How Do I Choose Auto Insurance?

Is your father's insurance company right for you?

Many people split from their parents' policy, and never question whether or not it is right for them. This does not mean you should stick with your family's insurance company or agent, but you should look at all of your available options.

What is Liability Insurance?

Auto insurance is fairly easy to understand if you break it down. Auto liability insurance pays for injuries and property damage when you are at fault. Insurance is there to protect you, rather than the people you may have hit.

How Much Liability Coverage Do You Need?

When you do cause an accident, you are responsible for any part of a claim your insurance doesn't cover. If you have nothing to lose, then you may not need much coverage, but if you have a house, savings, even a promising career (your future earnings can be attached to a settlement claim) then you do have something to lose--and something to protect. Roughly 2-3 times the value of your assets is a good starting point for liability.

Comprehensive and Collision Coverage

Comprehensive and collision coverage pay for damage to your auto when you are at fault.

People often advise you to save money by not carrying comprehensive and collision coverage, especially if your car is older. If your car is stolen, do you have enough in a savings account to replace it? If you might have some difficulty absorbing the loss of your car, you should insure it.

Adding comprehensive and collision coverage to an older car is relatively cheap. Often, you can carry comprehensive coverage to protect against theft, vandalism, and flood. This would protect your car from damage outside of a collision without having to carrying collision coverage. This allows you to rely on your own driving skills without leaving yourself open to a loss that is outside of your control.

What Deductible is Right For You

Your deductible is how much you pay towards a comprehensive or collision claim. Higher deductibles make for lower premiums, but the savings are sometimes not worth the additional risk. You shouldn't select a deductible you can't afford. Body shops seldom release a car without full payment, and may charge you storage if you don't have the cash available in a savings account. If you financed your car, the lender may have maximum allowable deductibles, so make sure you are in compliance with your loan.

How to Get a Great Rate

Know how many miles you drive, how much you have to protect, and how much you can afford to lose. Then go shopping. Age classifications, rates and discounts vary greatly by company, so make a few calls. Ask about every available discount, and don't count on one company to give you a competitive rate.

How you buy and pay for insurance can affect your cost too, so ask about fees before you agree to payment terms.

Now that you know some basics about auto insurance, you can find the best rates and coverage for you. Remember to weigh your personal financial situation to decide how much liability you need, whether or not you should carry comprehensive and collision coverage, and how much of a deductible you can reasonable afford.

This Guide to Money answer includes the topics: Protect, Insurance.

Ryan Hurlbert lives and works in the Pacific Northwest. As an insurance agent, he produced and presented educational seminars on various topics from insurance basics to strategies for dealing with teen drivers. He has researched and produced marketing materials in the insurance, auto, and financial industries. Ryan majored in business and received his Bachelor of Science degree from Portland State University.

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