10 Things You Should Know About Auto Insurance

Every time you head out on the road, there’s a chance you could get into an accident. If that happens to you, auto insurance protects you from a resulting serious financial loss. It's important to understand your coverage to make sure you have the protection you need.

Here are 10 things everyone should know about auto insurance before getting behind the wheel.

1. Auto Insurance Can Mean a Few Different Things

Auto insurance is divided into five different types of coverage. Your policy could include one up to all of these five categories:

• Liability: Covers damage you cause another person in an accident that's your fault
• Collision : Covers the damage to your car from an accident
• Comprehensive : Covers damage to your car from perils other than an accident, such as vandalism or a hailstorm
• Medical: Covers medical bills from accidents
• Uninsured Motorist : Covers losses in case someone else causes an accident and doesn't have enough insurance to pay for your damages

2. You Are Likely Required to Buy Auto Insurance

Most states require you to have at least some auto insurance when you drive. You're usually required to have liability coverage to cover damages you cause to someone else in an accident. While you can buy a car without showing proof of insurance, if you get caught driving uninsured, you could face a steep fine, lose your driver's license, or have your car impounded by the police.

3. The Required Amount Probably Isn't Enough

Your state's requirements for coverage are probably not enough to completely protect you. Let’s say your state's required liability coverage is $20,000 and you crash into a $70,000 BMW and end up destroying it. Your insurance would only cover $20,000 of the loss, and the other driver could sue you for the remaining $50,000 (find out more about Why You Need More Than the Statutory Minimum When You Buy Auto Insurance).

4. Insurance Rules Are Different in Different States

Every state has its own auto insurance requirements as well as rules for determining fault in a car accident for insurance payments. Whenever you move, you should contact an insurance agent or the state's insurance department to review the new rules (don't have an agent yet? See these 5 Questions to Ask Before Choosing an Insurance Agent).

5. Collect Quotes From Multiple Insurers

The auto insurance market is fairly competitive with a number of different companies looking for your business. When you're buying a policy, get quotes from a few different companies so you can compare all your different options before you sign up.

6. The Lowest Price Isn't Always the Best Deal

As you compare quotes, keep in mind that you should not automatically gravitate to the lowest price. If a company charges an extremely low rate, they probably make that money back some other way. Maybe the policy offers less coverage than you expected, maybe the company sharply increases rates after an accident, or maybe the policy has many exclusions. Figure out why a policy is priced so low before signing up.

7. A High Deductible Has Pros and Cons

The deductible is the amount you have to pay out-of-pocket before your auto insurance kicks in. For example, if you have a $200 deductible, you'd have to cover the first $200 of damages in an accident before the insurance company would pay the rest. You can lower your monthly premiums by agreeing to a higher deductible, which represents a viable way to save each month. However, you'd need to keep more in savings in case you have an accident because then you'd have to pay more yourself. Decide whether the lower monthly premiums are worth the extra risk.

8. Ask for Every Possible Discount

Insurance companies offer a wide range of discounts to attract customers. You might get a discount for taking a defensive driving course, for adding an anti-theft device to your car, and for going several years without an accident. However, insurance companies do not always mention all their discounts. Be sure to ask about every way you can save money (see An Intro to Usage-Based Auto Insurance and Telematics to find out more about a recent option that may lower your insurance payments).

9. The Insurance Goes With the Car

When you buy auto insurance, it stays with your car, not you as a driver. If your friend drives your car and has an accident, your insurance would cover the damages. On the other hand, if you crash your friend’s car, your insurance will not pay anything.

10. The Car You Drive Matters

The car you drive affects the cost of your auto insurance. First, it costs more to insure a more expensive car. Beyond that, insurers also gauge your likelihood of an accident based on the type of car you have. Expect to pay more for a sports car versus a station wagon.

Conclusion

Accidents happen. Unfortunately, that's just a part of driving. While there's no way to guarantee you'll never have a car accident, with the right auto insurance in p lace, you can guarantee you’ll never suffer financially because of one.