Getting a driver's license is a rite of passage that leads to increased freedom. But with the right to drive comes major responsibility. In addition to safe driving, most states require drivers to purchase auto insurance. Insurance protects both the driver and anyone else who is injured or suffers loss in a car accident.
Insurance is a complex financial product, and knowing how it works will help you make the right decisions about coverage. Here's what you need to know.
Types of Auto Insurance Coverage
When you purchase a car insurance policy, you're actually getting several types of coverage. In most states, it's mandatory to carry a minimum level of liability coverage. Liability coverage pays for damage you cause to another person or to their property in an accident.
There are two types of liability coverage: property damage coverage and bodily injury coverage. Property damage covers the costs to repair or replace another vehicle or other items like fences, garage doors, or bicycles damaged in an accident. Bodily injury coverage pays for medical bills if someone is hurt in an accident you cause.
It's important to note that liability coverage pays other people involved in an accident. To better protect yourself, you can also add optional coverage for more protection. Some of the most common coverages include:
Collision: Covers accident damage to your vehicle
Comprehensive: Covers damage to your vehicle due to other causes, such as theft or weather events
Personal Injury: Covers medical expenses for yourself and your passengers
Uninsured Motorist: Covers your costs if you are in an accident with someone who has insufficient insurance of their own
Rental: Covers the cost of renting a vehicle if yours is unusable after an accident
Towing: Covers the cost of emergency roadside assistance
Understanding the Law
There is no federal law requiring auto insurance coverage, so each state has its own rules about car insurance requirements. Currently, 48 states require proof of minimum liability coverage for drivers. The two states that do not require insurance are New Hampshire and Virginia. However, these states require drivers to pay a fee or otherwise certify they can cover the baseline cost of an accident. There's no free ride!
For the states that do require insurance, there's a lot of variation in the rules. At a minimum, states require three types of liability coverage: bodily injury per person, bodily injury per accident, and property damage per accident. The minimum requirement is often expressed as a set of three numbers, like this: 25/50/25. This denotes $25,000 of bodily injury per person, $50,000 of bodily injury per accident, and $25,000 of property damage per accident.
Coverage minimum requirements can range from as low as $5,000 to as high as $100,000, depending on the type of coverage and your state. Some states require coverage beyond these three types of liability as well. For example, Massachusetts requires uninsured motorist coverage, as do many other states. It's best to check with your state's DMV or a licensed insurance agent to review the rules where you live.
How Rates Are Determined
Just as the laws vary, so too does the cost of insurance. Because insurance companies look to reduce their risk, they charge more to people they consider more likely to have an accident. Insurers take many factors into consideration when determining your rate, including:
Age
Location
Driving record
Vehicle type, are, and mileage
Occupation
Credit score
Because so many factors are in play, it's always a good idea to shop around for several quotes to get the best deal.
How to Lower Your Car Insurance Costs
No doubt about it: car insurance can be expensive. This is especially true for new drivers, who tend to pay top dollar due to youth and inexperience. Fortunately, you can take advantage of discounts to help lower your rate. Insurance discounts vary widely by company, but some of the most popular include:
Safe driving
Military
Good student
Low mileage
Bundling insurance policies
Safety feature
Anti-theft features
One of the most effective ways to lower your insurance costs is to take a driver's education course. Whether you do this as a young person while learning to drive or brush up on your skills as an adult, most insurers will offer a significant discount for your effort.
To find a course that's right for you, check out the convenient online driver's ed courses at IDriveSafely.com today.
Update 09/16/2024
