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: 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 is 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 hits.

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.

Can I drive legally without insurance?

NO! Almost every state requires you to have auto liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance, you need to have sufficient assets to pay claims if you cause an accident. If you don't have enough assets, you must purchase at least the state minimum amount of insurance. But insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.

If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.

Click for more information, including minimum liability insurance amounts by state. 

A Guide for Saving Money on Auto Insurance Shopping for auto insurance? The price you pay for your auto insurance can vary by hundreds of dollars, depending on your driving record, the type of car you have and the insurance company you buy your policy from. Here is a list of things you can do to save money.
	Shop Around
	Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department may also provide a means to compare prices. Get quotes from different types of insurance companies. Some sell through their own agents. Some sell through independent agents who offer policies from several insurance companies. Other companies sell directly to consumers over the phone or via the Internet. The price may vary depending on the sales method. But don't shop by price alone. You want a company that answers your questions and handles claims fairly and efficiently. Sources for finding the right kind of company include: word of mouth, i.e. friends, relatives, co-workers; your state insurance department, where you can find consumer complaint ratios by company; and consumer magazines. You can also check the financial health of insurance companies through independent rating companies.
	Before you buy a car, compare insurance costs
	Your premium is based in part on the car's sticker price, the cost to repair it, its overall safety record and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft, such as air bags, anti-lock brakes, daytime running lights and anti-theft devices. For more information on car safety, check the Insurance Institute for Highway Safety. Cars that are favorite targets for thieves cost more to insure. For more information on car theft, check the National Insurance Crime Bureau (NICB).
	Ask for a higher deductable
	Your deductible is the amount of money you pay out-of-pocket before your insurance policy kicks in. By requesting higher deductibles, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage premium by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more. However, keep in mind that you'll need to have the amount of the deductible on hand should something happen to your car.
	Reduce coverage in older cars
	Consider dropping collision and/or comprehensive coverage on older cars. It may not be cost-effective to continue insuring cars worth less than 10 times the amount you would pay for coverage. Any claim payment you receive would not substantially exceed your premiums minus the deductible. Claims occur on average only once every 11 or 12 years. Auto dealers and banks can tell you the worth of a car, or you can look it up online at Kelley Blue Book.
	Buy your homeowners and auto coverage from the same insurer
	Many insurers will give you a discount if you buy two or more types of insurance from them. Also, you may get a reduction if you have more than one vehicle insured with the same company. Some insurers reduce premiums for long-time customers. But shop around carefully; you may still save more money buying from a different insurance company even with the multi-policy discount.
	Take advantage of low-mileage discounts
	Some companies offer discounts to motorists who drive a lower than average number of miles per year. Low mileage discounts can also apply to drivers who carpool to work.
	Ask about group insurance
	You may be eligible to get insurance through a group plan from your employer, or through professional, business and alumni groups or other associations. Group plans often provide substantial discounts. Ask your employer, or any groups or clubs of which you are a member, about this option.
	Maintain good credit
	Your credit rating may affect what you pay for insurance, so monitor it carefully. You can get this information directly from the three major credit-rating agencies (Equifax, Experian, Trans Union). There are also various Web sites that allow you to check your credit rating and provide tips on how to improve your score.
	Seek out safe driver discounts
	Most insurance companies offer discounts to policyholders who have not had any accidents or moving violations for a number of years. You may also qualify for a cut if you have recently taken a defensive driving course, if you are over 50 and retired, or if there is a young driver on the policy who is a good student, has taken a drivers education course or is away at a college, generally at least 100 miles away. When you comparison shop, be sure to inquire about discounts for the following (availability will vary according to the state and company): No accidents in 3 years No moving violations in 3 years Drivers over 50 to 55 years of age Driver training course Defensive driving course Student drivers with good grades College students away from home $500 deductible $1,000 deductible Air bags Anti-lock brakes Daytime running lights Anti-theft device Low annual mileage Auto and homeowners coverage with the same company More than one car insured with the same company Long-time customer But don't forget that the key to savings is not the discounts but the final price. A company that offers few discounts may still have a lower overall price.

© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED -

Shopping for auto insurance? The price you pay for your auto insurance can vary by hundreds of dollars, depending on your driving record, the type of car you have and the insurance company you buy your policy from. Here is a list of things you can do to save money.

Shop Around

Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department (http://www.iii.org/media/companies/state_org/insur_departments/) may also provide a means to compare prices.

Get quotes from different types of insurance companies. Some sell through their own agents. Some sell through independent agents who offer policies from several insurance companies. Other companies sell directly to consumers over the phone or via the Internet. The price may vary depending on the sales method.

But don't shop by price alone. You want a company that answers your questions and handles claims fairly and efficiently. Sources for finding the right kind of company include: word of mouth, i.e. friends, relatives, co-workers; your state insurance department, where you can find consumer complaint ratios by company; and consumer magazines. You can also check the financial health of insurance companies through independent rating companies.

Before you buy a car, compare insurance costs

Your premium is based in part on the car’s sticker price, the cost to repair it, its overall safety record and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft, such as air bags, anti-lock brakes, daytime running lights and anti-theft devices.

For more information on car safety, check the Insurance Institute for Highway Safety.

Cars that are favorite targets for thieves cost more to insure. For more information on car theft, check the National Insurance Crime Bureau (NICB).

Ask for a higher deductable

Your deductible is the amount of money you pay out-of-pocket before your insurance policy kicks in. By requesting higher deductibles, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage premium by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more. However, keep in mind that you’ll need to have the amount of the deductible on hand should something happen to your car.

Reduce coverage in older cars

Consider dropping collision and/or comprehensive coverage on older cars. It may not be cost-effective to continue insuring cars worth less than 10 times the amount you would pay for coverage. Any claim payment you receive would not substantially exceed your premiums minus the deductible. Claims occur on average only once every 11 or 12 years. Auto dealers and banks can tell you the worth of a car, or you can look it up online at Kelley Blue Book.

Buy your homeowners and auto coverage from the same insurer

Many insurers will give you a discount if you buy two or more types of insurance from them. Also, you may get a reduction if you have more than one vehicle insured with the same company. Some insurers reduce premiums for long-time customers. But shop around carefully; you may still save more money buying from a different insurance company even with the multi-policy discount.

Take advantage of low-mileage discounts

Ask about group insurance

You may be eligible to get insurance through a group plan from your employer, or through professional, business and alumni groups or other associations. Group plans often provide substantial discounts. Ask your employer, or any groups or clubs of which you are a member, about this option.

Maintain good credit

Your credit rating may affect what you pay for insurance, so monitor it carefully. You can get this information directly from the three major credit-rating agencies (Equifax, Experian, Trans Union). There are also various Web sites that allow you to check your credit rating and provide tips on how to improve your score.

Seek out safe driver discounts

Most insurance companies offer discounts to policyholders who have not had any accidents or moving violations for a number of years. You may also qualify for a cut if you have recently taken a defensive driving course, if you are over 50 and retired, or if there is a young driver on the policy who is a good student, has taken a drivers education course or is away at a college, generally at least 100 miles away.

When you comparison shop, be sure to inquire about discounts for the following (availability will vary according to the state and company):

• No accidents in 3 years
• No moving violations in 3 years
• Drivers over 50 to 55 years of age
• Driver training course
• Defensive driving course
• Student drivers with good grades
• College students away from home
• $500 deductible
• $1,000 deductible
• Air bags
• Anti-lock brakes
• Daytime running lights
• Anti-theft device
• Low annual mileage
• Auto and homeowners coverage with the same company
• More than one car insured with the same company
• Long-time customer

But don’t forget that the key to savings is not the discounts but the final price. A company that offers few discounts may still have a lower overall price.

Insurance Information Institute