Consumer IQ

Auto Insurance Buyer’s Guide

Discount insurance companies have ads urging you to pay less. Bigger insurance companies have competing ads telling you that the savings aren’t really worth it. As you might expect, neither set of commercials is, strictly speaking, right. However, when you go to buy auto insurance, you should know what you’re buying.

Types of Auto Insurance

There are six main types of auto insurance. Understanding what they are and what they cover is the first step to knowing what you need.

Bodily injury liability is required by almost every state. This covers your legal costs and a victim’s medical bills for injuries caused by you during a crash.

Property damage liability is the other type of coverage required in most states. It protects the property of others for damage you cause. It does not cover your car.

Collision insurance covers your car against damages, even when you are at fault. Often times you have to pay a deductible, while the rest is covered by the policy. If you don’t own your car outright, your lender might require you to have this coverage.

Comprehensive coverage covers your car for just about everything other than a collision, including theft, vandalism, fire or bolts of lightning. As with collision coverage, your lender might require that you have this on your car until you own it outright.

Medical payments provides for medical coverage for you and anyone else in your car, regardless of whether or not you are at fault.

Uninsured motorist coverage protects your car against getting hit by an uninsured motorist. Even though nearly every state requires all motorists to have coverage, not everyone follows the law.

What And How Much Do I Need?

For bodily injury and property damage liability, there really isn’t a lot of wiggle room. Each state mandates a minimum amount that you must have. If you refuse to purchase this coverage you can be ticketed, fined or even have your car towed away. You can choose to purchase more coverage if you have the money to pay for it and consider it to be subjectively “worth it,” though you might ask yourself how your driving record is before doing so. For the person of means, there’s no such thing as having too much coverage. For the rest of us, it’s all about finding balance. It’s important to remember, however, that “unprecedented,” “unlikely” and “impossible” aren’t synonyms. Put more simply, no one expects disaster and this is why we buy insurance in the first place.

Collision and comprehensive are two other common types of insurance that are easy to evaluate. Simply figure out how much your car is worth and insure it for the same amount. You don’t need $10,000 worth of collision or comprehensive coverage on a 10-year-old Chevy Cavalier, but you might want it on your ’57 Chevy or your 10-year-old Porsche. If your car has a low Kelly Blue Book value, it probably isn’t worth a whole lot. This means you’re better off skipping collision and comprehensive entirely. The amount you pay will quickly add up to what you’ll pay for a new car in the event that you total the one you have.

Medical and uninsured motorist coverage are crapshoots. They’re the type of things that you don’t need until you really need them.  While you’re better off having them and not needing them, than needing them and not having them, unnecessary insurance policies are one of the biggest places people waste money. An uninsured motorist can still be sued in a court of law and if you and your passenger have health insurance, if it’s not your fault, that insurance will cover medical bills.

Still, one way to get full coverage and knock your premiums down is to get a high deductible. This way you’re covered in the event of something catastrophic but you aren’t paying through the nose every month of peace of mind.

Don’t Waste Money On Insurance You Don’t Need

As mentioned above, paying for insurance you don’t actually need is one of the biggest ways people waste money. Carefully evaluate what types of insurance you actually need. For the person with an older car without a lot of value, this might just be the state minimum. For someone with a newer car or a lot of assets, higher levels of insurance might be in order. Do the math and see what you’re paying each year in unnecessary insurance. The answer might surprise you.

Nicholas Pell drives an old Cavalier with as little insurance as the State of California lets him get away with.