Unpacking Auto Insurance Policies

Auto insurance, like all forms of insurance, can get complicated. Numerous factors determine the price of premiums, different states have different coverage requirements, and you'll have a lot of additional coverage or service options to consider. 

Unpacking Auto Insurance Policies


If you're a first-time car owner and need insurance or you're dissatisfied with your current policy and want to switch, take the time to understand the ins and outs of auto insurance. Doing so will help you make an informed decision, find the policy that best fits your needs, and secure the best deal.

The Piecemeal of Car Insurance Policies

While people typically refer to "car insurance" as a singular, unified entity, auto insurance plans are actually a bit more complicated. Within any car insurance plans, there are coverage subcategories with separately-calculated costs. Furthermore, states set their own insurance coverage requirements, so not all states mandate the same elements.

Mandatory Coverage

Almost every state makes it mandatory for car owners to carry certain auto liability coverage. These include:

  • Bodily Injury Liability– This form of coverage applies when you (or anyone else driving your vehicle) causes an accident that leads to injury or death of another person. The insurance covers their medical bills and lost wages in the case of an injury. Bodily injury liability can also pay for funeral costs if there's a fatality.
  • Property Damage Liability– Property damage liability insurance will cover the costs of repair for the damage you (or someone else driving your car) causes to another vehicle or property. For example, if you hit another car, a fence, or utility pole, property damage liability pays for the repair or replacement expenses.
Commonly Required Coverage

Concerning auto insurance coverage, laws vary from state to state. Many states require the following forms of car insurance. Even in states that allow drivers to go without this coverage, many car dealers require it for rented or leased vehicles.
  • Medical Payments/Personal Injury Protection (PIP)– If you or your passengers are injured in a car accident, PIP reimburses the medical expenses associated with any injuries. It can also compensate you for lost wages while you recover.
  • Uninsured or Underinsured Motorist Coverage– This form of insurance comes into play if you get into an accident with an uninsured or underinsured person. It also applies in hit-and-run scenarios. Uninsured or underinsured motorist coverage reimburses medical expenses and costs associated with property damage.
Optional Coverage

There are a few coverages options that you may not be legally mandated to carry. However, having such coverage could save you from significant out-of-pocket expenses and give you greater peace of mind while on the road. These are three optional forms of coverage that may be worth considering:
  • Collision– This form of auto insurance protects you, the policyholder. If your car sustains damage from a collision with another vehicle and you're at fault, collision insurance covers the repair or replacement costs. Also, if your car flips over or is damaged by a pothole, you'll be covered.
  • ComprehensiveMake sure you have comprehensive car insurance to cover all damages caused to your car by elements outside of your control. Comprehensive car insurance takes care of losses that result from theft, vandalism, or natural occurrences such as storms.
  • Glass Coverage– There are certain parts of your car, such as windshield, rear windows, side windows, and glass sunroofs that are more susceptible to damage. If your auto insurance policy doesn’t cover these parts for damages, you may want supplemental coverage for broken glass.
Understanding Your Needs and Demographic

Once you understand the individual parts of insurance policies, it's time to start researching providers and getting quotes. But before getting started, take time to assess your own needs and what rates you can expect based on your demographic.

The insurance rates that providers offer vary significantly from person to person. To better understand your premiums, get to know the factors that insurance providers use to determine rates. For example, insurance companies consider the following variables:
  • Your driving record
  • Where you live
  • Your age
  • Your gender
  • Your credit score
  • Your car's condition and value
Make the Right Choice for You

Auto insurance is required for car owners, but it isn't a one-size-fits-all investment. When researching plans and comparing quotes, keep in mind that your insurance policy and premiums should reflect your needs and your lifestyle.

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