Insurance Basics: Auto Insurance

November 22, 2023

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Given the sheer number of cars on the road and the distractions drivers deal with every day, the chances of using your auto policy are higher than ever.

You’re at risk literally every single day you get in your car.

It’s important to understand what your coverage options are, not just for your car but also for you and people who may be injured because of your negligence.

Know Your Limits

The truth is that people usually don’t understand why they need liability coverage in the first place. The reason is simple: it protects other people from your negligence.

Liability pays for the damage you do to someone else in an auto accident. It pays for both the vehicles and any personal injuries in the accident, the combination of which can rapidly add up. Most vehicles are now more expensive than they have ever been, and when you consider the cost of luxury vehicles, and especially the cost of hospitalization, a common auto accident could end up costing in the tens to hundreds of thousands of dollars.

Important Auto Insurance Coverages

When you browse through your policy, you may see certain coverages and wonder exactly what they are and why they’re on your policy.

Let us clarify a few of the more important ones for you:

Collision Coverage — this is the part of your policy that covers your car in the event you somehow damage the car itself because of an accident with a fixed or moving object, such as another car, a curb, a house, a guard rail, etc.

Comprehensive Coverage —this coverage also protects your car but in the event that something else damages your car that is not a fixed or moving object; for example, theft, a rock that cracks your windshield while you’re driving on the highway, an animal you might hit, and so on.

Property Damage — suppose you damage someone’s car in an accident, or you damage a guard rail, house, or some other property that belongs to someone else. This is the part of your policy that compensates the other person for that damage.

Bodily Injury Liability — this coverage protects your financial interest in the event you injure another party in an accident. This is the part of your policy that pays that other party for their medical bills and related expenses. Due to the high cost of medical care, it’s dangerous to carry liability limits that are too low. This is something we can help you decide on.

Uninsured & Under-insured Liability — this coverage pays you if you are injured by another party and that other party was either unidentified or they weren’t carrying a high enough limit of Bodily Injury Liability to cover your expenses. This is also a very important part of your auto policy because you have zero control over how much insurance other people are driving around with.

Common Auto Insurance Rating Variables

Age — insurance companies use your age in their overall rating algorithms. Drivers who are under 25 and those over 65 typically don’t get preferred rates because statistics show that those two age demographics have the most loss frequency and are, therefore, more at risk for financial loss due to an auto accident.

Credit — credit is a metric that has been used in insurance scoring for many years. The better your credit, the more favorable your rates will usually be.

Car — the type of car, engine size, safety features, etc. are all part of determining the rate.

Driving History — your driving record and loss history plays a substantial role in the price. If you have a spotty driving history or multiple moving violations or accidents, chances are you won’t get a preferred rate until those things are at least 3 years old.

Household — insurance companies underwrite at the household level, meaning they try to judge based on the entire household, what the probability of loss will be. If there are multiple drivers in the house who are under the age of 25, this will impact everyone’s pricing in the household.

Summary

How much coverage is necessary? How much coveage do you really need? As part of ongoing financial planning with Envision Financial P,lanning, we review your insurance policies and work with agents to get you the recommended coverage at a cmpetitive price. We want to make sure that you are  not overpaying for your auto insurance. These individual costs do add up. We believe your financial health includes a review of  your insurance policies to mnake sure they fit in well with your overall financial plan. 

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