Purchasing Car Insurance

So easy a caveman can do it but more confusing for college grads than the lyrics to “My Humps,” auto insurance is required by law in almost every state, so dealing with it is less an option than an obligation. There are two main aspects of car insurance—protecting your car and protecting yourself. Whether your car gets jacked from the car lot or you get into an accident that dents both your fender and your forehead, you are going to be glad you’re covered. Indeed, driving without insurance is one of the least intelligent things you can do—if you get caught (or worse still, you get hurt), you may incur heavy fines and bills, lose your license, or even go to jail. So, put that college-educated brain to use and do some research to find a policy that works best for you.

Bare Bone Basics

Before picking up the phone for a “15 minute” call to Geico, take some time to familiarize yourself with the different types of coverage. You can customize plans to cover whatever you want, but it's always advisable to start with collision and comprehensive coverage as it's pretty hard to replace a car if it gets totaled or stolen.

• Liability – Required by 47 states, liability covers accidental bodily injury and property damages caused by an accident (e.g., the woman in the other car’s broken butt bone and the neighbor’s flattened fence).
• Collision – Not mandatory (but purchased by most), collision pays for any repairs to your car in an accident, from a bruised bumper to a busted trunk. It does not pay for damage to the other person’s car.
• Comprehensive – Also optional but popular (like parmesan cheese or pants), comprehensive pays for losses that are not the result of a collision, such as fire or theft.
• Medical – Pays all medical expenses of those in the car regardless of fault.
• Emergency Roadside Service – Covers situations like fixing a flat, getting keys out of a locked car, running out of gas, or using a tow truck. Some will even pay a bond if you get sent to the big house for a traffic violation.
• Gap Insurance – As soon as a car is driven off the lot, its market value depreciates 20-30%. In the case of an accident or theft, gap insurance pays the difference between what you owe (the actual market price) and what the insurance company says the car is worth. (For example, if a $25,000 car is totaled and you have collision but no gap insurance, the insurance company will pay $20,000 rather than the full $25,000 that you paid for it.) It is generally offered only on new cars.
• Personal Injury Protection (PIP) – Being a PIMP is illegal in all states except Nevada, but having PIP is required by some. It covers medical expenses and lost wages for insured drivers regardless of fault.
• Uninsured Motorists – Pays car damage when an accident is caused by someone without liability insurance.
• Rental Reimbursement – Dinero for a rental if the wheels on the car can’t go ‘round and ‘round.

Before perusing prices, check any other insurance policies that you hold (health insurance, renter’s insurance, etc.); you may already be covered for certain aspects of a car insurance policy. For example, a person with comprehensive health insurance would probably only need to purchase the minimum personal injury protection (PIP) coverage.

The Price Is Right…Or Maybe Not

The average policy containing liability, collision, and comprehensive coverage costs $774.12/year. However, that figure is dependent on a number of things:

• Type of Car – Sports cars, large SUVs, and really small cars like the Mini Cooper may be cooler than Kriss Kross in the early 90’s, but the increase in premiums isn’t something to “Jump Jump” up and down about.
• Car Features – Anti-theft devices, airbags, anti-lock brakes, and automatic seatbelts warrant automatic price reduction.
• Theft History – Models with bad reps get bad rates. Check out theft history to get an idea of how a car will fare on the street. (According to the National Insurance Crime Bureau, the “most stolen cars” in 2006 were the ’95 Honda Civic, the ’91 Honda Accord, and the ’89 Toyota Camry.)
• Location – Areas with high accident rates or incidents of larceny raise prices.
• You – Not all drivers are treated the same. For example, young single males can expect to get screwed just by being young, single, and male. At least you can’t get pregnant!
• How Often You Drive – Long commute? Price increase is absolute.
• Credit Report – If you missed your last two card payments due to a drunken visit to the L.L. Bean website, it could increase your premium by the hundreds.
• Driving Record – Clean licenses warrant lower premiums.
• Discounts – Most companies offer sizable student discounts to those who maintain certain grades. You can also save if we have multiple cars insured (unlikely) or if you hold a renter’s insurance policy with the same company. Check out these clever ways to reduce premium cost.
• Deductible – A deductible is the amount paid out-of-pocket before the insurance company kicks in cash. A higher deductible will mean a lower premium price, but it also means that you must fork over more of your own money in the case of a calamity. Deductibles are usually offered in amounts of $100, $250, $500, or $1,000. To figure out the best amount to choose, try this deductible calculator.