Choosing an auto insurance plan for your car is no child’s play. It requires a good deal of research along with considering several factors to choose the most suitable insurance plan for your vehicle.
Research says that nationally, each earning American spends about $2,014 on full coverage car insurance which is nearly 3% of their annual income.
The National Safety Council (NSC) estimates that 46,000 people lost their lives in road accidents in 2022. That’s a whopping 22% increase compared to pre-pandemic mileage death rates.
Increasing traffic deaths and fatal accidents are compelling drivers to buy auto insurance plans to secure themselves and their vehicles.
That could be the very reason why you too want to buy an insurance policy for yourself. But seeing the choices out there, it might be overwhelming to choose the right policy.
In this post, I will provide a quick overview of the major types of auto insurance plans and what to consider while negotiating better insurance rates for your plan. Let’s get rolling.
Types of Auto Insurance Plans
Whether you want to venture into the transportation industry or are looking for insurance for personal use, there are different types of auto insurance plans available in the market.
Let’s take a look at the important policies and what kind of coverage they provide you.
1. Liability coverage
If you have a commercial vehicle, it’s essential that you do financial planning well and get liability coverage for the car to protect your capital.
In fact, auto liability coverage is a mandatory auto insurance plan in all states. Every car owner is legally obligated to buy this policy for at least the minimum amount set by every state.
What does this policy cover?
The liability coverage has two components:
- Physical injury liability
- Property damage liability
When involved in a car accident, this policy helps you pay for the other people’s medical bills as well as the vehicle repair cost.
If during an accident your car slammed into somebody’s property like a wall, or fence, or caused damage to anything on their property, this policy provides a cover for it.
The minimum coverage may vary from state to state. When you purchase car insurance in Georgia, for instance, the minimum property damage coverage is $25,000. But this auto insurance plan doesn’t provide any cover or protection for you, your passengers, or the vehicle in case of an accident.
2. Collision coverage
If you are ever involved in a car collision with another vehicle or a stationary object, this is the car insurance plan you should have.
Under this policy, the insurance company will cater for the damages caused to your vehicle during the collision. If the costs of the repair are more than the actual value of the car, the company may calculate the cash value of your car and pay that amount.
It’s not mandatory to purchase this policy, but it’s a good option if you own a new vehicle.
3. Uninsured or underinsured coverage
Consider this scenario: You are involved in a traffic accident where the other motorist or driver is uninsured or underinsured. Who will pay for your injuries and vehicle repairs?
This policy is specifically designed keeping in mind such situations.Under this auto insurance plan, your insurance company will pay all your bills if the other person is underinsured or uninsured.
This type of car insurance is mandatory in some states.
4. Personal injury protection
Personal injury protection or PIP is one of the most important auto insurance policies to have. It provides coverage for any injury you or your passengers may suffer during an accident.
Under this auto insurance plan, the company will not only pay your medical bills but will pay for some unconventional expenses like child care, loss of income, and even a funeral.
According to Wiselaw, in family divorce case proceedings, personal belongings such as car are considered as a family property. Insurance companies also include these unconventional expenses in the premiums.
While some states have made this policy mandatory, it’s optional in other states.
5. Comprehensive car insurance
A comprehensive auto insurance plan is often misunderstood as a policy that covers all your expenses in case of an accident. But in reality, this policy provides cover for no-accident-related damages to your vehicle.
If your car was damaged due to a natural calamity like floods, hail, fire, hurricanes, etc, or other situations like theft, vandalism, riot, and so on, this policy provides protection. You can also claim the cover in case your vehicle is hit by an animal or falling objects.
This insurance plan is necessary if you are leasing or lending your vehicle to someone on rent.
Other types of car insurance you should know about
Apart from the 5 types of auto insurance plans discussed above, here are some important policies you need to be aware of.
- Gap insurance
- Umbrella insurance
- Rental reimbursement
- Emergency roadside assistance
- Mechanical breakdown insurance
- Usage-based insurance
- Non-owner car insurance
- Ride-sharing coverage
- Student driver insurance
Factors to Consider While Buying a Car Insurance
Most car owners with a limited budget prefer to purchase an auto insurance policy with a low premium. But when looking for insurance that provides the best coverage for you and your family, look beyond the premium cost.
According to SmallBusinessHQ, Instead of thinking of it as a premium cost, consider it a way of mitigating risks through financial planning.
Here are 5 important elements to consider when choosing an auto insurance plan.
1. Determine the coverage you need
While purchasing the best auto insurance plan, the first things you should take into consideration are your specific coverage needs.
Do you have teen drivers at home? Is it a new vehicle? What is your driving pattern? By discussing your auto insurance needs with the insurance company, you should be able to choose a plan that provides the best coverage and manage your expenses better.
2. Check the track record of the insurance company
One of the most vital factors you should check before buying a policy is the insurance company’s track record. A company may be offering very lucrative offers at a low price. But these things won’t matter if the company has a bad reputation.
That’s why it’s necessary to check the customers’ reviews and ratings of an insurance company. Along with this, look at the reports generated by independent review companies to verify an insurer’s credibility.
3. Compare different policies
Today, you can easily research and purchase an auto insurance plan online. You can go to any of the genuine insurance websites and compare multiple car insurance policies to determine which one caters best to your needs.
Based on your car type, insurance score, accident rates in the states, and so on, there might be a few variables in different auto policies. By comparing the shortlisted ones, you can make the right choice.
4. Opt for the right deductible amount
A deductible amount is the amount you agree to pay from your pocket before you could claim the insurance. This amount is mandatory for comprehensive and collision insurance policies.
The insurance company may allow you to choose the deductible amount. If you pay a higher deductible, your premium amount will be a bit less, and vice versa. That’s why you should opt for the right deductible amount when choosing an auto insurance plan.
5. Consider discounts
Car insurance companies offer different kinds of discounts to help lower your premium. Some of the discounts you should look out for include:
- Paid in full discount
- Bundling discount
- Safety equipment discount
- Safe driving discount
- Good student discount
- Association discount
While discounts shouldn’t be a deciding factor when choosing an auto insurance plan, they can help you save some money or enjoy additional features for the same premium amount.
The auto insurance market is huge and insurance providers are offering plenty of options to their customers. It’s all about understanding your requirements and choosing the most suitable auto insurance plan.
It’s always a good idea to speak to a financial advisor before purchasing a policy. With the right guidance, you should be able to purchase the best car insurance policy within your budget.