What is Auto Insurance?
Auto insurance protects you against financial loss if you have an accident. It's a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical coverage:
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
- Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements.
Most auto policies are for six months or a year. Your insurance company should notify you by mail when it's time to renew the policy and to pay your premium.
Why do you need auto insurance?
It's really all about protecting yourself financially.
- If you're in an accident or your car is stolen, it costs money, often a lot of money, to fix or replace it.
- If you or any passengers are injured in an accident, medical costs can be extremely expensive.
- If you or your car is responsible for damage or injury to others, you may be sued for much more than you're worth.
- Not only is having insurance a prudent financial decision, many states require you to have at least some coverage.
Questions to ask your agent
Your Independent Agent is an advocate for finding auto insurance that meets your specific needs. Here are a few things to consider as you prepare for the discussion:
- How much can you afford to pay if you get in an accident? (To keep premiums low you may want to have a higher deductible and be willing to pay more for repairs.)
- What is the insurance company's level of service and ability to pay claims?
- What discounts are available? (Ask about good driver, multiple policy and student discounts.)
How much liability coverage should you have?
There are two kinds of auto liability coverage, Bodily Injury and Property Damage.
Many policies are issued with limits below - but these limits may not be enough!
- $100,000 Per Person/$300,000 Per Accident Bodily Injury Liability
- $50,000 Property Damage Liability
So what do these limit mean? And how do they work? Here's an example:
John ran a red light and hit 2 cars, a 2011 Mercedes and a 2009 Ford Explorer. The Mercedes is totalled and the Ford has extensive but repairable damage. The total property damage loss is $70,000. John's insurance policy would only pay $50,000 since that's the limit. John needs to come up with $20,000 to settle the claim.
Unfortunately, there were three people that were injured. Each sue John, and the court awards each $150,000. John's policy will pay $100,000 each to party since bodily injury limit is $100,000 per person. John will have to come up with another $150,000 to settle the lawsuit, whether that means selling his house and/or liquidating his savings and assets.
Even though John had typical liability limits, we can see how in the event of a serious accident, these limits may not be enough. Recommended limits would be:
- $250,000 Per Person/$500,000 Per Accident Bodily Injury
- $100,000 Property Damage coverage
- plus a Personal Umbrella Policy - an extra $1MM - $5MM liability protection
In general you should carry enough liability coverage to cover your net and future worth. The more assets you have, the more liability protection you need.
Got questions about auto insurance? Call us today at 847-430-3342 or email us.