Auto Insurance Basics

What is your car insurance actually insuring?

Although you're buying a single insurance policy covering a specific vehicle, a number of components make up the final cost:

•Bodily injury liability:
Covers injury and death claims against you, and legal costs, if your car injures or kills someone.

•Property damage liability:
Covers claims for property that your car damages in an accident. Because liability coverage protects the other party, it is required in all but three states.
•Medical payments:
Pays for injuries to yourself and to occupants of your car. This is optional in some states. In "no-fault" states, personal injury protection replaces medical payments as part of the basic coverage.
•Uninsured motorist protection:
Covers injuries caused to you or the occupants of your car by uninsured or hit-and-run drivers. "Under-insured" coverage also is available, to cover claims you may make against a driver who has inadequate insurance. In some states, as many as 30 percent of drivers are uninsured.
•Collision coverage:
Covers damage to your car up to its book value. Collision coverage carries a deductible, which is the amount per claim you have to pay before the insurance takes effect. The lower the deductible, the higher the premium. While it is legally optional, a lending institution or leasing company usually requires collision coverage.
•Comprehensive (physical damage):
Covers damage to your car from theft, vandalism, fire, wind, flood, and other non-accident causes. Comprehensive also carries a deductible

Insurance premiums are based partly on the price of the vehicle, which affects the replacement cost if it is stolen or "totaled" in an accident. How expensive the vehicle is to repair -- including parts and labor -- can also affect the cost. In addition, surcharges may apply to vehicles that are frequently stolen or involved in accidents. However, insurance companies set rates based on their own experience. If Company A has more collision and theft claims for a particular vehicle than Company B, then A will charge more for the same coverage. It all boils down to a company's actual experience with a particular vehicle or category of drivers. That is why it pays to shop around for insurance.

Now that you know a little bit about car insurance, are you covered the way you thought you were?