Most drivers know they need car insurance to legally get behind the wheel, but a smaller number of drivers probably understand exactly what their policies protect.
AAA’s expert insurance agents can help you understand every part of your car insurance policy, and make sure you’re not paying too much. Call 866-222-7871 or check out AAA.com/Insurance. In the meantime, here’s a breakdown of some typical car insurance policy terms.
Every car insurance policy includes limits and deductibles.
Limits are the extent to which a policy protects a driver. Limits are often expressed in the following manner: A/B/C. “A” is the limit of what an insurance company will pay for bodily injury to a single person if a driver is at fault in an accident. “B” equals the total amount an insurance company will pay, per accident, for bodily injury if a driver is at fault. “C” is the total amount an insurance company will pay for property damage, such as damage to another motorist’s vehicle, if a driver is at fault. Some drivers will purchase umbrella coverage to safeguard themselves against claims that exceed basic auto insurance limits. You can learn more about umbrella coverage here.
Deductibles are amounts drivers must pay out of pocket before their insurance companies step in. Accepting a policy with a higher deductible can often lower premiums as it decreases what an insurance company may have to pay following an accident.
The term is the period of time your car insurance policy is in effect.
A claim is a request for an insurance company to issue payment per the terms of your car insurance policy.
Types of coverage
A variety of protection falls under the umbrella of auto insurance.
Liability protection is the foundation of an auto insurance policy. It protects drivers against damage they inflict upon other people or their property. Nearly every state mandates drivers to have a minimum level of liability protection. Here are minimum liability requirements in some Northeast states.
- Connecticut: $20,000 per person and $40,000 per accident for bodily injury liability and $10,000 per accident for property damage liability.
- Massachusetts: $20,000 per person and $40,000 per accident for bodily injury to others, $8,000 in personal injury protection per person, per accident, and $5,000 per accident for damage to someone else’s property.
- New Jersey: $15,000 per person and $30,000 per accident in bodily injury liability and $5,000 in property damage liability.
- New York: $10,000 for property damage for a single accident, $25,000 for bodily injury and $50,000 for death for a person involved in an accident and $50,000 for bodily injury and $100,000 for death for two or more people in an accident.
- Rhode Island: $25,000 per person and $50,000 per accident in bodily injury liability and $25,000 in property damage liability per accident.
Uninsured or underinsured motorist coverage is designed to protect you from drivers who don’t have insurance or damage you or your property beyond the limits of their insurance. This is optional coverage in many states though it is required in Connecticut, Massachusetts and New Jersey.
Personal injury protection is a requirement for drivers in Massachusetts and New Jersey. It covers medical bills and may cover other costs for drivers and their passengers after an accident regardless of whether they were at fault.
Collision coverage protects your vehicle should it strike another object like a wall, tree or vehicle. It’s optional under state law but is often a requirement for anyone financing a vehicle. Lenders require the coverage as a way of protecting their investment. If a borrower defaults on an auto loan, the lender needs the vehicle to recoup its investment and a vehicle in bad shape isn’t worth as much. Some drivers who carry collision coverage consider dropping it when the cost of the protection exceeds the value of their vehicles.
Comprehensive coverage, optional under state law but often a requirement for drivers who’ve financed vehicle purchases, covers just about any other damage to vehicle such as fire, hail, vandalism, flood and theft.
If your car is being repaired, optional rental coverage will cover the cost of a rental vehicle.
Premiums are what drivers pay for coverage. A variety of factors affect premiums including the following.
Your car: The more expensive your car, generally the more expansive your repairs and insurance rates.
Your driving habits: The more you drive, the higher your chance of being in a crash, and greater risk typically means higher premiums.
Where you live: Those who live in urban areas usually have higher premiums than those in rural areas because the risk of accidents, theft and vandalism grows with population density.
Your driving record: Someone who has been in multiple accidents or has multiple moving violations is a statistically greater risk than someone with a clean driving record. Premiums follow accordingly.
Your coverage: Accepting a higher deductible can lower your premium because it decreases what your insurance company could be forced to pay. Having higher limits or optional coverage, like collision, on the other hand, can increase what an insurance company may have to pay, which can mean higher premiums.
Credit rating: California, Hawaii and Massachusetts are the only states where insurance companies cannot use drivers’ credit ratings to influence auto insurance premiums.
Discounts: Have you bundled your auto insurance and homeowners coverage? Did your teen driver complete driver education, or does he or she get good grades in school? Is your car equipped with anti-theft devices? Answering yes to any of these questions can sometimes help lower premiums.
AAA’s insurance experts are available to make sure you understand your insurance policy and you aren’t spending more than you have to. Visit AAA.com/Insurance today.
For more insurance advice, visit AAA.com/InsuranceConfidential.