Car Insurance 101: What You Need to Know

By Christine Ascher on March 9, 2017

Buying a car can be a stressful affair. As if saving up, choosing the perfect car, and negotiating a decent price were not enough, there’s also the complicated matter of car insurance, an area that most college students are unfamiliar with. To help make the process easier, here are some commonly asked questions about car insurance to get you started.

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Why do I need it?

Having car insurance is a form of financial security in that it prevents you from suffering high costs if you are involved in an accident. Considering the stress that an accident would cause in itself, not having car insurance will only bring you further problems. Without it, you may suffer significant financial strain. If that’s not enough of an incentive, you’re also required by law to have some sort of insurance in 47 states.

How do I buy car insurance?

When you’re looking to buy car insurance, you can choose either to do it directly through an insurance company or you can use an independent agent, who will look at several different insurance companies for you and find the best policy to suit your needs. If you choose not to go with an independent agent, you can choose from a direct seller or a large national brand.

According to The Wall Street Journal, direct sellers “sell coverage directly to you, bypassing traditional insurance agents.” This tends to be a less expensive option but is more selective so you might have trouble if you don’t have the best driving record. If you buy from a large national brand, you’ll be able to purchase through a local agent; though, as stated by The Wall Street Journal, “their agents are exclusive” and will only sell you that company’s insurance so you won’t have as much freedom to shop around.

How much does car insurance cost?

A number of factors go into determining how much car insurance will cost for you. According to the website Trusted Choice, an independent insurance firm, these include the estimated value of your car and its age, its safety rating, your own driving record and whether you have a history of accidents, your age and gender (for instance, car insurance is typically more expensive for teenagers and young adults) and where you live (if you live in an area with high crime rates, you can expect your car insurance to be a bit more expensive).

Depending on your circumstances, you may be able to qualify for various discounts. Some of the most common ones offered by insurance companies include a good student discount, which can be applied if you have at least a B average in school; a good driver discount, which will give you a reduced rate if your driving record is clear; a multi-car discount, which offers a discount if you insure more than one car with the same company; and a multi-policy discount, which gives you a reduced rate if you use the same company for more than one insurance policy.

How do I set my deductible?

The amount of your deductible — that is, the amount that you will pay out of pocket in the event of an accident — can vary based on your premium (the fee that you pay each year to have insurance). If you pay a lower premium, you will have to pay a higher deductible and vice versa. According to Melanie McManus, a writer for the website “How Stuff Works,” a typical deductible amount can range from $0 all the way to $1,500.

What will my car insurance cover?

There are many different types of coverage that each focus on specific issues that may arise for you as a driver and it’s generally up to you to decide how much coverage you want for each type — though there may be a minimum amount required by law, depending on where you live. Your insurance coverage will be broken up into categories including:

•Liability: Liability coverage pays for any repairs needed and medical costs suffered by the other party if you are deemed responsible for an accident. When you purchase your car insurance policy, you will be able to set a maximum limit for liability coverage — in other words, there will be a cap on the amount that your insurance company will cover in the event that you cause an accident. If the damage exceeds that amount, you would pay the rest out of your own pocket.

•Collision: Collision coverage covers any repairs needed for your own vehicle if you are in an accident. You will have to pay a certain deductible out-of-pocket that was set when you first purchased your policy, but the rest will be covered by your insurance.

•Comprehensive: Comprehensive coverage is used for any damages to your vehicle that are caused by incidents other than an accident — for instance if your car is damaged from the weather. It can also cover costs if your car is stolen. Again, you will need to pay a deductible to cover a certain amount of the costs for the repairs, but the majority will be paid for by your insurance.

•Medical Expenses: Coverage for medical expenses refers to the costs of any injuries suffered by you or anyone else who was in your car at the time of an accident. This coverage is provided regardless of who the responsible party is, and also covers any medical costs if you or your family members are in an accident while in another vehicle.

•Uninsured/Underinsured Motorist: Uninsured or underinsured motorist coverage provides protection in the event that you’re involved in an accident where the driver at fault is uninsured or does not have sufficient insurance to cover the costs of the damages done to you and your car. This will also provide you with coverage in the event of a hit-and-run when you would be able to hold the driver at fault responsible.

Will my car insurance cover rental cars?

Though it can vary, in general, insurance policies will provide you with the same coverage if you’re driving a rental car as they would if an accident occurred while you were driving your own car. You might want to ask your insurance agent to be sure when you’re deciding on your policy.

Who else is covered by my car insurance?

According to the Department of Motor Vehicles, “any licensed drivers in your household are generally covered to drive your car, as well as anyone else who has permission to use your vehicle.”

In general, therefore, your insurance will cover anyone who drives your car with your knowledge and approval. However, the exact coverage may vary by state, so you should check with your agent to be sure.

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