How to Buy Car Insurance: What Do All of Those Choices Really Mean?
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Buying car insurance used to be a lot simpler. Everyone had an insurance agent and they advised you on what you needed based on your personal situation.

However, over the last decade, most car insurance companies have gone online making the traditional insurance agent somewhat obsolete. Most companies like Geico or State Farm allow you to go online and choose what type of coverage you want to carry, and the amount of monetary coverage you would like. Some even give you a list of the cheapest cars to insure.

This makes it so much simpler in many ways. I remember spending time on the phone with my State Farm Agent for years having him go through the hypothetical changes to my policy and telling me how much my premium would go up and down. They must have hated this part of the job.

Now, you can go and do it yourself and it will recalculate your premium in seconds.

However, one of the downsides to this convenience is that you are bombarded with so many types of insurance coverage for your car that you quickly become lost and confused. At least, that is my experience. I don’t know how they managed to make auto insurance so complicated. It is sort of like our tax code in the USA. Most people cannot file their Federal Income taxes on their own because the code is so complicated and there is something wrong with a system that becomes that complicated. The options for car insurance have become just as bewildering. On the surface, some seem exactly the same, but in reality there are slight legal distinctions. I don’t know if you have ever noticed this but insurance companies at their heart are really legal companies. That’s all they really do is fight lawsuits.

With this article I will try to clear up some of the confusion with a definition of insurance so that you can have a better idea of what type of insurance you really need.

What is Bodily Injury Liability?

What is liability? This type of auto insurance coverage pays damages for anyone injured or killed in an accident which is determined to be an at fault accident.  This is one of the types that is mandatory because you are legally responsible for someone's bodily injury or death, you may be required to pay for the person’s medical expenses or loss of future earnings. Therefore, you are required to have it to protect your assets and future earnings. It also covers your legal defense in the event you are sued for an accident although there are some exclusions, so be sure to read it carefully.

Bodily injury liability has two different coverage limits. The amount of coverage is up to you. The first amount represents the coverage limit for any person. The second amount represents the total coverage limit for one incident or accident.

There are certain minimum requirements for liability insurance depending on the state you live in. If you have a lot of assets, you should buy enough coverage to protect them completely usually through an umbrella policy.

What is Property Damage Liability?

While the previous coverage pays for bodily injury in an accident where you are at fault, property damage liability pays for damage to anyone’s property resulting from an accident in which you are legally responsible. As with bodily injury coverage, this type of insurance is required. It also covers your legal defense if you are sued.

Most experts recommend a limit of at least $50,000 or higher. If you total a high end luxury car, you will probably be required to pay the difference over your limit. Be sure to read the fine print in any policy because there are some exclusions that apply.

What Is Medical Payments Coverage?

This type of coverage is optional. It pays the “reasonable and necessary medical, dental, hospital and funeral expenses for the insured, covered passengers and family members”, who are injured regardless of who was at fault in an accident.  This will pay for expenses from an accident like surgery, x-rays, hospital stays and ambulance transportation.

This type of insurance is typically taken as an add-on to an existing health insurance policy. If you have a good health plan, you may want to select the lowest level of coverage or skip it altogether.

However, if you have friends or family members that ride with you a lot, medical payments coverage will pay for their medical expenses if they are injured in an accident in your car.

What is the difference between Uninsured Motorist Bodily Injury Add-on Coverage and Uninsured Motorist Bodily Injury Reduced Coverage?

Uninsured motorist bodily injury add-on coverage pays for you and your passengers' bodily injury damages caused by an uninsured driver. The add-on part simply means that it is added to any at fault liability limit you already have. Basically, it provides additional protection.

Uninsured motorist bodily injury reduced coverage means that your uninsured motorist coverage will allow you to collect from the driver that caused the accident, and your uninsured motorist reduced coverage limit, combined up to the limit that you have purchased.

If you are involved in an accident that was not your fault, this type of coverage will pay your bodily damage that would have normally been paid by the at-fault driver’s insurance company. If you live in an area where you think there might be a lot of insured drivers, you may want to consider adding this optional coverage.

What Is Uninsured Motorist Property Damage Reduced Coverage and Uninsured Motorist Property Damage Add on Coverage?

Uninsured motorist property damage reduced coverage pays for damage to your vehicle caused by an uninsured driver. The coverage will pay up to the difference between the at-fault driver's liability coverage and your uninsured motorist coverage.

This is an important option considering the number of uninsured drivers on the road.  You should carry enough coverage to repair or replace your automobile.

Uninsured motorist property damage add-on coverage pays for damage to your vehicle caused by an uninsured driver. It provides protection that will pay for your damages in addition to the liability insurance of the person that caused the accident.

What is Comprehensive Auto Insurance?

This type of insurance pays for any non-collision damage that involves your car. If your car gets broken into, or you catch a rock in the windshield on the road, this will pay to have it repaired, minus any deductible you select beforehand.

This type of coverage is optional and depending on the age or your car may not be worth the premium and deductible costs when you file a claim.

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What is Collision Coverage?

How to Buy Car Insurance: What Do All of Those Choices Really Mean?
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Collision coverage pays for damages to your auto caused by a collision with another car or structure. If you have a loan on your car, or it is fairly new, you have to carry collision.

If you do not have collision insurance and you are responsible for an accident, the car repairs will not be covered by you insurance policy.

You should choose an amount of coverage that covers repairs or replacement of your vehicle if it is totaled. As with comprehensive insurance, it also requires a deductible.

The general rule of thumb is that if your car is more than 7 years old, this type of insurance does not make sense because the cost of the premiums over the years are more than the payout from the insurance company if it was totaled.

What is Accident Forgiveness?

This differs with each auto insurance provider but basically it is a reward for going accident free during a certain period of time. Some companies reward policy holders by waiving certain fees or surcharges when filing a claim on an accident if they have not filed a claim recently. The amount of time that determines accident forgiveness varies by insurance company.


How to Buy Car Insurance
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Whatever type of coverage you choose is going to be determined by the type of auto you drive, the type of health insurance coverage you have and the amount of total assets you own.

Selecting the various coverage limits and deductibles will raise or lower your monthly or semi-annual premium. My advice is to try one of the online insurance companies and play around with their insurance wizards to see how the cost will vary with your particular automobile.

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