Just because all of the U.S. states have set minimums for auto insurance doesn't mean that you are protected as well as you could or should be. Liability insurance (bodily damage and property damage) is required in order to register a vehicle; liability insurance pays the other driver's medical, car repair and other costs in the event of an accident when either the policyholder is at fault or it is in a no-fault state. Your standard liability insurance will not replace or repair your vehicle if it is damaged.
Jeanne Salvatore, the Insurance Information Institute's senior vice president of public affairs, offers a simple explanation of what auto insurance policies can cover: "Auto insurance provides property, liability and medical coverage. Property coverage pays for damage to or theft of the car. Liability coverage pays for the policyholder's legal responsibility to others for bodily injury or property damage. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses."
There are six different types of coverage included in the average auto policy, and they are all priced separately: 1) Bodily injury liability (covers injuries caused to someone else). 2) Medical payments or personal injury protection (covers injuries in the policyholder's car). 3) Property damage liability (covers damage to someone else's property). 4) Collision (pays for damage to the policyholder's car in an accident). 5) Comprehensive (covers theft and damage occurring from something other than a car accident). 6) Uninsured and underinsured motorist coverage (pays for expenses after a hit-and-run accident and in the event the policyholder is injured as a pedestrian). Collision and comprehensive have deductibles that the driver has to pay in the event of an incident (unless the other driver is at fault), and the higher the deductible the lower the premium.
The Insurance Information Institute released a statement that "76 percent of insured drivers purchase comprehensive coverage in addition to liability insurance, and 72 percent buy collision coverage." A 2007 study of average insurance policy costs ranged from $512 per year in North Dakota to $1,140 in the District of Columbia. Some added coverage -- such as rental insurance, roadside assistance and pet injury coverage -- may be useful to your policy but will also increase your premiums.
Many policyholders try to cut costs by placing very high deductibles or lower maximum payouts on their policies. Some people do without comprehensive and collision coverage on older cars. These can be very costly mistakes. Paying for higher maximums may save you in the long run if you are sued by another driver, a property owner or even a passenger in your own vehicle. Just because your car is older and devalued doesn't mean you won't need the replacement value if your car is totaled or damaged in an accident. Speak to your insurance agent about the actual value of your car and having enough insurance to repair or replace it; paying for more coverage than it is worth to repair can also be a big waste. You should assess your needs, be realistic and speak to a professional.
Things that can affect your policy and coverage needs include your local state laws, your budget, whether you have a lien on the car (such as an auto loan), your driving history and the safety features in your car. Some companies, such as Progressive, offer discounts for safe driving, as well as higher premiums for risky driving histories.
Providing your age, gender and how long you've had a valid driver's license is important when shopping for insurance. "To help determine how much to charge for auto insurance, companies group consumers together based on similar characteristics, such as age, gender and driving record. The companies then rely on their actual claims experience within these groups to determine what to charge individuals with characteristics similar to those of others within the group," explains Brittany Senary from Progressive's public relations department.
If you've had some negatives on your record, some companies will allow you to deduct points after taking driver safety classes. Some incidents, such as DUIs and moving violations, will remain on your record for a certain number of years and will be reflected in increased premiums.