Auto Insurance

There's something strangely empowering about knowing your car is well-covered.

I am notoriously cheap. But when I was in graduate school, my husband took on a paper route to cover expenses. The newspaper required that we have lots of expensive auto insurance.

Having that much auto insurance had a strange effect on me. When I got behind the wheel of the car, I felt . . . invincible. I started speeding just so I could get my money's worth. Then, of course, I finished school, my husband dropped the route, and we lowered our coverage back to the minimum rates. Cutting back on expenses was good, but I did miss that feeling of invincibility.

Finding the right balance between affordability and adequate coverage doesn't have to be difficult when it comes to car insurance. First, understand the different types of coverage and think about which ones you need. Next, be aware of all of the ways that you can pare down your premium. Finally, get ready to shop around for the best rate.

Types of Coverage

There are about six basic types of car insurance coverage. There are good reasons for having all of them, but you may find that one or more of them don't fit your needs.

Liability Coverage

Liability coverage protects you in the event that you injure someone or damage property in the course of an accident, even if the accident is not your fault. For example, my little sister was once broad sided by a drunk driver who ran a red light. Sis was OK, but the other driver died. His family sued her for wrongful death. She had the right kind of coverage, so the insurance company was able to settle with the family; she stayed out of court and protected her assets.

Besides protecting you from lawsuits, liability coverage will also pay for damage to other cars and property caused by your car. Most states require that you have minimum levels of bodily injury and property damage coverage, so check with your state insurance office to find out what those minimums are.

Collision Coverage

This one is simple. It pays for repairs if your car is damaged in an accident, and you'll definitely need it if you have a loan out on your car. Collision comes with a deductible - meaning that, in addition to premiums, you will be responsible for paying for your repairs up to a certain amount before the insurance agency starts kicking in. The most common method of lowering your premium is by raising your deductible. You can just about cut your collision premium in half if you raise your deductible from $100 to $500. The advantage of a higher deductible is that if you get in a minor scrape, you can pay the bill directly and avoid raising your rates by filing a claim. This might not be a wise route for everyone, however. If you can't afford to pay $500 out of your pocket, consider a lower deductible and a higher premium.

Comprehensive Coverage

Comprehensive covers the theft of your car and random damage caused by, say, a collision with an animal, vandalism, riots, and lots of other stuff. Again, this is a must if you have a loan on your car.

If you drive an old junker, you may want to drop the collision and comprehensive coverage altogether, as neither is considered mandatory by your state. Insurance policies will only cover damages up to the dollar value of car. If your car isn't worth much, the amount of the claim probably won't cover the cost of repairs.

Medical Coverage

Also called no-fault or personal injury insurance, medical pays the medical expenses of the driver and passengers in the car. You can forego this one if you already have a regular health insurance plan.

Uninsured Motorists Protection

This will pay for any damages or injuries caused by an uninsured motorist. There are a lot of them out there, so this is a good one to have on your policy.

Can I get a discount on any of those?

When you first ask an agent for a quote, they will quiz you on your car, neighborhood, etc., in order to place you in an appropriate "risk" category. The following criteria are taken into consideration: age, gender, the kind of car you drive (its age and safety rating), your neighborhood, your driving record and the length of your commute.

Changing any one of those things can lower your premium. Drive more safely. Wear your seatbelt. Get a safer car. Move out of the city. Hurry up and turn 25! Unfortunately, men are considered to be a higher risk than women, and so pay more in insurance. But, you can get married, which moves you into the more "stable" categories. And, you can usually get a discounted rate if you and your spouse insure your cars on the same policy.

Having safety features in your car go a long way to reducing your insurance premium, in addition to saving your life. So make sure your car has amenities like driver and passenger side air bags, automatic safety belts, daytime running lights and anti-lock brakes.

As with many things in life, the amount of auto insurance that you pay for should not be based on cost alone. Take into consideration the impact too little coverage might have - you might wind up without a car because you couldn't come up with the deductible for repairs, or you could go bankrupt paying a lawsuit judgment. Insurance isn't just about what you can afford now. It's also about what you may have to protect in the future.

Copyright 2004 eGrad


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