Insurance basics: How car insurance works

This is the third part in a short series about insurance basics. In the first part, I explained how insurance works. In the second, I shared some general tips about how to save on insurance of all types. Today’s article offers info about auto insurance.

Car insurance protects you financially. You’ve had car insurance since you were old enough to drive, but how much do you really know about it? At its heart, your policy probably contains a few basic types of coverage.

Liability Insurance

In most states, you at least need to have liability insurance, which covers the cost of any damage you do to other people or things with your car. (But note that liability insurance doesn’t cover injuries to you or other people on your policy; for that, you need PIP insurance, which I’ll cover in a moment.)

Insurance companies like to quote liability coverage as a series of three numbers, like 50/200/25. If that’s Greek to you, here’s a break-down:

  • The first number is how much, in thousands of dollars, the policy will pay for each person (besides you) injured in an accident ($50,000 in this example).
  • The second number is the total that the policy covers for each accident ($200,000 here).
  • And the last number tells how much property damage will be reimbursed ($25,000 in this case).

But there’s more to auto insurance than just liability coverage.

Tip: Many experts recommend that you carry automobile liability insurance coverage equal to your net worth — the total value of everything you own. This can be expensive to do on individual policies. Instead, it may be more cost effective to buy an umbrella policy, which gives you extra liability coverage above what your home and auto policies provide. I don’t know much about umbrella policies, but I’m actually hoping to learn more about them. If you’d like, I can share what I learn.

Collision and Comprehensive Insurance

As you can probably guess, collision insurance covers damage to your car when it hits (or gets hit by) another vehicle or object. But because collisions aren’t the only way for your car to get banged up, comprehensive insurance covers damage from events other than collisions: floods, fire, theft, alien invasion, and so on.

Collision and comprehensive coverage make more sense for newer vehicles, and are generally required if you’re still making payments on your car. They’re less necessary — and may actually be a waste of money! — on older cars. So, if you’re still driving around that 1970 AMC Gremlin, ditch the collision and comprehensive.

Personal Injury Protection (PIP) Insurance

PIP insurance is sometimes called “no-fault” insurance and is required in certain states. It covers medical costs (and possibly lost wages) if you’re injured in an accident. Your policy may also cover passengers and pedestrians.

Uninsured Motorist Insurance

No surprise here: Uninsured motorist insurance covers you and your passengers if you’re in an accident caused by a driver who doesn’t have insurance. It also covers hit-and-run accidents.

Tip: For more on the different types of auto insurance coverage, check out this handy page of definitions.

How to Save on Car Insurance

Every year, you spend hundreds — maybe even thousands — on car insurance, and chances are, you’re paying too much. The August 2008 issue of Consumer Reports estimated that the average family could save $65 per month by shopping around for car insurance.

Last week, I gave some general tips to save on insurance of all types. Here are some other ways to lower your costs on car insurance:

  • Ditch towing coverage. Towing — or “emergency roadside service”, as it’s sometimes called — is an easy cost to self-insure. (You likely pay $10 to $30 a year for towing insurance, and one tow costs about $100, which you can save quickly by not paying for towing insurance.) Sometimes your car will break down, but if it’s well maintained, that won’t happen often. Also note that if you’re in an accident, towing is usually covered under collision insurance — but check your policy to be sure.
  • Plan ahead. Compare auto insurance quotes before you buy your next car. Insurance costs are based on how likely a car is to be stolen, damaged, or to inflict damage, and how badly occupants tend to be hurt in accidents. Repair and replacement costs are also factors. Many insurance companies list cars with lower insurance costs on their websites.
  • Watch your credit. Most insurance companies now look at parts of your credit report to determine your premiums. This sucks, I know, but parts of your credit history have been found to correlate to what the company has to pay out. They can’t adjust your rates on your current car if you pay on time and in full, but anytime you add a new vehicle, its premiums can be affected by your credit.
  • Don’t pay monthly. Insurance companies charge a few bucks each month for monthly billing. To avoid that fee, pay every six months or even once a year, if possible. If you have to pay monthly, use your insurance company’s autopay program, which costs less because they don’t have to send you a paper bill.

Though it’ll always cost more to insure a new Corvette than a used Corolla, one of the best ways to keep costs low is to maintain a clean driving record. Insurance companies charge you based on how likely you are to file a claim — and accidents are the biggest source of claims.

Some insurance companies offer discounts for taking safe-driving courses. Others give low-mileage discounts — the less you’re on the road, the less likely you are to be in an accident. Be sure to ask about all the discounts you qualify for!

Note: Much of this material was drawn from the “Death and Taxes” chapter of my book, Your Money: The Missing Manual, which was published earlier this year by O’Reilly Media. You can download a sample chapter here. Image by Incase Designs.

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There are 59 comments to "Insurance basics: How car insurance works".

  1. uncertain algorithm says 14 September 2010 at 04:09

    One warning about checking other auto insurance: some companies perform credit checks, and multiple inquiries will appear if you check with several credits that perform these credit inquiries. Sometimes, if you ask, they can give you a general quote and you can start from there (ie: who has the lowest general quote).

  2. Brian says 14 September 2010 at 04:29

    You say that you can pay for the cost of a tow by saving on not paying towing insurance, but at $10 – $30 per year, that means it would take you 3 – 10 years to save the money to tow your car. Seems like it’s worth paying the extra $2 per month.

  3. Holly says 14 September 2010 at 04:45

    (Not positive about this, but…) Towing coverage through your auto insurance may include other emergency services like ‘Pop-A-Lock’ service when you have locked your keys in the car, fixes for flat tires, and may also cover delivery of gas should you run out (which can happen if you forget to fill the tank and get stuck in a major traffic jam). Check with your insurer. It’s worth the peace of mind.

  4. Nicole says 14 September 2010 at 05:18

    We recently got umbrella insurance, which allowed us to change our car insurance so that it is less expensive. We do use the roadside assistance through our insurance company– it is a lot cheaper than AAA and way cheaper than using whatever towing company is on-call if we do have an accident.

  5. Anthony @ DYL says 14 September 2010 at 05:46

    I personally don’t use AAA, but I hear it’s the way to go if you need towing services. I declined towing services on both of my cars.

  6. michelle says 14 September 2010 at 05:53

    Brian is right on the tow/lockout coverage. Ours is $10/year for our two cars. We had to get towed before on a car that was not covered, paid more than $100 because it was on a highway and stupid rules required a particular, expensive tow firm.

    If it is only a dollar or two per month, I think its worth the peace of mind to know that you won’t be trying to find a company on your own and forced to pay whatever they charge.

  7. JakeIL7 says 14 September 2010 at 05:54

    Another vote here for keeping “Roadside Assistance”; it is not just for covering the costs of towing it is a central number you can call for any vehicle related problem (jumps, gas, flats, locks, etc.). However, there are a few things to keep in mind:

    1. Does your car come with roadside assistance? Many new cars do. Don’t pay extra for something you already have.

    2. If you car does not have automatic assistance, you can get it from several sources: Insurance, AAA, your cell phone company (I like this because it covers any car I am currently in) and others.

    3. Roadside assistance is, typically, slow. Having it does not excuse you for not knowing how to put on a spare if you need to and having the proper repair and survival gear in your trunk.

    Another thing you don’t cover here is RENTAL COVERAGE. This is cheap and covers the cost of a rental car while yours is being repaired. If you do have an accident and no other car, this pays. Of course, if you have more cars than you absolutely need, make sure you are not paying for this.

  8. Everyday Tips says 14 September 2010 at 05:55

    I just modified my insurance yesterday because I had to add my 16 year old son. His mere existence added 100 dollars a month to my premium. I increased the deductibles on all the cars to compensate some. I figured I would never file a claim for a 500 dollar car repair anyway.

  9. DCS says 14 September 2010 at 06:02

    Also, it’s worth it to actually read your policy, along with those “change of coverage” notices that come with your renewal forms.

    That’s how I know I’m not covered for alien invasion – invasions are an “act of war” which are excluded 🙂

  10. shweta says 14 September 2010 at 06:05

    good article. wonderful explination about car insurence. before reading this article i made many mistakes in paying of insurence amount. there is details information about payment.
    thank you.

  11. MaryR says 14 September 2010 at 06:31

    Another thing to remember is that you get a discount for the length of your safe driving record. So it pays to get a driver’s licence as soon as you can, even if you don’t drive or plan to own a car for several years.

    A friend who lived in the city with me was proud of her lack of a driver’s licence. However, when she got married and moved to her dream house in the woods, the cost of insuring a “new driver” blew a big hole in their budgeting.

    I, on the other hand, finally broke down and bought a car at about the same time. My insurance was less that $500/year, due to my two decades of “safe driving.” (And not using the car to commute.)

  12. Paul says 14 September 2010 at 06:32

    So where does everyone think the line is for dropping collision? I still carry it on a paid for 2007 4Runner. If an accident is the other driver’s fault their insurance should be paying, so I’m really only insuring against my own mistakes. Checking my policy I’m paying $189 a year with $250 deductible (hmmm though it was $500). Still seems worth it to me for a car valued around $20,000. Thoughts?

  13. Nancy L. says 14 September 2010 at 06:41

    The question I always come back to is whether or not I have *enough* insurance. Cars today cost so much more, that $25K in property damage coverage does not seem sufficient. But how much is sufficient? Same for personal injury coverage. A bad accident could easily cause well over a million dollars in hospital costs for someone. No one ever seems to want to make concrete suggestions of a good amount to carry, bc they don’t want to be wrong if you happen to walk out the next day and total the fancy Italian sportscar and cause serious injuries to that driver. But it’s really stressful to worry whether or not you have enough coverage.

  14. Monica says 14 September 2010 at 06:46

    Uninsured motorist coverage is so important to have! My father was seriously hurt (and his car destroyed) in a car accident caused by an uninsured driver. I was also in a car accident with an uninsured driver. Thankfully, in both instances we had uninsured motorist coverage.

    Yes, insurance is expensive. But if you budget properly for it (create a “bucket” where you put a set amount aside each month), the cost is more manageable. You will be a lot better off financially if a car accident happens with insurance than without it! Case in point – my father’s medical bills were in the hundreds of thousands of dollars, and the damage to my car was $8,000. Can you imagine paying that out of pocket??

    AAA is wonderful. I have a Gold policy, which covers a 100 mile tow. I was 93 miles away from home with my friend when we hit a deer head on and seriously damaged her car. Thanks to AAA, we were able to quickly get a tow truck that took us and the car back home. And even though it was not my vehicle, the tow didn’t cost a dime out of pocket. AAA was such a blessing that day!

  15. Nick says 14 September 2010 at 07:02

    In theory, a $1M or more umbrella policy means the insurance company “has some skin in the game.” The higher the limit, the more effort they’re willing to put into protecting themselves or reaching a settlement.

    Also, a friend of mine told me to max out my PIP after his accident. I don’t remember all of the specifics, but his PIP coverage paid his medical bills while the other insurance companies (his auto, the other guy’s auto, and his health insurance) fought over who was picking up the tab.

  16. Brian says 14 September 2010 at 07:18

    J.D.-

    Thanks for the nice little primer on Auto Insurance.

    I am definitely interested in hearing your thoughts/opinions on Umbrella Insurance. I decided to get Umbrella insurance about a year ago, but determining “how much” was the difficult question:
    – Some resources say to use your net worth when determining how much.
    – On the other side, some say, your net worth is irrelevant during a law suit. If damages are higher than your coverage, that will become your responsibility, not the insurance company’s.

    I decided to get umbrella insurance because:
    – It protects your assets (retirement!)
    – If the insurance company is on the hook for $1 million, they are going to send better lawyers than if they are on the hook for $300k.
    – It’s relatively cheap. (~$15/month to add $500k on top of your auto and homeowners.)

  17. Kent says 14 September 2010 at 07:27

    Other insurances to consider:

    1) Underinsured motorist insurance: self explanatory, but useful if something happens that exceeds the policy coverage (can occur in states with low minimum coverage requirements).

    2) GAP Insurance: generally bought when you buy a car and I would recommend if you are buying new (or slightly used, and certainly if you are making payments). If you are in a wreck in your six month old car, and your car is totaled, insurance will only pay for the value of the car today not what you owe on the car (and we all know about depreciation…). This could put you in the position of having to go get a new car while still paying off the old one. This coverage in generally pretty cheap. I know of people who were put in very bad financial positions through no fault of their own for whom this coverage would have been a life saver!

  18. Dave says 14 September 2010 at 07:45

    Consider reducing the miles you drive. The best thing I’ve ever done is park my vehicle in the garage. A few years ago I notified my insurance company that I would be driving it less than 5,000 miles per year because I started to commute by bicycle. I’ve actually driven it less than 5,000 miles over the last 2 years! They gave me a discount, and I found a wonderful way to get to work. I’m not going back to daily car driving anytime soon.

    Cars take the joy out of life and the money out of your bank account.

  19. Jenna says 14 September 2010 at 07:45

    I second some of the comments above on towing. We switched insurance providers about 1.5 years ago and I’ve had my car towed 3 times! If you have an older car like me it may be worth keeping the towing. I have been so happy with the speed of service for these incidents too. J.D – I also would like your thoughts on an umbrella policy! I think we have enough coverage, but people get sued all the time above what insurance covers.

  20. gabrielle says 14 September 2010 at 07:45

    Something else to consider about the towing/roadside assistance coverage: you may be required to pay cash on the spot to be towed if you do not have towing coverage. It’s happened to me. I now have AAA+ and don’t worry about it. 🙂 The peace of mind is totally worth it to me.

    Read what your towing coverage actually covers, too – sometimes it’s only the first few miles of a tow.

  21. Brandon says 14 September 2010 at 07:53

    Since the Gremlin is a classic, you can put full coverage on it for about $100 per year. They assume you don’t drive classics more than a few thousand miles each year.

  22. Howard Theriot says 14 September 2010 at 07:57

    The statement, “They can’t adjust your rates on your current car if you pay on time and in full…” really struck a chord with me.

    I’ve been with the same insurance company for about six years and always paid on time. I had some credit issues in the past, but my credit rating is steadily improving. A few months ago they increased my auto premium by nearly 50% based on my “past credit history”. Is there a law I could reference to dispute this increase?

  23. Brian C. says 14 September 2010 at 08:06

    JD –

    Thanks for the auto insurance info. Please consider in future articles to dive a little deeper into the risk-reward factors of saving money on insurance (auto or otherwise).

    There seem to be a number of insurance advertisements, and all of them claim to “save you money,” but how deep does the consumer have to read the policy to find out that saving a little money could cost them thousands in the unfortunate event that they could’ve used that particular portion of the coverage.

  24. kj says 14 September 2010 at 08:08

    I’m really surprised that one of the money-saving tips wasn’t to increase your deductibles. I know so many people who have their deductible set at $100 (!!!) and pay through the nose for it. Bump that up to $500, or even $1,000, and put the difference in your premiums into a savings account. This way, you can self-insure for that difference. Once that account is funded, all the additional savings are gravy.

    And definitely shop around. My husband and I have our three vehicles on a policy that costs about $2100 a year (we have PIP on all three, as it’s required by state law, but only two of the other vehicles have collision/comprehensive). Meanwhile, a friend of mine recently told me she pays $1800 for her single car. She may have a ticket or two on her driving record, and she’s got a $100 deductible, but that still seems like a ridiculous rate to me!

  25. J.D. says 14 September 2010 at 08:19

    @kj (#24)
    “Increase your deductibles” isn’t listed in this article because it was already included in past two of this series, how to save on insurance. The tips in this article are automobile-specific. When combined with the general tips for saving on insurance (like increasing your deductibles), you get the best benefits.

  26. Kevin M says 14 September 2010 at 08:24

    I guess we’re not the “average family”. If we saved $65/month we’d pay $10/month for our auto insurance, which is pretty good coverage, in my opinion. Our cars are older, buy not rust-buckets by any means.

    The most important thing is to actually read the policy and figure out what you need vs. what you want. Towing coverage is nice, but I wouldn’t pay too much for it. I think it costs us about $6 for 6 months of coverage, so for us it’s worth the cost – and it includes locksmith services. Also, I believe our autopay lets us pay monthly for no additional cost.

  27. Rob Ward says 14 September 2010 at 08:31

    I probably mentioned this on the “how to save” article and others have already said it as well but nevertheless here it is again – raise your deductible!

    Our car insurance just renewed and we raised it from $500 to $1000 and saved $100. And that was despite the fact that we increased our liability coverage to double (maybe even more?) to what it had been before.

  28. Mary Ann says 14 September 2010 at 08:40

    If you have a college student that lives away at school and does not have a car, check for a discount. It depends on the distance from home, but I get a discount for both of my sons.

  29. Amy says 14 September 2010 at 09:06

    I URGE everyone (especially with teenage drivers) to have an umbrella polcy. Without going into too many specifics, a 17 year old hit my husband on the work home from work in January. He was killed instantly. I have two boys under the age of 10. Thankfully, we had life insurance but the boy’s parents didn’t have a large liability policy. I am still talking to their insurance and attorneys trying to decide the best decision for my family.

    If the rolls were reversed, I want to know that if I was responsible for a family losing a loved one, that they would be taken care of without me losing everything I owned. Just something to think about.

  30. Becky says 14 September 2010 at 09:22

    3 things I noted (I play an insurance agent in real life, but obviously all the usual disclaimers apply. Check with your local agent with any questions!):
    1. Some states do not have PIP coverage – Wisconsin, for instance. They have Medical Payments coverage instead, and you pick a limit (most people choose a low limit of $5,000 or $10,000). There is no coverage for loss of income in Med Pay (as it is known). Also, PIP & MedPay will pay primary medical bills, and then other coverages will come into play. And of course some states don’t require you to carry insurance at all, but that is a terrible, terrible idea, unless you are independently wealthy and don’t want to remain that way.
    2. I was not aware that an insurance company couldn’t use credit to change your current rates if you’ve been paying “on time and in full.” I would like to know the source for that information. Is it possible it is the case in your state, but not nationally (like PIP)?
    3. There are times when purchasing an Umbrella policy is so low-cost that combined with lowering the Liability limits on your Auto and Homeowners policies you actually end up saving money, or being even (especially when multi-policy discounts are included). This is worth checking into. And don’t forget to check the same things with your Business insurance!

  31. Holly says 14 September 2010 at 09:22

    #22, Howard:

    I don’t know how you could dispute the rate increase…you might try to contact your state insurance commissioner’s office. There is a lot of competition in the auto insurance business! You should call around for a better rate and not stand for a 50% increase in your premium. That’s highway robbery…pun intended!

    Go to InsWeb.com and pick the best rate offer or call directly to explain your situation to a live agent. Then cancel your policy once you’ve picked up a less expensive one. That’s what I did and my premium was literally cut in half…I went from paying $100/mo. to $50/mo.

  32. Kristin says 14 September 2010 at 09:25

    FULL DISCLOSURE: I work for an insurance company. BUT…I just started a few months ago and I’m just your average auto insurance customer service rep. Three months ago, I didn’t know PIP from property damage, and now I advise coverages every day. Here’s what I’ve learned regarding how much is “enough” coverage.

    1) Never keep the state minimum. I guarantee you it isn’t enough. 25/50/25 will not pay for the jerk in the beamer who cut you off and stopped too fast. Use your insurance company’s online quote system (what? they don’t have one? well, they should…) to quote increases, maybe starting around 100/300/100. Unlike car repairs, your liability is really not something you want to plan and save for. In a pinch, you’re going to be very glad you paid the extra $50 a year for $75,000 more in coverage.

    2) Your limits for uninsured/underinsured motorists will likely default to the same as your regular liability limits due to legal reasons. Not really savvy for an insurance provider to let you cover your butt to a greater extent than someone else’s.

    3) Do not rely on not being at fault to guarantee you’ll get your car fixed. If your car is worth fixing in a total loss situation, carry comp and collision. I can’t tell you what a rude awakening you might be in for if you rely on someone else’s insurance to pick up the tab.

    4) Keep in mind that comp is usually a lot less expensive than collision and covers a wider array of perils. Think about your risks. Do you live in a neighborhood with lots of break ins and car thefts? Or are you a commuter and more likely to be in high volume traffic areas? Choose the coverage that fits the risk profile of your vehicle. And don’t you even think about being covered for stolen items IN your vehicle under the auto policy. Those fall under your Renters or Homeowners policy.

    Thanks for taking the time to explore this topic JD, I’m discovering every day how important it is!

  33. the other Tammy says 14 September 2010 at 09:34

    I will probably keep my comprehensive coverage until my car is a really old clunker and not worth repairing. My dad hit FOUR deer last year alone. The stupid things are everywhere, especially in fall, and each time Dad hit one the repair bills were in the thousands. I can afford to pay a little more in insurance premiums per month, but I can’t afford to shell out a few thousand to have the entire passenger side of my car repaired from a deer bouncing down the side of it!

  34. Julia says 14 September 2010 at 09:36

    For towing/roadside assistance, my oil change center (yes it’s a dealership) offers free roadside assistance for three months with my oil change. The cost of the oil change is right in line with other companies in town so they are not inflating the price to offer this service. I know I don’t need the oil changed every three months but the piece of mind of the roadside assistance is great, especially on a 13 year old car. I’ve have to use it multiple times and have paid nothing out of pocket.

  35. slowth says 14 September 2010 at 09:48

    The best way to save money on car insurance is to not be a young male.

    I pay for the recklessness of my forefathers.

  36. Jonathan says 14 September 2010 at 10:04

    Your driving record is the one of biggest factors when determining rates. In the State of California most insurance companies offer you a good driver discount if you have less than two points on your record. In insurance terms these points are accidents under $750 and traffic violations. The company I worked for offered roughly a 20% discount for having less than 2 points and most other major companies do the same. So keep your driving record as clean as possible, I’m sure other states do the same.

    Liability insurance is a big one that many customers don’t realize. In California the sate minimum limits are 15/30/5. I would always recommend people at a minimum to go 30/60/25 and at a minimum of 100/300/100 if you owned a home. But I always would recommend more based on the area they lived in. And of course the more assets you have the higher the limits you need. In most cases the cost to raise limits is only a few dollars a month for each 10k increase.

    Umbrella Policies are great if you have assets in the millions. They are very cheap compared to the limits they cover. One note too is the company I worked for only allowed you to get a PUP if you maxed out your liability they offered for auto and home policies. Many other companies also require you to maintain higher liability limits before qualifying for a Personal Umbrella Policy. These limits are typically 1,000,000/1,000,000/500,000.

    Make sure you read your Declarations and Coverage’s page because many people don’t even know what their limits are. And if you buy from a broker check who your insurance company is before you get in accident. And sometimes the cheapest insurance isn’t always the best. There is a reason some company charge a little extra for what they provide. The ability to have excellent customer service, get into a rental car a couple hours after your accident, have no hassle getting your car repaired, and having your insurance company take care of all the matters is worth the extra 100-200 dollars a year.

  37. Lindsay says 14 September 2010 at 10:33

    Roadside assistance: I locked my keys in my car one time in ATL and it cost almost $200. That’s almost 7 years of payments for AAA coverage, so I immediately joined AAA, not only because of the keys but because I drive a 13 yr old, paid-for beater, and no, I do not know how to change a tire, nor do I intend to. I have fix a flat to get me to the auto shop when that happens; I’m more concerned about the car just breaking down because it’s old.

    Paul: If you wouldn’t feel comfortable replacing your car on short notice, you should have collision coverage. Also if you have special environmental hazards like the other Tammy (suicidal deer) you might want collision. I think you should raise your deductible to $1000, though, and that should lower your payments. Are you really going to call the insurance company if you have <$1000 damage, and risk raising your rates?

    Collision: I bought my car 9 years ago for $6,000. I doubt it’s worth $1,000 today, so I don’t bother with collision. I have enough in emergency savings that if my car was totaled today, I could go out and buy another cheap, reliable used car immediately. I have faith in my used car choices, because I pick them based on Consumer Reports.

    Liability: If you have assets to lose, like a house, get enough coverage to feel reasonably assured, even if you hit someone in a BMW and they have injuries, that the liability insurance can cover it. If I hit someone in a Lamborghini and they need lifelong physical therapy, I’m still going to lose my house and go bankrupt. But in my financial situation, with the value of my assets, and the rarity of stupidly expensive cars in my city, I’m willing to take that risk. When I lived in an apartment, I had the state minimum. If I hit someone rich, I’d just file for bankruptcy. I had no assets to be seized. I was willing to take that risk.

    PIP: My health insurance covers personal injuries. Why do I need double coverage?

  38. J.D. says 14 September 2010 at 10:37

    Reading through the comments, I have a couple of responses:

    First, you folks make a compelling argument for the roadside assistance/towing coverage! 🙂

    Second, I cannot recall my source for the “insurance companies can’t adjust based on your credit unless you make changes to the policy/your payment history” bit. I do remember reading that when I researched my book, so I’m sure I have the source noted somewhere. I’ll see if I can find it. I’m hoping it’s not some magazine article from five years ago. I may have to strike that statement from the record! If that’s the case, I apologize.

  39. Lindsay says 14 September 2010 at 10:38

    Liability: Also, if I drove an SUV or a truck, with a high bumper, I would want more liability insurance. These vehicles are more likely to injure the occupants of the other vehicle in an accident, because their bumpers, instead of being the same height as a normal car’s bumper, are head-height to occupants of a normal car. Major liability for injuries if you hit someone in one of these. I was almost T-boned by some jackass driving a huge truck too fast in a residential neighborhood, and all I could see was that grill and bumper coming right at my face. Although any vehicle can kill and we should all be mindful of that when we drive, ALL OF THE TIME.

  40. jenk | Sex and Money says 14 September 2010 at 10:41

    What I like about JD’s primer is that it covers the basics and the tradeoffs. Things like roadside assistance and collision/comprehensive for paid-for cars are worth it for some people and not for others.

    My family has a large emergency fund, few liabilities (just the mortgage) so we have high deductibles. We also have an umbrella policy worth double our net worth on our home & autos. OTOH, we can get along with only one car temporarily, so we don’t bother with rental car coverage.

  41. Moxiequz says 14 September 2010 at 10:56

    From the article:

    “Insurance companies charge a few bucks each month for monthly billing.”

    This is not always the case. USAA, for example, does not do this, even if you don’t use autopay or web payments.

  42. jim says 14 September 2010 at 11:06

    Credit scores: The use of credit scores and credit reports is going to be regulated by state laws. Individual states may have different restrictions on this. I think JD is probably citing his own state law.

    On the Progressive insurance site I found this QA entry about credit scores for policy renewal:
    “Does Progressive check credit history when my policy renews?

    In states where it is allowed or required by law, we periodically review policies, including credit history.”

    So clearly the rules vary by state.

  43. Matt says 14 September 2010 at 11:18

    JD, I didn’t see in the article any mention of the impact of demographic location on rates. I seem to remember a few reports (mostly investigative consumer reporting) saying that your zip code is a BIG factor in determining insurance rates. Supposedly, If you live in a high crime rate neighborhood (or perceived as such by statistics), you will face much higher rates regardless of your good driving record or the type of car you are insuring. Is there any truth to this or is ut more complicated? If that is true, you might need to add ‘moving to a good zipcode’ as a way to save on car insurance.

    Al

  44. LauraElle says 14 September 2010 at 12:10

    First of all, Amy, I am sorry for your loss.

    JD, please do an article on Umbrella Policies. We’re re-doing our homeowners and auto policies soon.

    I also have AAA, but I use it mainly for the discounts: dining, museum admissions, zoo admissions, renting a car, booking a hotel room, ect. AAA will also GIVE you free guidebooks when taking a holiday and help you plan your route. The clerk was aware of major construction on the route and also recommended different stops for day trips along the way. They even have guidebooks for campgrounds, by state and region. [This perk was very handy planning our camping trip through the Redwoods and up the Oregon Coast.] The roadside assistance through my insurance doesn’t do that!

  45. Allison says 14 September 2010 at 12:23

    I would also like an article on Umbrella Policies. Especially, what kinds of events do they cover? I read for example, that if you have a maid or a dog walker, you should have an Umbrella policy in case they get injured on the job. Is that true?

  46. Gretchen says 14 September 2010 at 12:45

    One more vote for rental coverage. I recently had a car totalled and it was very worth the peace of mind not also having to pay out of pocket for the rental while they figured out what they were doing.

    Someone (the tow company?) also suggested that this moves your claim along faster, as they don’t want to pay for the rental any longer than they have to.

  47. Christine, RandomHangers.com says 14 September 2010 at 12:52

    For those of you all gung ho on towing through your towing insurance, you might want to confirm the rules for your state. I had always had towing through my various auto insurance companies(it was so cheap!), but a few years ago when I was shopping around for a new auto company, my quotes were coming in a little higher than I would’ve liked.

    When I asked why, I was told that in Florida, getting your car towed through your car insurance counts as a claim! Earlier that year, my old car had broken down and I had it towed. I had no idea it would be reflected on my insurance and affect my future payments. The guy from the new insurance company recommended I get AAA, since using them won’t show up on my claim record. States are different; be sure to check them out!

  48. savemore says 14 September 2010 at 13:10

    Another tip if you have car insurance.

    If you go out of town (or will not use the car) for a period, let your agent know.

    I was out of the country for a month and let them know, and I got a refund for the month I was away.

  49. James says 14 September 2010 at 13:43

    I have heard that using your auto insurance towing service is the same as filing a claim against your insurance. if you do it too much, they will raise your rates or drop you. I’m not sure if it’s true but it makes sense to me. I’ve always loved my AAA for towing, maps, free travelers checks…. etc… I’ll gladly pay $50 a year for all they offer.

    I have USAA for insurance and banking. IMO they are by far the best insurance/banking company EVER! If you can join I would recommend checking them out. hey have recently loosened the rules as to who can join. I have only 2 nit picky item to complain about them.

    Similar to the 1970 AMC Gremlin, I have a 1973 Ford F100 pick up truck. The body looks rough but it has a new engine & transmission. It’s paid for and runs great. I drive it a few days a week. I could not get comprehensive insurance on it because it was too old. I would have to get antique insurance which would have been much more expensive. My only other small gripe with USAA is that they don’t offer motorcycle insurance. They have a partnership with Progressive for that. Besides that you can’t beat their rates & service!

  50. chacha1 says 14 September 2010 at 13:57

    @ Paul, #12 – DH and I still have collision/comprehensive on our cars, which are 1995 and 1999 Accord coupes.

    Our reasoning is that these still have pretty good trade-in value. If one were totaled in an accident that we caused (unlikely, but it could happen), we’d have to get a new car, but if we just had liability and uninsured-motorists coverage, but not collision/comprehensive, we’d be out around $3K (for the 1995) or $9K (for the 1999).

    So I’d say, keep C/C as long as your car has any trade-in value, and drop it when it doesn’t (as in J.D.’s example of the 1970 Gremlin, lol).

    Now, I’m going back to read the comments and maybe someone will point out something I’m missing, because I sure would love to drop that coverage and lower my premium!

  51. chacha1 says 14 September 2010 at 14:06

    @ Amy, #29, so sorry for your loss.

  52. Caleb says 14 September 2010 at 14:20

    JD – I also would like to see an article on Umbrella policies. Until reading this article today, I had only heard of them as a whisper on the wind. But my assets have recently had a growth spurt (due to tragedy and unrelated to salary), so this might be something to consider. The key inflection points would be good to know, given that some of the earlier comments mention a half-mil or 1M as the baseline limits.

  53. Wes says 14 September 2010 at 21:17

    Ditto on comprehensive being cheap and multi-purpose. Comprehensive is dirt cheap compared to liability / collision and covers everything from vandalism to windshield repairs depending on your policy, i.e. I have had two chips in my windshield in 2 months and my comprehensive covered both repairs (at $70 a pop) and the repair place warranties their work themselves so I got a free windshield ($300 value at least).

    Also, I was told by my insurance agent that typically insurance companies won’t represent you if you just have liability insurance – it is you against the other person’s insurance company even if they hit you. With comprehensive, our insurance company will go to bat for us. It is blackmail, but I am ok with it. The worst I have is comp and collision on a 97 honda accord, but the difference between that and liability only was less than $400 a year and the car is worth alot more than that so I personally don’t look at just the cost of comp / collision, rather the difference in that and liability vs. the value of the vehicle.

  54. Steven Williams says 14 September 2010 at 21:37

    Liability insurance for auto drivers just got approved this past June 2010 in my state of Wisconsin.

    I think that auto insurance prices vary from company to company depending upon their specialty.

    I make it a habit to ask if I qualify for any discounts or rebates when I renew my policy. This past July I asked and I was shocked that my rates were cut in HALF 50%!!!!!

    They told me that my wife and I hadn’t had any violations or accidents. Always check your rates by each line item and if you’re car is paid for raise your deductibles. We carry $2,000 deductibles on our vehicles.

  55. David/moneycrashers says 15 September 2010 at 00:26

    Lots of people out there say to keep the comprehensive on your car, no matter the year or worth.

    It will still cover you against the “incidentals” like a broken windshield from a rock, and its usually dirt cheap.

  56. Josh says 15 September 2010 at 10:25

    J.D. – Do you have any information on what insurance to get when renting a car? Also, what the differences are if you don’t own a car yourself, and therefore do not have your own auto insurance.

    I am in that situation and end up renting cars a lot for trips. After some research, I determined I should only get the liability insurance, and skip the loss damage waiver and personal accident insurance in order to save money as the PAI may be unnecessary and the LDW should be covered by most credit cards.

    Any ideas?

  57. bethh says 15 September 2010 at 11:54

    Thanks for this post! My car is paid-for, low mileage, and 6 years old. I can see driving it for a long time, but just realized it’s only worth $3600 private party (according to Kelly Blue Book’s online interface)! I’m TOTALLY going to drop the collision coverage, which is $180/year, just over 25% of my entire policy cost. This was just the nudge I needed.

    I can bike, walk, carpool, or take transit to work, so if something were to happen it wouldn’t be a replacement emergency anyway.

    However, add me to the list of those who love the peace of mind of roadside assistance. Mine is less than $1/month, and I’ve learned if I drive my car less than every 8 days, the battery tends to need a jump, so my coverage has definitely paid for itself in the jumps I’ve had alone.

    Also, I’m another extremely satisfied USAA customer. They give me a multi-policy discount with my renter’s insurance.

  58. Megan says 15 September 2010 at 18:05

    @Lindsay (37) “PIP: My health insurance covers personal injuries. Why do I need double coverage?”

    Check your health insurance policy again. Many exclude injuries that should be covered under other insurance, like auto or workers comp. If you’re not in a no-fault state, you could end up paying out of pocket if you don’t have PIP, even if you have your own auto and health coverages.

    I’m going to reiterate what a few other insurance professionals have said: the minimums are never enough. There are too many stories like Amy’s (I’m very sorry for your loss) where people weren’t insured adequately. It’s not just about protecting your assets, it’s also about taking responsibility for your liabilities. Even if you only had $1,000 to your name and could easily declare bankruptcy, would you want to tell a widow and her children that not only can you not give their husband/father back, you can’t even pay to replace the wages they lost when you killed him?

    Of course, all of the above is my personal opinion and is in no way the responsibility of the company I work for. Be sure to consult with your agent to determine what coverage is best for your situation.

  59. SLCCOM says 17 September 2010 at 13:38

    There are other charges a rental company can hit you for, such as loss of use of the vehicle. Getting any other insurance company to pay for this is a losing battle. And that can be a substantial bill. I always get the rental company insurance. A claim on it doesn’t reflect on yours, as I understand it.

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