Auto Insurance Basics | What you need to know about car insurance before you buy.

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Auto Insurance Basics

While we generally don't think twice about our automotive insurance once we've purchased a policy, all insurance experts advise us to reexamine our coverage every year just before it's time to renew. According to these same experts, we should also do our auto insurance homework long before we purchase that new vehicle.

Why? Because there's a broad range between premiums depending on many factors, not just the type of vehicle you need to insure. Of course, there is a big difference in premiums between insuring a high-priced sports car over an economy sedan. But there also can be an equally wide margin between a small pickup and a large sport utility vehicle. Doing your research before buying your next car is prudent and can save you both money and frustration.

Other factors that affect your rate may be things you cannot change, such as your gender and age. Young teenage males will find higher premiums than their female counterparts. More mature drivers may see rates climb once they hit 65 years of age. So, it's prudent to get the best deal on those factors you do have control over.


According to the Insurance Information Institute (III) a public information organization funded by the insurance industry, the most important factor behind policy owner's confusion is the misunderstanding of insurance terminology and their definitions. To help consumers better understand auto insurance terms, here are some quick definition of the most common types of coverage.

Bodily Injury Liability.

This is generally referred to as PL and covers the driver and passengers of the other vehicle. Most states require all vehicle owners to carry this coverage. Ample coverage here is also critical in order to protect your other assets as well. The most common Bodily Injury Liability coverage is $100,000/$300,000 although some states allow much lower limits.

Property Damage Liability.

This coverage is commonly called PD and covers property owned by another, whether that is the other vehicle or private property you might damage. It is best to have more than the state required minimum only because loss amounts could go far beyond the $5,000 or $10,000 lowest mandated amounts. Insurance advisors recommend having $50,000 or $100,000 Property Damage Liability coverage.

Personal Injury Protection.

Personal Injury Protection coverage can be held to close scrutiny because you might have better coverage under a medical insurance plan through your work or business. Just be sure that you and your family are fully covered. If you have plenty of other health care coverage you can keep this to a minimum and save some money.

Uninsured or Underinsured Motorist.

Even though almost all states require every vehicle owner to carry auto insurance, there are still thousands of scofflaws who go without it. Uninsured or Underinsured Motorist insurance covers you in case you are in an accident with someone with little or no insurance, or perhaps the victim of a hit and run where the culprit is never found. Recommended limits around $100,000 are considered reasonable.

Comprehensive and Collision.

Nearly all financial institutions require Comprehensive and Collision coverage to cover the vehicle in case of a total loss. This coverage also helps in the event of a natural disaster, such as a tree falling on your car. In some cases it covers broken windshields, but you might want to keep a higher deductible to maintain a lower premium. Just be aware that you will have to come up with the deductible if a loss occurs. A good measuring criteria is if the price of Comp and Collision is over 10 percent of your vehicle's value, it may be time to consider deleting this coverage.

Those are the basics, however, remember that the best advice is to do your homework, shop around and get quotes from more than one company. You can go to the III website for good general information. One very important point is to get insurance lined-up before you go shopping for a new car. According to James Montalvo at Auto Mart, a dealer located in Northern California: "I have had a few folks who had their vehicles totaled within a few hours of driving their new car off the lot." Disaster strikes when you least expect it, so be prepared.

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