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Buying a Car : Auto Insurance

You have a car. Now you need insurance. In most states, that’s the law, but even if it weren’t the law, it’s common sense. We’re sure you’re a fabulous driver, but not everybody is, and there’s always a risk that something will happen no matter how careful you are. That is, after all, why they call them “accidents,” right?

Here, then, is a quick rundown of the essentials of buying auto insurance.

Types of insurance: When you call an insurance agent, you’ll have a whole slew of options. Here’s a handy translation guide for when the agent starts slinging slang:

  • No-fault: If you’re in an accident, your insurance company compensates you, no matter whose fault it was. (Thus the name.) Then they try to go after the other driver if they think they have a claim. Some states have no-fault insurance, some states don’t.

  • Fault: If you live in a fault state, you will be required to prove that you have "financial responsibility" – you’re able to pay for any damage or injury that you may cause. Either fulfill minimum insurance requirements or have proof that you have the financial means to pay for such amounts.

  • Uninsured and underinsured motorists: If you’re in an accident with someone who can’t pay for the damage, your insurance company covers the difference. This protects you against damage costs including lost wages, medical bills, pain and suffering.

  • General liability: This is the coverage the law requires in most states. If someone causes damage to your property or causes you injury, that person’s insurance will cover it. It also covers damage you may cause to other people’s property and injuries to the people, and it protects you from lawsuits. Consider getting higher liability coverage than is required to prevent being underinsured.

  • Collision: Collision reimburses costs related to repairing damages to your car due to an accident. It usually covers you even when you drive a rental or someone else’s car.

  • Comprehensive: This covers a wider swath of incidents, including fire and theft, natural disasters, explosions, even riots. Required for a lease or a loan.

  • Medical payments insurance: Covers hospital and doctor bills, and even funeral expenses, that result from an accident. Check first to make sure it doesn’t overlap with your health insurance.

  • Personal injury protection: PIP policies cover medical charges not covered by the Medical Payments Insurance – lost wages, child care, etc.

What affects the rates? Certainly the kind of coverage you want and the size of your deductible, which is the amount that you’re responsible for before insurance kicks in (the bigger it is, the cheaper the rates). But statistics play a huge role, too. Insurance companies hedge their bets by charging more to insure people with statistically higher accident rates, and charging less for the good risks. The latter list includes:

  • Women

  • People over 25

  • Married people

  • People with good driving records

  • People who drive less

  • Certain vehicles: Big, heavy cars and trucks are considered at lower risk than smaller, lighter ones. Expensive cars are costlier to repair than economy models. Sports cars are more at risk than other cars.

Ways to save on insurance: Insurance is a big expense, but it can be smaller. Just follow a few simple principles:

  • Shop around: As with anything, this is a good idea. Make a few extra calls, and you could save yourself hundreds of dollars a year. But don’t automatically go with the lowest quote – make sure you’re comparing the identical coverage from one company to another, and get recommendations on service-oriented agents.

  • Raise your deductible: Like we said, the higher the deductible, the lower the cost of insurance. Just be careful not to set your deductible so high that you can’t afford to pay it when you have a claim.

  • Drop collision and/or comprehensive on old or cheap cars: If your car is worth less than $1,000 or so, there’s no real point in spending hundreds of dollars to pretect it from scratches and dings.

  • Buy a boring car: Boring to car thieves, that is. Pick a car that gets stolen less often and you’ll get a much lower rate.

  • Low mileage discounts: Drive less, pay less. Catch a ride with your friends. Get a job near your home. If you live in a city, take the subway or whatever public transportation that city provides.

  • Equipment discounts: Cars with automatic seat belts, airbags or anti-lock brakes cost less to insure. Of course, they may also cost more to buy, so do the math.

  • Multiple insurance discounts: If you have other insurances, such as renters or life insurance, with the same insurance company or multiple drivers on the same insurance policy, you could qualify for a discount.
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