Auto Insurance

If you own or lease a car, automobile insurance is a good way to protect that investment.  In fact, leasing agencies and lending institutions will usually require the purchase of an insurance policy to protect their investment.  After all, until that lease is up, or the car loan is paid off, those companies are part owners of the vehicle you're driving.

Automobile Insurance Policies

Since insurance companies have been regulated for a number of years, there is a great deal of standardized terminology used in car insurance policies. That's good news for the consumer because it makes comparing quotes and policy coverage much easier.

Just like in a homeowners insurance policy, a car insurance policy has two basic categories of coverage: liability insurance, and physical damage to property.  Let's take a closer look at how each type of coverage is structured.

Automobile Liability Insurance

The liability coverage on a car insurance policy provides for the cost of damages that you might have caused, and if you are found to be at fault.  Within car insurance policies, there are two basic types of liability coverage that you should be concerned with:

• Bodily Injury - The bodily injury portion of an automobile insurance policy protects the policyholder from claims and lawsuits by people who are hurt or pass away as the result of a car accident.  This liability insurance portion of the policy pays for the personal financial hardships the other party might be exposed to as a result of the injury.
• Property Damage - Drivers also need protection from claims and lawsuits brought by people that had property damaged by a car accident.  This type of liability insurance falls into the category of property damage.

Automobile Liability Coverage

Each state has established a minimum value for the liability insurance drivers need to carry within a car insurance policy.  This coverage is for the protection of other parties that are injured.

Minimum liability coverage generally starts around $35,000, and can be as high as $500,000 on most standard policies.

Personal Injury Protection

The personal injury protection, or PIP, portion of your auto insurance policy pays for your medical treatment as well as the treatment of others that are covered under your policy.  This is a form of a no-fault insurance coverage.

Personal injury protection is further divided into two types of coverage:

• Medical Expenses - The medical expense portion of this insurance pays for the cost of providing medical care.  Examples include hospital stays, medical doctor fees, and rehabilitation of injuries.
• Non-Medical Expenses - The non-medical expense portion of car insurance pays for costs such as income continuation, paying someone to provide essential services such as cleaning your house, and even funeral expenses.

PIP insurance protection ranges from $15,000 to as much as $150,000 on a standard car insurance policy.

Physical Damage Insurance

There are basically two types of physical damage insurance that an auto insurance policy will cover:  collision coverage, and comprehensive.

• Collision Coverage - This insurance protects drivers from damage that they cause to their car in the event of a collision.  For example, if you were to hit a tree or found to be at fault in an accident.  You can also file a claim under your own policy for damages caused by others.  In this situation, your insurance company would then file a claim against the other party's insurance company for the cost of the damages.
• Comprehensive Coverage - This insurance covers costs that occur when a car is stolen, vandalized, or otherwise damaged; except for those items covered under collision.  It's termed comprehensive because that's what it is; it covers all the other insurance protection you'd need for a car.

Comprehensive and collision coverage are subject to deductibles, and the amount of insurance needed depends on the value of the car being insured.  This brings us to our final topic:  Figuring out how to compare auto insurance quotes.

Automobile Insurance Quotes

If you're shopping around for insurance quotes, then you should be aware that not all car insurance policies are created equally.  On the positive side, it's pretty easy for a car insurance company to place a value on your car.

Vehicle Identification Numbers

For a new car or used car, an insurance company usually requires you to notify them of the car's VIN, or vehicle identification number.  The VIN is a code consisting of numbers and letters that identify the car's make, model, engine option, assembly plant, and model year.  Just by knowing a car's VIN, an insurance company can accurately place a value on the automobile.

Factors Affecting Auto Insurance Quotes

We've already reviewed the different types of coverage you can buy within an insurance policy.  When comparing quotes, make sure each insurance company is providing the same level of insurance.  This includes validating both the dollar values of coverage, as well as ensuring the deductibles are consistent between policies.

Insurance Discounts

In addition, many car insurance companies offer discounts on insurance for the following:

• Good Student Discounts - A reduction in the insurance premium for students that rank in the upper 20 percent of their class, has at least a B (or 3.0) grade point average, or is on the Dean's list or honor roll.
• Car Safety Features - A discount on insurance premiums for car safety features including anti-lock breaks and air bags.
• Car Alarm Systems - Security features found in cars such as anti-theft devices reduce the likelihood of a car being stolen or increase the likelihood of it being found.

Factors Affecting the Cost of Insurance

Finally, there are several other factors that may affect your car insurance, increases or decreases to premiums, including:

• Geography - Insurance companies use your address and match it against their statistics on car theft rates in your area.
• Use of Car - Will the car be used for commuting to work or pleasure-use only?  The more miles driven each year, the higher the likelihood of an accident.
• Driving Records - This can include prior accidents, and the number of points on a license that can be attributed to poor driving habits.
• Credit Insurance Scores - Finally, the law allows insurance companies to develop what are called credit insurance scores.  These scores can affect your insurance premiums.  The rationale behind this policy is simply this:  Statistics show that individuals with poor credit are much more likely to file an insurance claim, which increases the cost to provide insurance.

About the Author - Auto Insurance

Copyright © 2004 - 2011 Money-Zine.com