Insurance has to be one of THE most cryptic parts of adulting. According to the official adult handbook, you’re supposed to insure everything from your pet to your own life.
Celebrities even insure their body parts. Mariah Carey’s legs are insured for about 1 Billion dollars and JLo’s butt is insured for $27 million dollars!!
But what is the big deal about insurance?
Why do we need it and why does it cost so much?!
Well most of us don’t need or have the money to insure our butt or our legs but a lot of us do drive cars!
Car insurance might be one of the most important insurances (next to health insurance) to have given the rate of car accidents in the US. Buying car insurance can be really tricky though.
There are so many terms, companies, and so much fine print that it can be really confusing and frustrating trying to figure of the best coverage for you and how to get the best rate possible.
If this is your first time buying insurance then you might have a few questions about how the whole process works.
That’s why I have taken the liberty to create a simple guide to car insurance any aspiring adult could navigate!
How exactly does car insurance work?
Insurance companies collect monthly payments called premiums from all of their customers. Imagine all of this money goes into a large pool. Some people will need the money when they get into an accident and other’s will not. The company uses the money from the pool to pay a customer every time they file a claim. There are also limits to the amount of money an insurance company will pay out based on your policy to prevent the pool of money from running dry. Of course the insurance company keeps a percentage of the money as a profit and operating costs as well.
What does car insurance cover?
Car insurance can cover you, your car, property, the other person in the accident’s car, their bodily damages, passengers etc. It is designed to protect you from incurring the costs of getting in an accident.
Why is car insurance required? What’s the point?
So many things could happen to you while driving no matter how good of a driver you are. It’s always better to be safe than sorry. If you’re thinking car insurance is too expensive then try getting into a wreck and having to cover the cost of your car, medical bills, and the expenses of the other person involved or being sued for causing an accident.
Why does it matter whose fault it is in an accident?
A lot of types of insurance coverage is determine by whose fault it is in the accident. This is why there can be a lot of car insurance fraud and court cases because nobody wants their insurance to go up or be penalized for an accident they didn’t cause. Some general rules of thumb are if you hit someone in the back it’s typically your fault and if you are intoxicated, or not following any road signs, speeding etc. it’s your fault. Keep that in mind when selecting insurance and while you’re driving.
How much does insurance cost?
Insurance costs vary by each person. There are many factors that go into the how much you pay for insurance including your age, driving history, location, how many miles you drive in your, your credit score etc. Each company has a different formula for determining their price so it’s best to shop around.
Selecting insurance can be really difficult so here’s a guide to make sure that you select the best coverage and policy to fit your needs.
Different types of car insurance
Liability – covers accidental bodily injury and property damage to others. This includes medical expenses, lost wages, pain and suffering etc. This type of insurance is often required by the state. Your coverage amount (how much money your insurance needs to pay out in the event of an accident) is usually determined by the state as well.
Liability insurance is typically one of the most expensive insurances. It is also usually expressed by three numbers like this 30/60/25. The first number represents the amount of coverage for bodily injury per person in the accident. The second number represents the bodily injury coverage per accident and the third number represents the property damage covered per accident.
Comprehensive– This covers the loss or damage to your car that doesn’t happen in an accident. For example, in the case of a fire, flood, wind or vandalism your car would be protected with this type of coverage.
Collision – This covers damage to your vehicle caused by an accident with a vehicle or object. This means that your insurance company will cover you up to $X amount in the case that you get an accident with another person or if you hit something like a sign or a median.
Medical coverage-This covers you and any passengers in your vehicle regardless whose fault it is. It also covers you and family members while riding in other people’s cars
Personal Injury Protection (PIP) – This covers medical expenses for the insured driver regardless of whose fault it is due to an accident.
Uninsured motorist – This covers you when you get in an accident that is caused by a driver without insurance. This can also cover you in the case of a hit and run driver where the other person involved in the accident flees the scene.
Underinsured motorist – This pays your car’s damages when an accident is caused by a driver who doesn’t have enough insurance to cover your expenses.
Loan/lease coverage – This (sometimes referred to as gap coverage) covers you if you get into an accident and your vehicle is considered to be totaled or is stolen. The insurance company will pay the rest of the loan or lease payment off.
Some of these types of insurance can vary from company to company. Always ask what exactly each policy covers when selecting insurance and don’t assume anything. Make notes when speaking to a rep if need be so you can fully understand what you are signing up for.
Other types of car insurance/coverage
Roadside assistance – This is the service you use when your car breakdown while driving or gets flat tire. You can sometimes even use this service if you lock yourself out of your car.
Warranty – If your buy your car new or within a few years of it being manufactured then it probably came with some sort of warranty. A warranty covers various repairs that your car might need during normal use of your car.
Rental reimbursement –This covers the cost of getting a rental car if your car is damaged and needs to be repaired. This type of coverage can also come with certain types of roadside assistance and car warranties.
Coverage requirements vary from state to state so although it is required to have insurance in most states they all have different specific requirements so double check before signing up for every type of insurance because you might not need them all.
There are also some ways that you can get a nice discount on your insurance policy so always ask to see if you qualify. Some typical discounts include:
Good student– If you are in school sometimes insurance companies will give you a break on your bill if you have good grades.
Good driver– Having a good driver history is always a plus when shopping for car insurance. Some companies even have safe driving discounts and bonuses to decrease your rate.
Multi-car – If you have more than one car insured on the same policy you might qualify for a discount
Multi-policy– If you have multiple policies with the same company you might qualify for a discount as well. For example, if you have homeowner’s insurance and car insurance with the same company you might want to ask about a possible discount.
Customer loyalty – If you have been with a company for a while it never hurts to ask for a discount this goes for car insurance but also for most services as well. You never know until you ask.
Policy – The contract agreed upon between you and the insurance company
Claim – This is the formal request to the insurance company to pay for expenses incurred during an accident or medical claim etc.
Deductible – This is the amount of money you pay when you file an insurance claim before the insurance will kick in. Typically the higher this amount is the less you will pay for your policy.
Premium – The amount of money you pay to your insurance company each month for your insurance policy. Many companies set this rate based on a 6-month term that renews twice a year.
Coverage – The amount of money the insurance company has to pay if you get in an accident and have qualifying insurance. Typically the higher the coverage amount is the higher the plan can be.
Being an informed buyer in any situation gives you a lot of power as a consumer. Knowing exactly how your car insurance works, what it covers and what you need will help you so much when determining what policy is the best for you.
How did you select your car insurance? Are there any parts of the insurance process that still confuse you?
Have any additional questions about car insurance or other adultingtips? Join the Aspiring Adults community of Millennials trying to make it and ask any burning questions you may have. No question is off limits!