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Car Insurance "De-mystified" -- Tips and Advice

You're buying a car and looking for authoritative advice on what insurance coverage you'll need. Perhaps you're researching auto insurance on the web because you'd like to “de-mystify” some of the jargon associated with auto insurance.

If so, you'll find the answers here …

·         What types of coverage do you need?

o    Liability Insurance

o    Collision

o    GAP Insurance

o    Comprehensive

o    Uninsured Motorist

o    PIP Coverage

·         What is No-Fault Insurance?

·         When to get insurance for a new car

·         Covering your teen driver

What Do You Need?

Your car insurance policy is designed to insure you and others involved in a crash against financial loss. Your policy primarily aims to cover the cost of repairing damage to property and paying for medical treatment for bodily injury. One coverage – liability – is mandated by state laws, while others just make sense.

Liability Insurance – You Must Have This

Your state laws say so.

In most states if you're involved in a collision and are found at fault you are responsible (liable) for the damage you caused. Liability insurance pays for those damages up to a limit specified in your policy. Your liability insurance covers injuries to other people as well as damages to property.

The states have each established mandatory minimum liability coverage amounts. These are stated in number form, such as 10/20/10, which means the liability portion of your auto insurance will pay up to: $10,000 for injury to each person injured in the accident; with a cap at $20,000 for the total of all injuries to persons involved; and, $10,000 for damage to property.

With the rising cost vehicles, auto repair, medical care and almost everything else in the U.S. today, insurance professionals recommend buying more than the state-mandated minimums. Many advise buying at least $100,000 to cover injuries with a maximum of $300,000 to $500,000 per accident.

Collision Coverage – Get Your Car Back on the Road

States don't mandate that you carry collision coverage, but with the high cost of auto repairs, body work and re-painting, you'll feel a lot more comfortable knowing you have coverage for collision. It covers the cost of repairing or replacing your vehicle. Collision coverage carries a deductible you pay before the insurance kicks in. The deductible amount you choose affects the premiums you'll pay. If you opt for, say, a $500 deductible your premium will be higher than if you chose a $2,000 deductible. Talk with your insurance professional to find the policy that best fits your personal financial situation.

GAP Insurance – Don't Keep Paying for a Car That's Been Totaled

Whether you lease or buy a vehicle, it's bound to depreciate quickly. Often the depreciation reduces its market value to less than what you owe on the lease or car loan. You're “upside down.” GAP refers to Guaranteed Asset Protection. GAP pays the difference between what you still owe and the market value of the vehicle in case of a total loss. GAP insurance pays if your vehicle is totaled in an accident or stolen and not recovered. It's comforting to know that your loan or lease will be paid off. You don't want to be forced to make payments on a vehicle you no longer have.

Beware of auto dealers who try to sell you GAP insurance at the closing table. The cost for GAP is minimal – and well worth a few dollars a month – when you buy it from an insurance professional. However, car dealers look at GAP insurance as a profit builder; they'll charge you a great deal more than you should even consider paying for this important coverage.

Comprehensive – When There's Been No Accident

Comprehensive insurance covers loss from other than vehicle accidents. You run into a frightened deer and crumple the front of your car. Something falls off the truck ahead of you or a stone flies up from the roadway and breaks your window. Fire breaks out. Your car is stolen. Comprehensive insurance covers all these and more.

Uninsured/Underinsured Motorist Coverage

If you are injured in an accident with a driver who has no insurance or who is under-insured, this “UIM” coverage pays your medical expenses. According to the Insurance Research Council one in seven drivers on America's roads are not insured – at all. Other sources report that one in six are under-insured. That's a total of almost one in every three drivers. Look around you as you drive to work or the grocery store. It's a bit scary to realize that even today so many drivers could cost you money because they're that one in three.

Take time to discuss this coverage with your insurance professional. Every auto insurance policy carries limits in each category of coverage. If you or your passengers are injured and require medical care beyond those limits, UIM coverage can save you from having to pay catastrophic medical expenses out of pocket.

What About PIP Coverage?

Personal Injury Protection (PIP) pays the medical bills when you're injured in an accident regardless of who is at fault. Some states require that you take PIP coverage and, for the most part, these are the “no-fault” states described below.

What is No-Fault Insurance?

No-fault insurance sounds like it would fully cover you in a crash no matter who is actually at fault. Not quite so.

No-fault insurance does say that no finding of fault is required. The car insurance carried by each driver pays each driver's own damages and injury. But in a “pure” no-fault situation you'd be restricted from filing suit in civil court for losses that were not covered by your insurance policy. No state in the U.S. has a pure no-fault system. Instead, those states generally known as no-fault states (see below) do allow you to seek reimbursement for loss through the courts. However, some states set limits on how much the court can award you.


States with No-Fault Policies




North Dakota



New Jersey




New York


When to Get Insurance for Your New Car

Banks and others that finance your new car loan will have a clause in their contract that allows them to “force-place” auto insurance on your vehicle. The lender wants you to carry insurance to protect their investment. If you don't prepare before you drive that car off the lot – or if you let your car insurance lapse while you're still making car payments – you're a prime candidate for forced-placed insurance. Premiums for force-placed insurance can be four to ten times the cost of your normal policy.

Contact your insurance professional before you drive to the car dealer. Make sure the car you're buying is covered with a binder. In the best case, reconfirm with your insurance agent while you're at the closing table, giving the VIN, make, model and year of your new car. Then drive away knowing you're covered.

Car Insurance for Teen Drivers

If you have a teen that is about to begin driving you already know your premiums will increase. Teens cause and are involved in far more crashes than any other age group based on miles driven. Insurance premiums reflect that sad fact. Yet there are steps you can take to reduce the premium cost and provide protection for your family.

·         Most important: Add your teen to your existing insurance policy. Many policies will not pay for damage and injury caused by a driver living in your home who is not listed on the policy.

·         Discuss safe driving classes with your insurer. Many policies offer discounts for teens who complete a safety class.

·         Grades in school matter too. Some policies offer “good student” awards, so encourage your teen to do his or her best in school, then ask for that discount.

·         If you are buying a car for your teen, choose one that's safe and dependable … but a bit older. Premium rates climb along with the market value of the vehicle. By all means, avoid a “muscle car” or sports car. Both will cause your rates to skyrocket.

·         Limit the number of miles your teen drives. Driving fewer miles may allow premium discounts with some policies.

·         To protect you and your entire family against disastrous financial loss, consider buying an umbrella policy that coordinates with your car insurance.

What About Co-Signing on a Car Loan?

If your teen is your dependent and living in your home, you may consider co-signing on a loan to buy a vehicle.

But! If your young adult child, another adult relative or friend asks you to co-sign on a loan, you will become a registered co-owner of that car. You can be held responsible not only for the loan payments – that's what co-signing is all about. You could also be held responsible for the costs of an accident, including damage to property and medical care for the injured parties.

Need More Help?

Quoteasy – We're a team of insurance professionals who can make sure you have the best coverage for your personal situation. We'll deliver the protection you want at the best rates and with every available discount. Call our friendly team at 305-587-2410. We're here to help.

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