenever you’re hit by an uninsured driver. UMPD is not available in all states, and the losses it covers vary by state.

While often referred to as uninsured motorist, it can also include underinsured motorist (varies by state and policy). Underinsured motorist coverage will kick in when the at-fault’s party liability limits are exhausted.

UMPD and Hit-and-Run Claims

In some states, hit-and-run accidents can be filed under your UMPD coverage. This applies both to situations where your car is damaged while parked or hit while moving so long as the responsible party flees the scene. You may pay a higher deductible for a hit-and-run accident than one where the other party is known and proven to be uninsured.

If you live in a state where hit-and-run claims are not covered by UMPD, you will need to file the claim under your collision coverage and pay any applicable deductible. If the responsible party is never found, you will usually not qualify for a deductible reimbursement unless your policy already allows for a deductible waiver in not-at-fault claims.

Collision Coverage

Collision coverage is one of the primary first-party insurance options available to drivers.

As a first-party coverage, collision pays for the damage sustained by the insured vehicle. It is a main component of most “full coverage” car insurance policies, and a necessary coverage for any leased or financed vehicle. Collision coverage is not, however, mandated by law, unlike liability insurance.

What Collision Coverage Pays For

When you file a claim, the insurance company will ask some questions to clarify whether the accident should be filed as a collision or comprehensive claim. If the details of the accident are consistent with your collision coverage, your policy will cover the cost of repairs over the amount of any deductible you may have. If the cost of repairs is deemed higher than the value of the vehicle, the insurance company will declare the car a total loss and pay you the vehicle’s replacement cost rather than paying for repairs. In addition to the cost of repairs, collision coverage will generally pay for the cost of towing a non-drivable vehicle away from the scene of an accident.

Collision coverage follows the insured vehicle regardless of who is driving it. This means that your repairs will be covered by your own auto policy if you lend the car to a friend. It also means that your own insurance cannot be used to repair a vehicle you are borrowing from someone else. There are a handful of exceptions to this rule, such as rental vehicles in some states, but collision coverage follows the vehicle the majority of the time.

As a first-party coverage, collision will generally pay for your repairs whether or not you are at fault for an accident. Certain policies extend coverage only to drivers who are not at fault for their accident, but these are the minority. You can check with your insurance agent to confirm whether there are any limitations on your collision policy.

Deductibles and Collision Coverage

Whenever you use your collision coverage, you must pay a deductible. The deductible is the portion of the claim that you are responsible for paying out of pocket before the insurance company will handle your damage.

For example, if your vehicle will cost $2,000 to repair and you have a $500 deductible, the insurance company will issue a check for $1,500.

In the event that the car accident is not your fault, your deductible may be reimbursed to you. Insurance companies differ in the way this is handled, but some may waive the deductible up front when you are not at fault. Others will have you pay the deductible, then reimburse it to you after the other insurance company has paid them back for the claim.

Comprehensive Coverage

Contrary to what its name may suggest, comprehensive coverage is not synonymous with all-encompassing insurance or full-coverage. Instead, it is a specific coverage within an auto insurance policy that provides protection against a pre-defined set of perils. Along with collision, it is a necessary coverage for any leased or financed vehicle. It is not, however, required by most states.

Comprehensive coverage is a type of first-party insurance that pays for damages to the insured vehicle. Nearly any damage a vehicle sustains outside of a collision will be covered by comprehensive. Here are a few of the most common comprehensive claims:

  • Theft
  • Vandalism
  • Hail
  • Fire
  • Flood
  • Damage during transport
  • Damage from falling objects
  • Damage caused by an animal
  • Any glass-only damage

Unlike collisions, most comprehensive claims will have no fault assigned to them. This means that you will always be responsible for paying your deductible regardless of how the damage occurred. The only exceptions are situations where criminal activity or negligence caused the damage. In these cases, it may be possible to have your deductible reimbursed.

An example would be if a vandal keyed your car and was apprehended by the police. The vandal could be taken to court for your damage, and if the suit was successful, your deductible could possibly be returned.

In some states policyholders have the option to carry full-glass coverage. This means that any glass-only damage will be covered by comprehensive coverage without a deductible. The glass coverage protects only glass that can be looked through, such as the windshield and windows, and not glass in mirrors or headlights.

Buying Comprehensive Coverage

Comprehensive and collision coverage can be purchased separately, and you may need to ask for both. Some agents consider “full coverage” to mean only collision and liability while others take “full coverage” to mean a wider number of things. To be on the safe side, always verify with your insurance company exactly what will be included in your auto policy.

In some cases, it may make sense to purchase comprehensive coverage without carrying collision or liability. These so-called “storage-only” policies are designed for vehicles that are kept in storage and will not be driven on the open road. Many people opt to carry these policies on classic cars or vehicles that are undergoing repairs.

Why Coverage is More Important Than Cost

Determining Bodily Injury Liability Coverage

When shopping for car insurance, it is important to remember that the primary purpose is to protect yourself from large financial losses. Many shoppers find themselves concerned with the premium amount and neglect to pay attention to what a policy is actually covering. While cost is obviously a factor when choosing the right product, the main focus should be on financial protection.

In most states, the most important piece of a car insurance policy is the liability aspect. This will cover damages resulting from injury or destruction of personal property.

Liability auto insurance is broken down into two main components, and each coverage limit can often be selected independently.

The first component is your bodily injury limits.

As discussed in a previous section, this is the part of the policy that covers injuries to other people. There is usually a maximum for how much the insurance company will pay for injury or death to one person, as well as the maximum they will pay overall for all injuries or death.

Most insurance professionals recommend a minimum of $50,000 per person and $100,000 for all persons. This is a good starting point, but even this can leave someone holding the bill if they find themselves in a serious accident. If three or more people are seriously injured, $100,000 can disappear very quickly and you are liable for the rest.

$100,000 per person and $300,000 per accident is a much more secure starting point for a policy. Even bumping up to $250,000/$500,000 is often very cheap, since the likely hood of causing this much damage is minimal.

Determining Property Damage Liability Coverage

Property damage is the second part of the liability section in an auto insurance policy.

Property damage liability covers the cost of damage done to another entity’s property, including (but not limited to) cars, buildings and street signs.

With the cost of cars continuing to rise, even a small-to-moderate accident can leave someone with low property coverage holding the bill. When determining how much to carry, think about the types of cars on the road today and how much it would cost to repair or replace some of them.

$50,000 is a decent starting point when it comes to property damage liability. However, it is important to consider that a lot of cars being produced today could eat up that much coverage in a hurry.

Comprehensive and Collision Coverage Limits

Comprehensive and collision are different from liability coverage because you generally do not select a limit. The insurance company determines the value of your car based on many different metrics, and then pays you when damage is done to the vehicle.

What you as the consumer must choose is the deductible amount to set for both parts of the policy. Deductibles can range from $0 to $2500 depending on the insurance company, and are inversely correlated to the premium price. This means the higher the deductible, the lower the premium.

The industry standard for comprehensive and collision deductibles is $500. Shoppers should choose a deductible that they feel comfortable paying and will not put them out financially if they have to.

For those individuals and families that have little in savings, $500 may be an appropriate amount. For those with emergency funds or other savings they can tap, raising their deductible to $1000 or higher can end up saving them quite a bit of money over their driving career.

Raising your deductible from $500 to $1000 can have a noticeable impact on your premium. Just make sure you have enough money on hand to meet your deductible.

Carrying Uninsured and/or Underinsured Motorist Coverage

Often an overlooked coverage, uninsured and underinsured motorist is perhaps one of the most important protections you can add to an auto insurance policy. A driver may be fully insured for liability, comprehensive and collision, but is involved in a serious accident with someone who has no insurance.

If the person without insurance is found to be at-fault, the other party may sue the individual. However, that does not mean the at-fault party has any money or assets that can be awarded. If there are significant medical bills, it could bankrupt the person who wasn’t even at fault for the accident.

In states that allow it, uninsured and underinsured motorist coverage can mean the difference between an inconvenience and all out financial ruin.

Coverage Recommendations

Below is a list of recommended coverage types and/or amounts. These are by no means meant as a one-size-fits-all solution, but rather a starting point when comparing policies.

Bodily Injury Liability (single person) – $100,000
Bodily Injury Liability (all persons) – $300,000
Property Damage Liability – $50,000
Collision Coverage – $1,000 deductible
Comprehensive Coverage – $1,000 deductible
Personal Injury Protection (PIP) – $10,000
Medical Payments – $1,000
Uninsured (and/or Underinsured) Motorist – Same as Bodily Injury Liability Limits

How to Get Car Insurance Quotes

Online

When shopping for auto insurance online, most companies will present you with their “recommended” policy after entering some basic information about yourself, your car and your current coverage. The thing to remember is their recommendation is based on very little information about you.

Insurance companies understand that many shoppers are driven by the cost of the policy, so they try and balance coverage, premium price and their own profitability when suggesting policy types. They also realize that many shoppers are not fully knowledgeable about the different types of coverages offered, so they try and simplify it by putting a policy option together for you.

These recommended policies are a good start, but they don’t always offer a personalized solution.

Recommended policies often come with lucrative add-ons such as roadside assistance and rental car reimbursement. For the cost-sensitive shopper, it often can be better to forgo these additional services if it means being able to increase the liability protection. Additionally, these policies are often presented with $500 deductibles (or lower), which can raise the premium quite a bit.

The nice thing about getting car insurance quotes online is that you can typically change around the numbers and see the cost difference between different parts of the policy. Most people are surprised at how much they can increase their liability coverage for just a little bit more per billing cycle.

Through an Agent

First and foremost, it is important to remember that insurance agents are ultimately salespeople.

A good agent understands the importance of building trust and putting their clients into the right products for the long term. This generally leads to a lasting relationship that will ultimately earn them more money. However, there are also bad agents out there that are just looking to maximize their earnings today.

Using resources like our online insurance reviews or speaking with friends and family is a nice way to get a referral for a good agent.

An agent that works exclusively for one organization will typically be limited to one insurance company when it comes to offering policies, as well as any subsidiaries they own. A broker that sells for multiple companies will be able to get you quotes from different firms so you can compare the costs side-by-side.

If you choose to go with a broker, make sure and ask about any fees they tack on in addition to the policy premium. This can ultimately cost you hundreds of dollars a year on top of the actual insurance premium.

When getting a quote from an agent, be sure and answer their questions as truthfully as possible. Failing to mention a previous accident or ticket can cause a quote to come in low, only to later be raised once your driving record is verified.

Making the Right Choice

Insurance Company

The two most important factors to consider when picking an insurance company to work with are price and claims process.

Price

Price is listed first because for the majority of customers it is the biggest concern surrounding their insurance policy.

Every insurance company has its own unique guidelines when determining the price of a policy, so the total cost can vary wildly from one organization to the other. This process is called underwriting, and is why it’s so important to compare prices across multiple companies.

When comparing prices between different insurance companies, it is vital that you choose the same coverage amounts, if possible. This will give you an accurate picture of which company has the best price.

Claims

Many people are so focused on the price of a policy that they neglect to look at the claims process for each company. The claims process is how the insurance company will handle a loss after an accident occurs.

Many insurance companies publicly display their claims information on their website, so this is a good place to start when researching. If they do not, contact the organization directly and tell them you are interested in becoming a client but want to know more about how they handle claims.

The majority of large insurance companies provide a 24-hour claims department number that can be called anytime you experience an accident or loss. This is important because accidents do not just happen on weekdays between 9AM and 5PM.

If an insurance company will only allow you to contact your agent to start a claim, you may want to look elsewhere. Agents can be out of the office, on vacation or even non-responsive. The last thing you want to be doing after getting in an accident is trying to track down your agent.

Once a claim is made, it is important to know how the insurance company handles the process.

Some companies will assign your claim to one individual and that will become your point of contact throughout. The drawback here is when the claims representative is unresponsive. If they do not respond to emails or phone calls it can get very frustrating for you as the customer.

Some companies handle claims through an entire department. That means every time you call, you will more than likely get a new person. You may have to explain details more than one time, but the good news is you will not be waiting for days to get a return phone call.

Buying Direct or Through an Agent

With the creation of the internet came the direct-to-consumer insurance industry, which allows insurance companies to bypass the use of an agent and sell their products directly to the customer. Most people are familiar with these companies because instead of paying agents sizable commissions to sell their products, they use a lot of those dollars on national marketing campaigns.

Companies like GEICO and Progressive are good examples of direct-to-consumer insurance companies, as well as Esurance which was recently purchased by Allstate.

This sort of “self-checkout” business model allows these companies to (generally) keep their rates a little bit lower than their full-service counterparts, because they are not paying commissions out for each policy sold or renewed. It should be noted that not every insurance policy will be cheaper, but good drivers will generally see a premium price that lands on the lower end of the spectrum.

Direct-to-consumer insurance companies are often a great choice for people who 1) are knowledgeable about insurance and understand how to protect themselves correctly, and 2) people with relatively simple insurance needs, such as auto and home.

Do-it-yourself insurance is not for everyone, however.

Individuals and families that have complicated insurance needs will find that working with a professional agent can be beneficial, even if it does cost a little more. A good insurance agent can look at your entire profile and determine where you should be protected and what levels would be best.

Popular agent-driven insurance companies include State Farm, Farmers and Liberty Mutual.

Business owners, high net-worth individuals and people with a number of different assets are all examples of those who should probably consider consulting an insurance agent when shopping for coverage.

Choosing the Right Agent

When deciding to purchase insurance through an agent, there are a few important factors to consider. Regardless of what they say, all agents are not created equal.

Location, location, location

Even though the majority of insurance policies can be written over the phone or the internet, it doesn’t necessarily mean you should use an agent that is far from you or your business. While this is a guide about auto insurance, you may find yourself looking for additional policy types beyond your car, and an agent with intimate knowledge about your area could prove to be valuable.

For example, if you are bundling an auto policy with a homeowner’s policy, it may be important to know you live in a spot that could be susceptible to mud slides or flooding. An agent from a different part of the state may not think to check that, but a local agent who has written numerous policies in your area is much more likely to know the nuances of your particular location.

Reviews

When researching different companies and agents, be sure to read our company reviews and check any local review sites for information about them specifically.

When researching on Yelp, take a look at who wrote the reviews. Yelp publicly displays the number of friends and reviews each person has, so be sure and find agents that have good reviews from actual people. Businesses and service providers often create fake accounts to leave positive reviews for themselves. You can get a good idea if an account is fake by seeing how many reviews and friends they have. If both are low, it is more than likely a fake account.

Another good place to find reviews is Angie’s List. This website costs money to join, but a few dollars now can save a lot of money in the future. Because it actually costs money to read or leave a review on Angie’s List, there are usually less reviews than Yelp but the quality is better. It is harder for agents to fake positive reviews on this website.

Finally, do not forget to ask your family and friends if they have an agent that they are comfortable with. Chances are you have a lot of people on Facebook that live near you, so try asking for recommendations. A personal reference can go a very long way.

Length of Time as an Agent

Let me first apologize to brand new agents.

Do not go with a new insurance agent.

Insurance is a tough business, and it can take a long time to get established and everything running on auto pilot. A new agent spends the majority of their time marketing to potential clients and trying to bring in new business. Established agents, while always trying to bring in new business, can spend a lot more time on maintaining their current client base.

Established agents have seen almost every scenario that can arise in the auto insurance industry, and are a good resource for asking questions. They also have an intimate knowledge about insurance coverage that a new agent simply won’t have due to lack of experience.

When looking for an agent, try and find one with at least 10 years of experience.

Car Insurance Myths

Myth: Car Insurance Follows the Driver

The reality is that car insurance follows the car. That means if you loan your car to a friend and they get in an accident, your insurance will most likely be held liable for the damages they caused. State laws vary, but the general rule is any non-excluded driver (someone you have not explicitly excluded from the policy) that borrows your car will be covered by your insurance, even if they have high coverage amounts for their own cars.

There are instances when an insurance policy will not cover any liability claims when someone else is driving your car. For example, if someone steals your car and crashes it into another vehicle or building, the insurance policy will not cover the liability of the accident, and the owner of the policy will most likely not be held liable either. However, the comprehensive and/or collision coverage of the policy may kick in to fix or replace the stolen car.

Myth: “Full Coverage” Covers Everything

This is a very popular belief when it comes to car insurance. In reality, there is no such thing as “full coverage,” it is simply a term often used to describe a certain number of coverages on a policy. “Full coverage” usually means the policy comes with liability, comprehensive and collision coverage.

While “full coverage” does provide a good baseline of protection, there are a number of things that it does not automatically cover. Here is a list of coverage types that don’t always fall under the “full coverage” banner:

Myth: Your Credit Score is Independent of Your Auto Insurance Rate

Although it is frowned upon by some consumer advocacy groups, many of the largest insurance companies in the United States use your credit score when determining rates. While it is not painstakingly obvious why, studies show that individuals with high credit scores tend to get into fewer accidents and file a smaller number claims. Therefore, having a high credit score can help lower your insurance rate.

It is also important to keep in mind that the opposite can be true. Having a lower credit score can negatively impact your premiums.

Myth: Red Cars Cost the Most to Insure

When insurance companies determine rates they use a lot of different metrics. Color is not one of them. The aspects of a car which are important when determining the rate are things like year, make, model, engine size, and body type.

Myth: Older Drivers Must Pay More for Auto Insurance

The truth is that older drivers usually pay less, with all other things being equal. Many older drivers (over 55) can even have their rates reduced by an additional 10% by simply completing an accident prevention course. Older drivers typically drive slower, drive less, and are more cautious than their younger counterparts.

However, at the end of the spectrum, premiums can start to tick up for some drivers. Drivers getting up into their 80’s and beyond may see increased premiums, depending on their insurance company.

Anyone over the age of 55 should contact their insurance company to find out if they qualify for a safe driving class discount. If they do, their insurance company should be able to provide a list of approved courses in their area.

Myth: Your Personal Auto Policy Covers You if You Drive for Business

Many people believe that their personal auto insurance policy will protect them in an accident regardless of what purpose they are using their car for. This is simply not the case. Self-employed individuals who use their car for business purposes will find themselves without protection if they get in an accident while using the car for something other than personal use.

In addition to the self-employed, delivery drivers that use their own vehicles are typically not covered by their personal auto policy. For example, a pizza delivery driver that is involved in an accident while delivering a pizza will usually not be covered unless their insurance company has been notified prior about the business use and the premium adjusted to reflect that protection.

Myth: Personal Property Inside Your Car is Covered by Your Auto Insurance Policy

In nearly every situation, an auto insurance policy will not cover personal property that is inside of your car. If your laptop is stolen off your front seat, that is not something you can claim with your car insurance company. Similarly, if you have a TV in the trunk of your car and it is destroyed in an accident, an auto insurance policy will not cover the damaged item.

The good news is that most homeowners or renters insurance policies will cover these items. If you have either of these policies at the time of the loss, contact your insurance company to see what they will cover.

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Comments

  1. Marco says

    This is really a good document for buying car auto insurance, I better understood all the liabilities and coverages that was selecting based on common sense, but with this document I really got prepared for my new auto insurance car. Thanks Eric!

  2. Helen Tyler says

    This was absolutely the most informative insurance article I have ever read. The information was “all together ” I really enjoyed reading it.

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