Auto Insurance 101 - The Basics
What is auto insurance?
Auto insurance protects you against financial loss
if you have an accident. It is a contract between
you and the insurance company. You agree to pay the
premium and the insurance company agrees to pay your
losses as defined in your policy.
Auto insurance provides property, liability and
medical coverage:
Property coverage pays for damage to or theft of
your car.
Liability coverage pays for your legal
responsibility to others for bodily injury or
property damage.
Medical coverage pays for the cost of treating
injuries, rehabilitation and sometimes lost wages
and funeral expenses.
An auto insurance policy is comprised of six
different kinds of coverage. Most states require you
to buy some, but not all, of these coverages. If
you're financing a car, your lender may also have
requirements. Most auto policies are for six months
to a year. Your insurance company should notify you
by mail when it’s time to renew the policy and to
pay your premium.
What is covered by a basic auto policy?
Your auto policy may include six coverages. Each
coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries that you, the
designated driver or policyholder, cause to someone
else. You and family members listed on the policy
are also covered when driving someone else’s car
with their permission.
It’s very important to have enough liability
insurance, because if you are involved in a serious
accident, you may be sued for a large sum of money.
Definitely consider buying more than the
state-required minimum to protect assets such as
your home and savings.
2. Medical Payments or Personal Injury Protection
(PIP)
This coverage pays for the treatment of injuries to
the driver and passengers of the policyholder's car.
At its broadest, PIP can cover medical payments,
lost wages and the cost of replacing services
normally performed by someone injured in an auto
accident. It may also cover funeral costs.
3. Property Damage Liability
This coverage pays for damage you (or someone
driving the car with your permission) may cause to
someone else's property. Usually, this means damage
to someone else’s car, but it also includes damage
to lamp posts, telephone poles, fences, buildings or
other structures your car hit.
4. Collision
This coverage pays for damage to your car resulting
from a collision with another car, object or as a
result of flipping over. It also covers damage
caused by potholes. Collision coverage is generally
sold with a deductible of $250 to $1,000—the higher
your deductible,
the lower your premium. Even if you are at fault for
the accident, your collision coverage will reimburse
you for the costs of repairing your car, minus the
deductible. If you're not at fault, your insurance
company may try to recover the amount they paid you
from the other driver’s
insurance company. If they are successful, you'll
also be reimbursed for the deductible.
5. Comprehensive
This coverage reimburses you for loss due to theft
or damage caused by something other than a collision
with another car or object, such as fire, falling
objects, missiles, explosion, earthquake, windstorm,
hail, flood, vandalism, riot, or contact with
animals such as birds or deer.
Comprehensive insurance is usually sold with a $100
to $300 deductible, though you may want to opt for a
higher deductible as a way of lowering your premium.
Comprehensive insurance will also reimburse you if
your windshield is cracked or shattered. Some
companies offer glass coverage with or without a
deductible. States do not require that you purchase
collision or comprehensive coverage, but if you have
a car loan, your lender may insist you carry it
until your loan is paid off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your
family, or a designated driver if one of you is hit
by an uninsured or hit-and-run driver.
Underinsured motorist coverage comes into play when
an at-fault driver has insufficient insurance to pay
for your total loss. This coverage will also protect
you if you are hit as a pedestrian.
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Teenagers and Safe Cars
If your teenager has just gotten a driver's license,
it may be hard to imagine handing over the keys to
your brand new car, but that may be the smartest
vehicle to choose.
The first years teenagers spend as drivers are very
risky. In fact, teen drivers have the highest death
rates of any age group. In 1997 alone, more than
5,700 teenagers died in motor vehicle crashes, and
many more were left severely and permanently injured
by crashes.
While getting a driver's license is an exciting
rite-of-passage for teens, it can be enough to make
a parent frantic. However, the Insurance Institute
for Highway Safety (IIHS) and the Insurance
Information Institute (I.I.I.) say there is
something worried parents can do to protect their
teens—choose a safe vehicle.
Avoid vehicles that encourage reckless driving.
Teen drivers not only lack experience, but may also
lack maturity. As a result, speeding and reckless
driving are common. Sports cars and other vehicles
with high performance features, such as
turbocharging, are likely to encourage speeding.
Choosing a vehicle with a more sedate image will
reduce the chances your teen will be in a
speed-related crash.
Don't let your teen drive an unstable vehicle.
Sport utility vehicles, especially the smaller ones,
are inherently less stable than cars because of
their higher centers of gravity. Abrupt steering
maneuvers—the kind that can occur when teens are
fooling around or over-correcting a driver error—can
cause rollovers where a more stable car would, at
worst, skid or spin out.
Pick a vehicle that offers good crash protection.
Teenagers should drive vehicles that offer
state-of-the-art protection in case they do crash.
Don't let your teen drive a small vehicle.
Small vehicles offer much less protection in crashes
than larger ones. However, this doesn't mean you
should put your child in the largest vehicle you can
find. Many mid- and full-size cars offer more than
adequate crash protection. Check out the safety
ratings for mid-size and larger cars.
Avoid older vehicles.
Most of today's cars are better designed for
crash protection than cars of six to ten years ago.
For example, a newer, mid-size car with airbags
would be a better choice than an older, larger car
without airbags. Before you make a final choice on
the car your teenager will drive, consult the U.S.
Department of Transportation ( http://www.dot.gov )
or the Insurance Institute for Highway Safety (
http://www.iihs.org ).
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