Auto Insurance

10 Questions To Ask Before Buying Car Insurance

When adding a newly leased or purchased car to an existing policy, or purchasing a new policy, a policyholder must consider how much coverage they want and how much insurance is required.

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There’s a lot to consider when planning to lease or secure financing for a new vehicle. Insurance is one of the most significant decisions outside of which vehicle to pick. Below are answers to 10 common questions to think about before buying car insurance.

What Kinds Of Coverage Exists? 

Because liability coverage only provides the bare minimum of protection, you’ll have to decide whether to include comprehensive coverage, collision coverage, uninsured and underinsured motorist coverage, personal injury protection, or gap coverage in your new auto policy. A policyholder’s specific plan depends on where they live, the financing requirements, and that particular state’s mandates. The standard auto policy includes some or all of the following parts:

Liability 

Liability coverage protects you from financial loss after an accident if the insurance provider finds you responsible for causing the accident. Liability coverage pays out in the following circumstances:

  1. Bodily injury and property damage due to an accident where you are legally accountable
  2. Defense costs for settling or defending you

Liability coverage only covers the other driver and their damages if there’s an accident and you’re at fault. How much coverage each driver must carry depends on the laws in each state. 

Liability coverage limits are shown on the declarations page of an auto policy in three parts and are separated by slashes, like $30,000/$60,000/$25,000 or 30/60/25. This policy has a maximum bodily injury payout per person of $30,000, a maximum bodily injury payout per claim of $60,000, and a maximum property damage payout per claim of $25,000.

The insurance company would pay these amounts for the other person’s medical bills and for repairing their damaged property if you are responsible for the accident. Insurance companies have higher limit options available, but the driver and agent will decide what’s best for the driver’s policy.

Comprehensive 

Comprehensive coverage, also known as other-than-collision coverage, is a recommended addition to an auto insurance policy and damages covered under this policy can include:

  1. Hail, water, flood
  2. Breaking of glass
  3. Missiles or falling objects
  4. Fire
  5. Theft
  6. Riot or civil commotion
  7. Contact with birds or other animals
  8. Windstorm

Comprehensive insurance almost always has a deductible, which is the portion of the vehicle repairs the policyholder pays before the insurance company covers the repairs. Deductible amounts usually range from $50 to $1500+. The policyholder pays their chosen deductible when they file a claim through their insurance.

Note that comprehensive coverage covers the vehicle only. The driver is responsible for paying the deductible. The insurance company determines if they can repair the car or if it’s a total loss. 

Collision

Collision coverage pays to repair or replace a vehicle when the policyholder is responsible for a collision between them and another car, and damage to objects that the driver hits like poles or fences. Similar to comprehensive coverage, this coverage is for the vehicle only. The deductible amount represents collision coverage on the policy, usually ranging from $200 to $1500+, depending on the policyholder’s selection.

Uninsured and underinsured motorist protection

Just like with liability coverage, uninsured and underinsured motorist coverage has three parts: bodily injury per person, bodily injury per incident, and property damage. A driver is uninsured when they don’t carry insurance, the insurance company denies coverage after a loss, or if the damage was due to a hit-and-run and the driver can’t be identified. A driver is underinsured when the limits on their policy aren’t high enough to fully cover the driver that suffered bodily or property damage after an accident.

Uninsured and underinsured motorist protection covers you if another driver is at fault in an accident but doesn’t have insurance or doesn’t carry high enough limits to fix your bodily or property damages.

Personal Injury Protection (PIP)

PIP is a protection option that covers your medical costs plus a few other costs in the event of an accident. This coverage may cover:

  1. An ambulance or helicopter ride if you must quickly be transported to a hospital
  2. You lost wages due to injuries from a car accident
  3. You require physical therapy or rehabilitation
  4. You need services like house cleaning and child care that you pay for due to sustaining injuries from an accident
  5. You require funeral costs or death benefits due to an accident

Gap Insurance

A gap between the vehicle’s value and the loan amount occurs when the car depreciates faster than you pay off the loan used to finance the vehicle. The gap typically happens when you lease a car for over 60 months but put down less than 20 percent of the purchase price before driving off the lot. 

An insurance company pays the depreciated value for the vehicle if it’s totaled. Therefore, some financial institutions require you to get gap coverage to protect the financier and the loan while in your care. Gap insurance covers the difference between the loan or lease amount and the depreciated value of the car if a vehicle is totaled while the car is worth less than the loan or lease on the vehicle.

How Much Coverage Do I Need and What Is Covered? 

Forty-seven states require all drivers to carry liability coverage. Alaska and Maine come at the top of the list for the highest state-required minimums with 50/100/25, while Florida comes in with the lowest state minimums at 10/20/10. 

The only three states that don’t require the purchase of insurance are Iowa, New Hampshire, and Ohio. Still, those states require that a driver show proof that they could cover the cost of another person’s bodily injury and property damage in an accident. To comply with the law in each state where it’s required, you need to purchase auto insurance. Auto policies typically have three different levels of coverage:

Cover the other person’s property and passengers

If there’s an accident and you are at fault, liability insurance covers the other person, their passenger’s hospital stay, and getting their vehicle repaired. Insurance companies may offer limits from the state minimum up to $1,000,000 in coverage for each part of the liability section. 

States require the mandated minimums to be the least amount of coverage you need to repair minor damages. Unfortunately, a policy offering minimum coverage leaves you open to litigation if the minimum limits are too low to cover the loss due to a severe accident. 

Cover your car 

Comprehensive, collision, and gap coverage protect you and the vehicles in question. When it comes to minimum requirements, each state determines its own requirements, and if you’re taking a loan out on the vehicle, the lender may have their own requirements. Be sure to check with your lender on your minimum coverage needs.

Cover your body, your property, and your passengers

Uninsured and underinsured motorist protection and personal injury protection cover your body, property, and passengers. Uninsured and underinsured motorist coverage looks and operates very similar to liability coverage. The only difference is that this coverage protects you instead of the other party if there was an accident with someone that wasn’t covered or didn’t have adequate coverage. 

Personal injury protection pays your medical costs. A policyholder can use their injury protection to pay for things not covered by other medical payments. You can use PIP to cover lost wages from an inability to work after an accident, substitute services like babysitters or cleaners, and funeral or death benefits.

How Much Will My Policy Cost? 

How much your policy costs depends on several factors:

  • Your location
  • Your age
  • Age of the vehicle
  • Your driving record
  • Type of vehicle
  • Coverage limits

However, companies weigh each factor differently from company to company.

State-required minimums seem the best option because they are the most cost-effective option for insurance. While the state considers the driver “insured” by carrying the state minimums, they also leave them open to litigation if an accident costs more than the minimums to fix. Your insurance agent should guide you toward the best coverage option during your quoting process.

Do I Qualify for Any Discounts?

Young drivers and senior drivers tend to have the most expensive rates because of the young driver’s inexperience and the senior driver’s slower reflexes. Insurance providers consider middle-aged, married drivers the most responsible. Therefore, they receive the best rates. 

Insurance companies provide opportunities for rate reductions for all of their drivers by applying driver discounts. A few popular discounts for insurance companies include:

  • Being a safe driver 
  • Taking a defensive driving class
  • Allowing telematics or data-gathering on when and where you drive, how fast you drive on average, and how hard you break for stop signs and stop lights; An app or car plug-in collects the data.
  • Being alums or a part of a club
  • Being a military member or a federal employee
  • Having an anti-theft car system
  • Adding a new car to the policy
  • Being a good student
  • Bundling with other insurance services like a home or life policy
  • Having a student at school a certain distance away from home
  • Being loyal to your insurance company
  • Insuring multiple cars under the same policy
  • Enrolling in autopay or paying in full
  • Driving a certain amount of miles per year

The amount of discounts offered by an insurance provider varies widely. Some companies have more than 20, while others have as few as 5. Check with your agent while getting your quote to see how many you qualify for.

Whom Does My Policy Cover?

An auto policy covers three main types of drivers: 

  • Included drivers include those listed on the policy as covered. The insurance company pays for the damages if they cause an accident.
  • The term “excluded driver” applies to anyone specifically listed as “excluded” on the policy. An excluded driver who causes an accident must pay for the other person’s bodily and property damages. Commonly, these payments occur out of pocket or through their policy, as the policy will not cover this person if they’re driving the car. 
  • Permission drivers are anyone with permission from the policyholder to drive the covered vehicle. The insurance company covers any damages due to an at-fault accident.

Some companies will require every person in the household to either be listed or excluded from the policy, while others will acknowledge covered drivers and permission drivers. Either way, an active policy will cover all listed vehicles. 

What if My Car Is Used for Work? 

Whether a vehicle needs to be covered under a personal or company auto policy depends on who owns the car. If the company owns the vehicle, it will cover it under a commercial policy. If you drive your vehicle for work and personal use, you can insure it under a commercial policy and still use it for pleasure.

Either way, a personal auto policy won’t cover a vehicle while using it for commercial purposes. Some companies will maintain the commercial policy, or they might give a stipend for the employee to sustain commercial coverage on their own. 

An employee can face a prevalent insurance gap while using a commercial vehicle: an employer states that the coverage only lasts while the employee is on duty. Still, they have to drive to and from work while not being on duty. 

The employee can add an endorsement to a personal auto policy, called an Extended Non-Owned Coverage for Named Individuals, with each driver in the family listed if they have to drive the vehicle in an emergency. This endorsement adds liability coverage to the company vehicle while the employee isn’t on duty. That way, they can get to and from work while maintaining coverage.

What if My Car Is a Lease or Financed? 

The financial institution may require certain coverages before letting the buyer drive off the lot with a leased or financed vehicle. But if they’re leasing or financing a vehicle, the institutions may require comprehensive collision coverage with the lowest deductible limits and gap coverage to protect the car. Certain lessors will also require that they be listed as additional drivers and loss payees, which means they will collect the payout if an accident totals the vehicle.

Leasing or financing a vehicle doesn’t typically impact the overall premium. However, leasing could be a little more expensive if the financier requires coverage limits higher than the state minimums. A lessor may also require gap coverage, which pays the difference between the depreciated value of a vehicle and the payment required to satisfy the loan amount fully. The lessor or financier will review the requirements while the buyer signs the final paperwork.

What Is Covered if My Car Is Damaged or in an Accident?

The coverage specifics depend on your policy and who’s at fault. If it’s the other person’s fault, their insurance will generally cover the costs of fixing the vehicle and handle any medical bills you may have. Suppose the other person doesn’t have insurance or doesn’t have enough insurance to cover your damages. In that case, your uninsured and underinsured coverage will kick in, and the insurance company will handle things with the at-fault party.

If you are at fault, the coverage you selected for your policy kicks in. Typically, the driver calls their insurance company, and the insurance company will have their adjuster look at the vehicle and decide if it would be worth it to fix the car or not.

As long as the repair cost doesn’t exceed the vehicle’s value at the time of the accident, the insurance company will usually pay to fix it. If the repair costs exceed the vehicle’s worth, the body shop will declare the car a total loss or “totaled,” and they’ll write you a check for what the car was worth at the time of the accident.

Once repairs are made, the driver will pay the deductible and the insurance company will cover the remaining approved amount.

What Is Covered if Someone Is Injured or Dies in an Accident Involving My Car?

If it’s the other person’s fault, their liability coverage will pay for your medical bills up to the listed maximums. Liability coverage states a per person maximum and per incident maximum for medical coverage.

If the medical bills are higher than the liability maximums, you would contact your insurance company and utilize your uninsured and underinsured motorist protection to cover the difference. Liability limits that are too low to cover the cost of the damages leave the at-fault party open to litigation.

The driver’s liability coverage covers the other party’s medical costs if they are at fault. The driver would contact their insurance company and pay their deductible to have their car fixed. If the driver has PIP coverage, this will kick in for items like an ambulance ride, funds for a babysitter or a maid service if they can’t manage it anymore after the accident, and even funeral expenses or death benefits if required. PIP coverage is considered no-fault coverage, which means if the driver has it selected on their policy, it will pay out no matter who’s at fault for the accident.

Will Original Equipment Manufacturer (OEM) Parts Be Covered in Case of an Accident?

Original equipment manufacturer parts, or OEM parts, are specifically designed for the make and model of the vehicle by the car’s manufacturer. Repair shops working with insurance companies typically don’t prioritize OEM parts over aftermarket parts, but a driver can request that the insurance company add an OEM Endorsement to their policy.

The coverage is only available to vehicles under seven years old, and they must have comprehensive coverage, collision coverage, or both to apply for the endorsement. Once applied, the endorsement will request that the repair shops prioritize only OEM parts to repair the vehicle.