Complete Guide to Auto Insurance

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Auto Insurance

Acquiring auto insurance can seem like a giant headache, but it doesn’t have to be that way. The laws regulating automobiles in the United States are complex because they are intended to protect motorists, insurance companies, auto manufacturers, and victims of auto collisions. However, understanding these laws is something else entirely, and that’s where we come in.

Before we dive into the regulatory minutiae, let’s breakdown exactly what auto insurance is, what purpose it serves, and how consumers can access it.

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The Basics of Auto Insurance

In layman’s terms, auto insurance is an agreement made between an individual and an insurance provider, in which the individual pays a set amount of money, and in return, the insurance provider agrees to cover the costs of repairs if the car is damaged. In certain cases, like if a car is completely totaled, an insurance company may replace it with a new car. Auto insurance doesn’t only cover damage done to vehicles; it can also cover medical costs in the event of a physical injury.

However, not all auto insurance policies and insurance companies are created equal. Some cover more than others, and you will definitely want to read the fine print before committing because it could save you thousands of dollars down the road. Though this is not a complete list of every plan out there, here are the most common types of auto insurance that you can get:

  • Liability Coverage – Most states require drivers to have some form of liability coverage. This type of insurance covers the costs associated with property damage and injuries to others in the event of a collision.
  • Collision Insurance – This insurance helps cover the costs of repairs when you get in an accident with another vehicle.
  • Comprehensive Insurance – Comprehensive insurance is similar to collision insurance, but it can also cover the cost of repairs for damage caused by things other than cars (weather, animals, vandalism, etc).
  • Uninsured Motorist Insurance – This insurance protects you and your car in the event of a hit-and-run, or a collision in which the other driver or drivers do not have auto insurance.
  • Underinsured Motorist Insurance – Similar to Uninsured Motorist Insurance, Underinsured Motorist Insurance provides coverage in the event you have a collision with a driver whose insurance policy does not cover the entirety of the damage.
  • Medical Payments Coverage – This type of insurance covers the medical costs associated with auto collisions. If you or someone else sustains an injury, medical payments coverage can help you deal with the treatment costs.
  • Personal Injury Protection Insurance – Personal Injury policies are similar to Medical Payments Coverage, but they can also reimburse an injured party for income lost due to an auto accident.
  • Towing and Labor Insurance – Towing and Labor Insurance help pay for the cost of towing a damaged car and the labor repair costs.

For more information on different types of insurance and what they cover, consult the National Association of Insurance Commissioners website.

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Federal and State Requirements

The federal government does not technically require U.S. drivers to maintain auto insurance. However, it does use federal highway assistance funds as an incentive for individual states to mandate it. States that do not have a mandatory licensing law do not receive any highway assistance funds. As a result, all but one state requires drivers to have auto insurance. New Hampshire is the one exception because it requires drivers to either prove that they have the funds to pay for repairs in the event of a collision or acquire auto insurance.

However, states have different levels of minimum auto insurance that they require. The majority of states require drivers to obtain, at minimum, liability coverage for both bodily injury and property damage. Some states also require Personal Injury Protection (PIP) and/or Uninsured/Underinsured Motorist Protection.

Each state also varies in the minimum dollar amount required for each insurance type. For example, Alabama requires drivers to have $25,000 in coverage for personal injury per person, $50,000 for personal injury per accident, and $25,000 for property damage per accident. The shorthand for this requirement would be 25/50/25. Alternatively, Maryland requires 30/60/15, while Florida requires 0/0/10 (plus $10,000 in PIP).

Needless to say, your specific insurance needs will differ based on where you are located. However, it is not recommended to only obtain the minimum insurance that the state requires. In many states, these policies are not enough to cover the costs of major accidents, which means that you could be left to pay huge medical bills and/or repair costs out of pocket.

You can learn more about state-specific auto insurance requirements right here.

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Auto Insurance Rates

On average, Americans spend about $1,500 per year (or $125 per month) on auto insurance. Rates vary by insurance providers, location, insurance type, and the level of coverage. However, these rates are also highly dependent on drivers. When an insurance provider is calculating your rates, they will look at the following factors:

  • Location – Generally, if you live, commute, or work in an urban area, your rates will be higher, as accidents are more prevalent in densely-populated regions. However, other location-based factors are important, too, like adverse weather conditions and reports of vandalism.
  • Age – Statistically, younger drivers get in more accidents. This means that the younger you are, the more you will need to pay in insurance premiums.
  • Gender – Men are more likely than women to get in accidents, so your gender could impact your auto rates as well.
  • Marital Status – Typically, married couples take fewer risks than their single counterparts, and this holds true for driving. Married couples get in fewer accidents, and therefore pose a smaller risk for insurance providers.
  • Driving Experience – While this metric is similar to age, it is still slightly different. Usually, the older you are, the longer you have been driving, but that is not always true. Nonetheless, people who have held a driver’s license for longer are more experienced, and therefore pay lower premiums.
  • Driving Record – A driver’s record is one of the most important factors that insurance providers consider. If you have a history of frequent speeding tickets, DUIs, or other infractions, you will have to pay more.
  • Claims Record – It is also important to consider how many claims you have made to insurance providers in the past (if any). At-fault claims will cause your premiums to rise, while not-at-fault collisions will generally have no impact on your rates.
  • Credit History – Your credit is a good indicator of how financially responsible you are, but research also shows that people with low credit tend to file more claims, making them a greater risk for insurance providers.
  • Previous Insurance Coverage – If you have maintained auto insurance without any gaps, your new insurance provider will see this as a good sign. However, if you went for several years, months, or even days without any insurance, you will be seen as high-risk.
  • Vehicle Type – Certain cars are driven differently, which means that certain cars are more prone to accidents. Some cars are also more prone to theft or vandalism.
  • Use of Vehicle – When you exclusively use your vehicle for personal use, you are less likely to get in an accident. However, if you take long business trips or frequently drive for your work, you increase your chances of a collision.
  • Annual Mileage – How much you drive directly impacts your chances of getting in an accident. No matter how you use your vehicle (personal or business use), if you put a lot of mileage on your car, you are more likely to file a claim with your insurance provider.
  • Number of Policies – Finally, the type of insurance you want/need will help determine your rates. The more policies you have (liability, comprehensive, uninsured motorist, etc.), the more you will need to pay.

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Filing a Claim

So, what happens if you have auto insurance and get in an accident? What steps, if any, will you need to take? In the event of an accident, you will need to file a claim with your insurance provider. While every company has a slightly different process for filing a claim, you should generally follow these steps to ensure that everything goes smoothly:

  • Call the police – whenever you get in an accident, you should always call the police. This ensures that there is an official report of the incident.
  • Take pictures – Photographic evidence can go a long way to determine who is at fault and the extent of the damages. Take your own pictures to ensure that no stone is left unturned.
  • Do NOT admit fault – You should never admit fault, as this will automatically signal to the insurance companies that you should be the one to pay.
  • Exchange information with other drivers – You will need to get the contact information (name, phone number, and email) of the other driver, as well as their insurance information. You may need it later when you file the claim with the insurance company.
  • File your claim – Once you follow the steps outlined above, you will need to inform your insurance provider of the incident and file an official claim. This will get the process started so that you don’t have to pay for damages out of pocket. You can either do this by phone or online (depending on the provider).
  • Stand your ground – Oftentimes, insurance companies will try to pressure claimants to accept low settlements or abandon claims entirely. You should always stand your ground so that you can get what is owed to you.
  • Get everything in writing – Whenever you communicate with the police, insurance providers, or other drivers involved in an accident, you should try to get everything in writing. The more physical evidence you have, the more likely that you can reach a positive outcome in any dispute.

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Choosing the Best Auto Insurance For You

Like most things in life, auto insurance is complex, and shopping for a good deal can be a pain. It’s not always easy to see if your insurance provider is offering you a plan that will cover what you need at a good price, or if they are taking advantage of you. So, here are a few tips to help you find the best auto insurance and avoid wasting your money:

  • Shop around – Buying auto insurance is a lot like buying a car; you should always look at a few options before making a decision. This is especially true with auto insurance, as each company is offering the same general service, but their terms of service and rates can vary drastically.
  • Don’t take the first quote as the final answer – When you are shopping around for auto insurance, you may find a provider that quotes a higher rate than other companies. Consider talking to a salesperson or customer support person directly. You might be able to show what other companies are quoting and get them to offer you a more competitive rate.
  • Don’t assume the minimum is all you need – Most states set minimum insurance requirements, but if you only get the minimum, your policy may not cover enough. If you get in an accident and only have the minimum insurance required by law, you may need to pay a large sum out of pocket for repair costs. So, while the minimum will probably offer lower premiums, you could end up paying a lot more in the end.
  • Research the company – Not all insurance providers offer the same level of service. Some smaller companies have more personalized customer service, while many larger companies can offer lower insurance premiums. You will need to do your research on each company by reading customer reviews and, if possible, asking friends and family about their own experiences with auto insurance providers.
  • Read the fine print before signing anything – Once you’ve found a company with an insurance policy and rate that you like, you should still proceed with caution. Auto insurance policies have a lot of fine print, and you will need to make sure that your policy actually covers what you need.

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Consult the National Association of Insurance Commissioners website for additional resources and information!

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May 24, 2019


Matthew is an experianced FiGuides writer and researcher.  He holds B.A. in Philosophy from the University of Georgia and enjoys taking a deep dive on personal finace projects. Protection Status