Auto Insurance Basics

People know that they are required to carry auto insurance, but few really know what they are paying for each month. When is the last time that you took a look at your auto policy? What type of coverage have you purchased? What are you required to carry and what is extra? Here are some hints:

If you own a car you are required to carry Liability Insurance. Liability pays when you are responsible for bodily injury and property damage to others. There are many different levels of liability insurance that you can buy. The lower your limits, the lower your premium. But you are also less protected in the event that you are sued because of an accident, thus exposing your assets. You can spend a little more money for higher liability coverage which better protects you and your assets in the event of something catastrophic.

To protect your own vehicle against physical damage then you can purchase Comprehensive and Collision coverage. Comprehensive coverage pays for losses caused by a peril other than collision such as fire, theft, vandalism, or a cracked windshield. This coverage is subject to a deductible. Collision coverage pays to repair your vehicle in the event that you collide with another vehicle or object, subject to your deductible.

A deductible is the portion of the loss that you are responsible for paying prior to the insurance company paying out on a claim. The higher the deductible you choose, the lower your premium and vice versa. It is important to choose deductibles that you could reasonably afford to pay out of pocket in the event of a claim.

There are a few extra and important coverages that can be added to an auto policy. Towing or Roadside Assistance coverage is helpful in the event that your car breaks down and needs to be towed to a repair facility. Rental Reimbursement is also a valuable coverage since it pays for you to rent a car when your vehicle is being repaired as a result of a covered loss.

Take a few minutes to review your own auto policy to figure out what coverage you have. If you don’t understand something, call your agent and ask the question. Insurance educator John Eubank, CPCU, ARM, put it best:

"Lack of coverage is remembered long after the price is forgotten.”