Car Insurance Basics

To get the best policy for your needs and the best price, it’s crucial to understand how car insurance works and what to watch out for.

The states with the lowest annual average car insurance rates are North Dakota ($703), Maine ($696), and Iowa ($714). The U.S. average is $1,070. Your car insurance premiums may be higher or lower depending on your vehicle, driving habits, demographics, policy selections, and more. Shopping for and comparing quotes is one of the best ways to get the greatest coverage for the most affordable price. 

An accident generally stays on your record for three to five years, depending on your insurance company and the state you live in. But even if you’re not at fault, it can still increase your premium. If you cause a severe accident or have multiple accidents in a short period, you could see your premium rise significantly and stay higher longer than it would if you’d only caused a minor accident. 

Comprehensive is a type of coverage that pays for losses that don’t happen as the result of a collision with another vehicle. For example, if your car is stolen or damaged by a storm or other natural disaster, comprehensive coverage can help pay to repair or replace it. It’s often required if you lease or make payments on your vehicle.

Car insurance, like any form of insurance, provides protection in case of covered losses. In fact, most states require at least liability coverage which kicks in up to your coverage limits if you hurt another person or their property while driving. Auto insurance can also protect your own property in the case of damage or loss, and pay for medical costs for you and your passengers if you need it.

Before comparing quotes, know what type of coverage you need and how much. Consider your state’s and your lender’s minimum requirements, but don’t necessarily stop there. You may want to increase the minimum coverage limits based on your situation. Next, compare quotes and insurance companies to find one with a reasonable rate, good customer service, and a strong financial footing.

Liability auto insurance protects you financially when you damage another person or their property with your vehicle, and is often a state-mandated requirement. There are two types of liability coverage: bodily injury and property damage. The first might pay for another person’s medical treatment and lost wages. The second might for damage you cause to their vehicle or belongings. 

Key Terms

Collision insurance coverage pays to repair damages or refunds you for the actual cash value of your vehicle if it is totaled when you collide with something while driving.

Insurance policy limits are the maximum an insurer will pay for a particular type of coverage.

An insurance grace period is the length of time you have after your due date to pay your premium before your insurance company cancels your coverage.

An insurance deductible is the amount of money you will pay on an insurance claim before the coverage kicks in and pays the rest.

Auto insurance is a type of policy that provides financial compensation for the fallout that occurs if your car is in an accident. In addition to the basic liability coverage mandated by most states, there are many tiers available to provide extra coverage for a wide range of potential damages.

An insurance declaration page sums up what is in an insurance policy. It comes at the start of your paperwork and outlines items like your deductible, coverage, and discounts.

A car insurance endorsement is an addition to an auto policy that either provides extra coverage or changes what is insured by altering your standard car insurance policy contract.

Depreciation in car insurance is the value lost from a vehicle’s price when new because of factors such as the vehicle’s age, mileage, and condition.

Guaranteed asset protection, or gap insurance for short, is an auto insurance coverage that pays the balance on your car loan when it’s totaled or stolen. This shields you from needing to make loan payments on a car you no longer have.

Auto insurance bodily injury coverage, also known as bodily injury liability coverage, pays the medical care costs, lost wages, and even the funeral costs for anyone harmed by an at-fault driver.

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