Understanding Your Options for Car Insurance

Regardless of how many years you’ve been driving and how long you’ve owned a car, options for car insurance can still be a hassle and hard to understand. Everyone on the road needs car insurance, yet few know exactly what they’re paying for and what type of coverage applies to different situations. For example, does auto insurance work the same way if a tree falls on your vehicle and if you drive into a tree by mistake? No, it doesn’t.

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Tips for Understanding Your Insurance Options

By unpacking your insurance policy and it’s individual parts, car insurance should be much easier to understand, and, in turn, you’ll be able to assess the quality of your current plan and whether or not it’s time to switch. Before making any decisions regarding your auto insurance, consider the following tips:

1. Identify the Policy Components You Need

Before choosing a car insurance policy, make sure you understand each separate type of auto insurance. Not all are required, and some people choose not to purchase all six coverage options.

  • Bodily Injury Liability– Most states require bodily injury coverage. This type of insurance covers medical costs for the other party when the policyholder is found at fault for an accident.
  • Property Damage Liability– Like bodily injury liability, property damage insurance pays the damages cause to the other party’s property (usually their vehicle) when the policyholder causes an accident.
  • Uninsured/Underinsured Motorist Coverage– This type of coverage protects you when an uninsured or underinsured driver is at fault for an accident and cannot cover your medical or car repair costs. This insurance also comes into play when a pedestrian is involved in a hit and run.
  • Comprehensive– Comprehensive insurance provides coverage for when your vehicle is damaged by vandalism, natural disasters, theft, or an accident involving an animal.
  • Collision– Regardless of who causes the accident, collision insurance helps pay for the policyholder’s vehicle repairs or replacement.
  • Medical Payment– Also known as personal injury protection (PIP), this type of insurance covers the medical costs of the policyholder and their passengers if an accident occurs, regardless of who’s found to be at fault.

2. Estimate How Many Miles You Drive

Your mileage affects the rate of your premiums. This policy reflects the idea what the more miles you drive, the more chances you have of getting into an accident. A common mistake people make is not informing their insurance provider that they’ve retired and no longer have a daily commute. This change can drastically reduce the number of miles you drive annually and, in turn, bring down your insurance rate.

3. Know Your Demographic

People often don’t realize why insurers consider their location and other demographic data when calculating premium costs. By asking for your address, they can find out the following information that impacts your premium:

  • Population Density– Heavily populated areas have more traffic, making residents more likely to get into an accident. Because you’re more likely to make an insurance claim, prices go up.
  • Crime Statistics- By researching where you live and the local crime rates, insurers can determine how often vandalism and theft occur. Higher risk areas mean higher premiums.
  • Weather– Insurance providers will know what kind of weather conditions your area faces and how prone your car is to weather-related damages.
  • Average Repair Costs-- Living in a bigger city tends to mean higher costs for repair, which impacts insurance policies.

4. Understand How Age Affects the Cost of Premiums

Unfortunately, younger drives and seniors tend to have the highest premium rates. Why? Statistically, these populations are more likely to get into car accidents.

According to the Centers for Disease Control and Prevention’s most recent update, “In 2017, almost 7,700 older adults (aged 65+) were killed in motor vehicle crashes, and more than 257,000 were treated in emergency departments for motor vehicle crash injuries.”

Insurance providers know the increased risks for older drivers experiencing changes in their hearing ability, eyesight, and reflexes. These signs of aging impact the entire demographic because insurers take such risks into account at a group level. However, some insurance providers will lower your premium if you have a clean driving record, regardless of your age.

Doing Your Due Diligence

When it comes to shopping for auto insurance, the more research you do, the better. Don’t rush to make a decision; take into consideration your driving habits, policy expectations and preferences, the value of your vehicle, and where you live before choosing a provider.