Understanding Your Auto Insurance: Save Money While Properly Covered

Understanding your auto insurance can be very confusing, especially if you aren't knowledgeable in the terms insurance companies use. However, even though it can be confusing it's important to understand your coverage for many reasons. If you don't completely understand the coverage you have not only could you be wasting a lot of money each year, but you could end of not being properly covered. People who are not properly insured risk losing any assets they may own.

Determining your coverage isn't as hard as it seems. Auto insurance policies are broken down into 2 sections. These are your liability and what most people refer to as full coverage. That seems simple enough, however, these two sections are broken down further into specific coverages. On top of that each state's requirements are different so there may be more coverage needed depending on what state you live in. Regardless of where you live though, you should at very least understand the basic coverages that don't vary from state to state.

Your liability coverage is what is required by most states. The only exception here is New Hampshire. The term liability means anything you are personally liable for. This means that your liability portion of your insurance is what pays for the "other" person. This portion of your insurance pays for medical bills and property damage that is caused by you.

The liability portion of your insurance breaks down into numerous areas. Once you understand the insurance terminology this is fairly simple to understand. The first coverage is usually called bodily injury coverage. This is what pays for the medical bills if someone is injured in an accident caused by you. Bodily injury coverage usually has a per person limit and a per accident limit. The per person limit is the highest amount your insurance company will pay out for medical bills on any one person. The per accident amount is what your insurance company will pay out on any one accident. For example if you have bodily injury coverage amounts of 100/300 this means you have a $100,000 maximum for any 1 persons medical bills, per at fault accident and a $300,000 maximum for medical bills, per at fault accident. Using those coverage amounts is you are at fault in a car accident and there was only 1 person in the other car, the maximum pay out for their medical bills would be $100,000. However, if you were in an at fault accident with the same coverage and more than 1 person was injured in the other car, your policy would either pay a maximum medical bill of $100,000 for each person OR $300,000.

The next portion of your liability coverage is called property damage. This coverage is fairly straight forward. It covers any damage caused by you to another person's property. The limits for this coverage are set at per incident maximum. For example if you have $50,000 property damage coverage that is the maximum your insurance policy will pay out for any 1 accident. If you are responsible for a multi car accident, the $50,000 would be split between all of the cars you damaged.

The only portion of your liability that is optional is your uninsured motorist coverage. This coverage is also broken down into bodily injury and property damage as described above. The difference is that this is what covers you if someone who is uninsured hits you. The bodily injury portion pays for the medical bills for you and anyone in your vehicle and the property damage pays to fix your vehicle.

While those are the basics of liability coverage, some state laws require additional coverage. If you reside in one of these states you may want to review the additional coverage with your auto insurance agent to insure you are properly covered.

The next part of your insurance is the physical damage coverage. This coverage is what most people call "full coverage." It is broken down into 2 main coverages, these are collision and comprehensive. This sounds more complicated than it actually is. Basically your collision coverage is what pays to repair your vehicle is you are at fault in an accident. Your comprehensive coverage pays for pretty much everything else. Basically comprehensive pays for things that aren't controlled by you, such as; fire, theft, vandalism, and any losses cause by natural disasters.

These two coverages also normally carry a deductible. The deductible is your out of pocket expense if you have a claim. For example if you have a $500 deductible and you have to file a claim, you are responsible for the first $500 and your insurance company will pay the rest. The higher deductible you have the lower your monthly payments are. However, you want to make sure you have a deductible that you can afford in case you have a loss.

The last thing people don't realize about their auto insurance is that coverages like paying for a rental car if you have a loss are optional. You may want to check your insurance policy to make sure your company will pay for a rental vehicle if you have a loss. Some states also offer an optional coverage called "full glass coverage." This is a good coverage to have if you have comprehensive coverage on your car. It covers your deductible if you have a glass loss. If a rock hits your windshield and cracks it, normally the deductible is higher than the cost of the repair. Although, if you have this optional coverage, your insurance company covers the entire cost of the repair.

Insurance coverage is complex and can be very difficult to understand, but taking the time to understand it can save you a lot of trouble in what could be one of the worst times of your life. Reading your policy and making sure that you are covered properly can also save you hundreds of dollars each year.