SaveMillions Logo

Company InfoContact UsHelp  
Search  

Learn... Plan... Act... Insure!

Steps to Build Plan
  Step 1 - Locate policies
  Step 2 - Get educated
  Step 3 - Determine needs
  Step 4 - Evaluate policies
  Step 5 - Make changes
  Step 6 - Get help
Insurance Tools
  Automobile Coverage Worksheet (pdf)
  Automobile Coverage Worksheet (html)
  Automobile Coverage Worksheet (Excel)
Online Quotes
  Obrella.com
Get educated

The key to getting the right type and amount of insurance coverage is education. Yes, there are plenty of websites with calculators that can help assist you in determining how much coverage you need, but the only way to be sure of the result is to learn everything you can and then make your own informed decisions. Even if you seek help from a professional, you should at least understand the terminology as well as the basics so that you know that you are getting the right product at the right price.

The Basics

An auto insurance policy is actually a package of different types of coverage. Most states require you to purchase a minimum amount of some of these. The amount you need, which you will determine later in this process, will depend on your situation.

Who is Covered?
Your policy usually covers you, your spouse, other relatives who live primarily in your household and are listed as drivers on your policy, and others who have permission to drive one of your covered vehicles.

Liability Insurance
Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the accidental bodily injury and property damage expenses caused to third parties, including defense and court costs. Bodily injury expenses include medical bills and lost wages. The third party may also decide to sue you in order to collect "pain and suffering" damages, and this should be covered by bodily injury. Property damage expenses pay for the repair or replacement of things you damage, such as another automobile. Your liability coverage will not pay for injuries to your own family members in the car, as this will be covered by your medical insurance or the optional medical coverage described below.

Liability coverage is usually described as a series of three numbers: 100/300/50. The first two numbers are for bodily injury and the last number is for property damage. Some insurance companies will simply provide two numbers, such as 300/50. The first number is a maximum coverage amount for all bodily injury claims per accident, and the second is for property damage. Minimum coverages for both bodily injury and property damage are required by almost every state, but the amounts differ from state to state.

Collision Coverage
If you cause an accident, collision coverage will pay to repair your vehicle. You usually can't collect any more than the actual cash value of your car, which is not the same as the car's replacement cost. Insurance companies often will "total" your car if the repairs exceed what the car is worth. Collision coverage is normally the most expensive component of auto insurance for new cars, and a deductible (see below) is required. Consider dropping this coverage for older, less valuable cars - those worth $3,000 or less.

Comprehensive Coverage
Comprehensive coverage will pay for damages to your car that weren't caused by an auto accident: damages from fire, wind, hail, flood, vandalism, theft or impact with an animal. Comprehensive coverage also comes with a deductible (see below) and your insurer will only pay as much as the car was worth when it got damaged.

Because insurance companies normally will not pay you more than your car's value, it's helpful if you have a rough idea of this amount. Most insurance adjusters use values from the Kelley Blue Book. The National Automobile Dealers Association also provides information on the value of used cars. Consider dropping this coverage for older, less valuable cars - those worth $3,000 or less.

Deductibles
The deductible is the portion of a covered loss that is your responsibility to pay. The deductible applies to each covered loss. Although deductibles vary by state, they are typically available in amounts such as $100, $250, $500, or $1000. For example, if you had a $500 deductible, you would need to pay $500 of the covered loss before the insurance company paid the remainder of the cost.

Generally speaking, higher deductibles lower your premium, but increase the amount you must pay out of your own pocket if a loss occurs. Ask yourself how much you are willing to pay in order to save on your premium, and also how much a typical expense will be. For example, comprehensive coverage will pay to replace a cracked windshield, but you pay the deductible. If you have a high deductible, you will end up paying all of the cost of this repair.

Medical Payments, PIP and No-Fault Coverage
Medical payments coverage will pay for your and your passengers' medical expenses or funeral costs after an accident. These expenses can arise from accidents while you're driving your car or someone else's car (with their permission) and injuries you or your family members incur when you're pedestrians. The coverage will pay regardless of who is at fault, but if someone else is liable, your insurer may seek to recoup the expenses from them. If the cost of medical treatment exceeds the medical coverage limit, non-family passengers in your car can obtain compensation from your liability coverage, but you or your family members would need to be covered by your personal medical insurance.

Personal injury protection (PIP) and broader "no-fault" coverage are expanded forms of medical payments protection that may be required in your state. PIP pays medical expenses for covered persons, regardless of fault, for treatment due to an automobile accident. It may also pay for rehabilitation, lost earnings, replacement of services (child care if a parent is disabled, for example) and funeral expenses. No-fault coverage states that your automobile policy must pay for bodily injury and property damages regardless of who caused the accident. That's because there are occasions when it is difficult to figure out exactly who caused an accident. No-fault laws also say you can't sue another party for damages and medical bills unless they total more than a certain amount, which varies by state.

One adantage to having medical payments and PIP coverages is that there are no deductibles or co-payments. However, it is important to know that edical payments coverage is optional and PIP coverage also may be waived. To reduce your premiums, you may consider excluding these coverages if you and your family members have good health insurance with major medical protection, and you can afford to pay any medical deductibles and co-payments required by your health insurance company.

Uninsured/Underinsured Motorists Liability Insurance
Similar to the Liability Insurance described above, uninsured motorists (UM) coverage and underinsured motorists (UIM) coverage includes bodily injury and usually property damage coverage. In this case, however, UM and UIM pay for your injuries or automobile repairs if you're struck by a hit-and-run driver, someone who doesn't have auto insurance, or someone who doesn't have an adequate amount of coverage. In some states, these coverages are required, but not in all states. You might be surprised by how many drivers don't have insurance, or carry the minimum amounts of coverage. Therefore, it's important to have this coverage. In most policies, UM and UIM will be combined as one item, although it will still have both limits for bodily injury and property damage. Make sure that these amounts are adequate. For example, property damage covers the repair of your automobile, so if you drive an expensive car, or a new car, make sure the amount of UM property damage coverage is enough to pay for your car. The recommended amount of UM coverage is that same as you carry for liability coverage (described above).

Add-on Features
Several supplemental types of coverage are available, either as separate premium items or included in augmented policies.

  • Rental reimbursement, a common add-on, covers vehicle rentals required because your car is damaged or stolen. It is usually limited to $15 or $30 per day for a 30-day period.
  • Coverage for towing and labor charges in case of a breakdown is also common. Typical coverage is only $50, but may be available in larger amounts.
  • Auto replacement coverage guarantees your car will be completely repaired or replaced, even if these costs exceed its depreciated value.
Ways to Save on the Premium
There are some great ways to save so that you can increase your coverage and still keep your automobile insurance premium within your budget:
  • Increase your deductibles. Obviously the easiest way to reduce your insurance premium is to raise your deductibles on comprehensive and collision. Increasing your comprehensive deductible from $100 to $250 and your collision deductible from $250 to $500 can save you 15-20% a year on your car insurance.
  • Safety and security devices. Consider installing an alarm or other anti-theft device. Also purchase cars with airbags and anti-lock brakes because statistics show they help mitigate the occurrence of crashes and/or the severity of injuries.
  • Driver's education. Take a driver's education course. Driver's education is especially important for teenagers or adults just learning to drive because taking (and passing) the course will keep the premiums down. Many states now require teenagers to take driver's education before they can get a license.
  • Buy a low-theft car. Check out what your insurance premiums would be for different models of cars you're considering before you make a decision on what to buy. If you buy a car that's considered a high theft risk, your premiums will be much higher than if you settle on models less likely to be stolen. Your insurance agent or company or your state insurance department can give you a list of vehicles on the "high theft list."
  • Stay on the good side of the law. Insurers look to see if you have a blemish-free driving record and reward you with lower premiums if you do.
  • Maintain "good" credit. More and more insurance companies are basing a portion of your risk, and therefore your premium, on you credit rating. Drivers with poor credit can expect to pay more for insurance coverage.
  • Ask for discounts. You may be entitled to discounts for various reasons, but don't expect the insurance company to ask you about them. Make sure you consider these discounts and bring them to the attention of the insurance company.

Step 3 - Determine Your Insurance Needs

Most Recent Articles
  Take your policy into the shop (when it's time to renew your car insurance)
  How to save on auto insurance To get a good deal, you need to know the right types -- and amounts -- of coverage for your life and budget
  Every policy has at least these five parts