If you are going to get a car, understanding car insurance basics is vital. Once you know the car insurance basics, you can get the appropriate insurance that fits your needs and budget.
One of the key decisions in deciding what car to buy is assessing how much all the other costs are that come with ownership. The purchase price and/or the car payments are just the most obvious of costs.
The two main other ownership costs to consider are maintenance and insurance. This article will teach you everything you need to know about car insurance basics. The better you understand car insurance, the more money you can save.
Car Insurance And Maintenance Basics
For new cars, maintenance costs are quite minimal, unless you have a lemon. Nobody wants to waste all their time going to and from the dealer. For used cars, maintenance costs are a much bigger issue. They can quickly eat into any savings you’ve made from not buying new.
You can learn more about auto maintenance costs in more detail here. For now, let’s talk about car insurance costs.
I received my semi-annual car insurance premium bill the other day, and I was pleasantly surprised to discover it only costs $285 every 6 months to cover my dear Moose.
However, by not telling you the full details of what $285 gets, it’s hard to understand whether $285 really is good value. Let’s breakdown the line-items to better understand what car insurance options I get for my money.
Car Insurance Basics: Understand Your Options
First of all, you must have car insurance if you drive a car. It’s illegal not to. And if you so happen to cause an accident, you could very well be sued for all you have and go bankrupt.
Don’t be a donkey and not have car insurance! There are a lot of different options to choose from, and for the sake of clarity, let’s go through each one.
Along with the expenses associated with your own damaged vehicle, you can get sued by other motorists or by the passengers in your car. You must decide on appropriate coverage from all angles.
Here's a look at all the car insurance basics you should be aware about. Select the features that best fit your individual needs.
Protect Your Financial Resources
The wealthier you are, the more important it is to have good car insurance. Here are some things car insurance also covers.
Bodily Injury Liability
If you hurt someone in an auto accident, the insurance company will pay a certain amount. In my case, I elected for $300,000/$500,000 per person/per accident for a cost of $115.
Property Damage Liability
If you damage someone else’s property in an auto accident, the insurance company will pay a certain amount. My insurance company pays $100,000 per accident to property at a cost of $84.
Protect Yourself And Your Passengers
Uninsured Motorists Bodily Injury
If an uninsured or underinsured driver injures you or your passengers, this option kicks in. I elected $300,000/$500,000 per person/per accident for $43.
Medical Payments
Covers you or your passengers for any medical expenses. I have $100,000 coverage per person at a cost of $24.06
Extended Benefits
Wage earner disability benefits, essential services disability benefits, death benefits are blanketed under extended benefits. I pay $5.10 for minor distribution of all three. I have my life insurance and disability insurance from work to cover 100%.
Protect Your Vehicle
Comprehensive
Comprehensive covers damage caused by something other than another vehicle such as hail, theft, collision with Bobo the bear. I chose not to get comprehensive coverage because Moose is worth no more than $4,000.
Collision
Collision covers damage to your vehicle caused by impact with an object other than an animal. Gray area here, given this is what comprehensive is for. I declined coverage.
Uninsured Motorists Property Damage
If an uninsured driver damages your vehicle, having this option will protect you. If an uninsured motorist damages Moose, I will just ask him to pay for everything.
Towing & Labor
Towing and labor coverage provides emergency roadside assistance. This includes services such as towing, flat tire, jump start, and delivery of gas. This type of service is a life saver!
I’ve run out of gas, had an older car not start before for some reason, blew out a tire, left my lights on, and each time needed roadside assistance. It typically takes no more than 45 minutes to get everything fixed.
I recommend everybody get towing & labor. I pay only $5.88 and I can’t believe it’s not at least $100 every 6 months.
Related: Your Car Insurance Might Not Be Good Enough
Cheap To Me Might Not Be Cheap For You
People often forget that having a nice car doesn’t stop once you pay for it in full. New cars will always come with at least a 3-year, 36,000 mile bumper-to-bumper warranty. So maintenance is not really an issue in the beginning. It’s the insurance costs for expensive cars that really start getting to you.
Moose is almost 12 years old and isn’t worth much more than $4,000. As a result, I don’t have comprehensive or collision since I will just write-off the $4,000 in case of an accident and buy a new car.
If I had a $165,000 Bentley Continental GT, you bet your buns I would have comprehensive and collision! It’s really just a judgement call though, as a Bentley’s insurance will probably run in the $3-4,000 range a year for me.
A $285 car insurance premium every 6 months equates to only $47.5 a month. That’s cheap for me since I’ve paid up to $200 a month for one expensive car that I bought new some 8 years ago. Everything is relative.
There are some grown adults who still free-ride off their parent’s policy to save money. Good for them if they can get mom and dad to pay for it or somehow latch on as a dependent with discounted rates. Meanwhile, there are those who have no assets, and therefore go without auto insurance to save money, even though that’s illegal.
You have to protect yourself from these motorists by getting your own insurance. You just never know. Finally, if you have a wealth of assets which your car insurance policy doesn’t provide enough for, you must get an Umbrella Policy that goes above and beyond your car and home property insurance.
Car Insurance Basics Tip
Shop around to save money on car insurance. It's worth it!
The best place to get affordable car insurance is with Allstate. With Allstate, you're in good hands. Getting a quote is free and easy. Make sure you have the best auto insurance possible to protect yourself and your family.
Every year, there are hundreds of thousands of accidents on the road. You need great auto insurance to protect your finances as well.
I’m glad you talked about auto insurance and how it’s mandatory to have it! Recently, my cousin said she’s interested in buying her first car! I’m sure my cousin will need to get an auto insurance plan for her new car, so I’ll be sure to share your tips with her! Thank you for the insight on how we have many auto insurance options that’ll fit our needs!
Thank you for mentioning how you will be able to avoid serious legal consequences by ensuring that you have the coverage needed to drive your car. My wife and I are thinking about teaching our daughter how to drive now that we have inherited my late uncle’s car, but we’re worried that our lack of insurance may prevent her from using the vehicle to drive to school. Maybe we should find some insurance in order to ensure that we are legally operating our car.
My sister has been thinking about taking better care of her car now that she has to drive longer to get to work. She would really like to get some help from a professional to choose the best policy for her. I liked what you said about how she should make sure that she can get the right protection from hail, theft, and running into wild animals by getting comprehensive insurance.
It’s great that this article mentions that car insurance can protect you financially in case you get in a collision. I’m thinking about buying a car for my son this year, so I’ll want to make sure that I buy some auto insurance for it. I’m going to search for a reputable business in my area that can sell me some auto insurance.
Thank you for highlighting the fact that having auto insurance can protect you against financial losses if you get in a car accident. I’m thinking about buying a new car this month, so I’ll want to make sure I get a good auto insurance plan for it. I’m going to see if there’s a good business in my area that can sell me some auto insurance.
Thank you for explaining that acar insurance protects us from damage. I just bought a car for my daughter and we have yet to apply auto insurance. Now that I have a better understanding of its importance, I will ask my daughter to move forward with it.
I like how you said that it is worth filling out a quote with different insurance companies to see if you can save money. I have ever had to get my own insurance before. I’ll follow your advice and look at different quotes before I buy my car just to be safe.
I had no idea that it is illegal to drive a car without car insurance. I want to buy my first car. I’ll look into getting one but first, I’ll check to see how much the insurance would be for it.
It’s helpful that you elaborate on how auto insurance can protect you financially in case you get into a car accident. I’m planning on purchasing my first car next month, so I should probably buy some auto insurance for it. I’m going to look in my area for a good business that can sell me some auto insurance.
It’s awesome that this article points out that auto insurance can help cover you financially in case you get into an accident while you are driving. I’m thinking about purchasing a new car, so I want to make sure that I buy some auto insurance for it. I’m going to look for a reputable company that can sell me some auto insurance.
I had no idea that it is illegal to drive a car without car insurance. I was going to let my girlfriend drive my car while I was working but I guess not now. I don’t want her to get in a wreck or get pulled over and not have car insurance to cover it.
Interestingly, the auto insurance company covers damage caused by something other than hail, theft, and collision. I’ve been wanting to purchase an SUV since I’ve saved enough. I guess it’ll be smarter to apply for an auto insurance service so I’ll be covered just in case something happens.
It’s good that you point out that auto insurance covers you financially in the event of an accident. I just bought a new car and I’m considering purchasing insurance for it. I’m going to look for a good provider of auto insurance from which to buy some.
It’s good that you point out that auto insurance protects you in case you get sued after a collision. I just bought a new car and I want to make sure that I am insured before I drive it. I am going to look for a good company to purchase auto insurance from.
I like how you point out that auto insurance helps protect you in case of an accident. I just bought a new car and I need to get it insured. I am going to look for a good auto insurance company to go with.
Sam-
Could you elaborate on what happens if you are driving a cheap car and wreck it without comprehensive or collision coverage? You said you will just write it off and buy a new car. Does this mean if you are at fault you are out the cost of the car? Obviously if another party is at fault their insurance would pay to replace the vehicle right?
Thanks
Auto Insurance is a scam.
They want me to pay $5,000 for 6 months of the bare minimum. I have had my license for almost a year, im 18, driving a 99 Chrysler.
I have checked with most the insurance companies and none are much better.
I have a perfect driving record and I just graduated high school. No criminal record
im only making about $300 a week working almost everyday I can not afford this. Dont tell me to add me to my parents insurance because they can absolutely not help me. I have tried to do this but they will not let me
EXPLAIN THIS !!!!!!!!!!!!!
INSURANCE IS A SCAM
Wow, that is CRAZY expensive, even for an 18 year old (the most risky group of them all).
I would check with eSurance online if I were you. I’m pretty sure they are WAY cheaper than $5,000 for 6 months. No obligation quote.
Nice job. Compact & easy to understand. 30 years in the ins biz, 24 as an agent, couldn’t have done better myself & I taught ins to college students for 14 years
Love it! Provides information and humor all wrapped into one :) Great job. I’ve actually been interested in the auto insurance topic lately myself as I have to renew mine in the next month or so; however, my though process is learning more towards what areas/counties in the USA provide the most expensive coverage. I’ve heard I live in one of them and my auto insurance bill tells me likewise. I also have a much older car like you with Moose :) and pay almost double what you pay and I also don’t have coverage on the car since it’s not worth much. I was actually planning to write a post about this angle coming soon :)
Yikes! Well, I’m glad nobody was really hurt.
$450/6months doesn’t sound bad for you. $100/month does.
When I look back upon my teens and early 20s, I surely was a more reckless driver. I deserved to get charged more!
Although I’m talking Canadian rates, my wife and I pay a total of $119 a month to have both of our vehicles covered.
One vehicle is only a few year old, and the other is a 2010 pick-up truck.
I increased our deductible on the collision side of things so that our monthly premiums would be lowered.
Nice post!
That’s cheap for two newish vehicles! The more I hear about Canada, the more I like it!
Thanks!:) The rates I have are after shopping around and raising deductibles so they can get quite higher if you’re not trying to reduce premiums.
Your 1/10 rule may be a wise financial decision but is bad news for the auto industry! It means that only the top 5%-7% of earners can really afford even a cheap new car!?? I think your rule may be a little too strict, but I agree with you on not wasting money on an expensive car you really can’t afford. I bought a car in 1997 (slightly used – a year old with 17K miles) for 14K (and I wasn’t earning 140K), but 13 years later, I still have the car (192K miles now!), so I think it has served me well!
Indeed. The auto industry and the marketers have tricked people into OVER spending on their vehicles.
If you make $50,000, then one has really no business spending 40% of their gross income on a $20,000 car. That’s just silly! A 8 year old $5,000 should serve just fine.
Glad your car has lasted you 13 years!
Good list. Be sure to check with your agent for discounts available for taking safe driving courses. Adults as well as teens can do this. Sometimes it’s just a one evening class; other times you just have to watch a safety video.
excellent point!!!! a $70 online course can pay off in 6 months or less!
We pay $1200 for full coverage for a year. Our car is worth about $5k. But having to replace it out of pocket would be a big hit at this stage, which is why I decided to pay for full. I guess at some point – not sure how to work that out – it will make more sense to drop down to third party/theft and cut our premiums, and gamble on good luck.
Hmmmm… $1,200 a year for a 5K car is 24% of the value of the car every year. Kinda a lot to be honest!
I would drop the comprehensive, and/or raise the deductible and try and get it down to under $750/year, or 15% the value of your car.
But, whatever you are comfortable with! I’m just happy fellow readers/bloggers are also driving beaters! :O)
I pay $295/6 months for similar coverage. My cost was a affected by a minor accident I had nearly three years ago. I think it drops off in January.
Glad to hear that I have the same coverage as you! What is the estimated value of your car?
A paltry $2,400! I think I trying to get to zero. Maybe, it should be a goal.