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Getting the Right Car Insurance

Chapter 2 Getting the Right Car Insurance in Place

A new car will need insurance. That’s something you may want to keep in mind while shopping around because the make, model and age can affect the monthly premiums.

Now, when it comes to insurance, there are three main ingredients that make up the insurance stew: liability coverage, collision coverage and comprehensive coverage.

Liability + Collision + Comprehensive = Full Coverage

Together, they generally make up what is known as full coverage, and having all three as part of your auto insurance policy will help you cover anything life might throw at your car. Liability is a must, so we’ll start there.

Liability Coverage: If you’re in an accident that’s deemed to be "your fault," liability insurance covers third-party costs you’d typically be responsible for paying. We’re talking about things like the other driver’s medical bills or repair costs due to the accident. There are two types of liability coverage: property damage liability (costs related to getting the other driver’s car fixed) and bodily injury liability (costs related to their lost wages or medical bills). It’s mandatory in most states, and you’ll want to have at least $500,000 worth of both types of liability coverage.

Collision Coverage: No matter who’s at fault, collision coverage pays to repair or replace your car if you’re in an accident. It’s usually worth having since it’s so affordable, but you can consider dropping collision coverage to save money if you drive an older car or a beater.

Comprehensive Coverage: Whether it’s theft, damage from a fire, a natural disaster or even a tree limb falling on your car, comprehensive coverage will pay to replace or repair your car as long as the damage isn’t due to a collision.

Now, that’s not all. You can include other types of coverages in a policy. Some are optional (like rental reimbursement and roadside assistance) and some (like uninsured motorist coverage or personal injury protection) are legally required in some states. To be safe, make sure to talk with an independent insurance agent to find out which coverages are right for you and which you can skip.

Saving Money on Car Insurance

Okay, here’s the part most people miss: When was the last time you shopped around for car insurance? A year? Three years? Maybe longer?

If it’s been a while, don’t worry. You’re not alone! In fact, almost half (48%) of the people we recently surveyed have been with the same insurance provider for five years or more and many have never shopped around for more coverage.

If you’ve kept your car insurance on cruise control for a while, that means you could be spending hundreds of dollars more on car insurance than you need to. Here are three things you can do today to start saving money on car insurance:

  1. Shop around for car insurance. If you have a clean driving record, you could save hundreds of dollars on auto insurance just by taking the time to compare quotes. That’s why it’s a good idea to look for a better deal at least once each year. You have nothing to lose and potentially hundreds of dollars to gain!
  2. Raise your deductible. If you have a fully funded emergency fund, you should look at raising your deductible. Higher deductibles mean lower premiums because you’re taking on more risk, and you can afford to do that if you have money set aside for emergencies. We generally recommend having a $1,000 deductible because that usually means you’ll pay a lower premium. 
  3. Get rid of insurance you don’t need. Like we mentioned earlier, there are some kinds of insurance you need to have, and there are others that might be worth dropping altogether. Based on your situation, you could get rid of stuff like rental car reimbursement, roadside assistance and guaranteed auto protection (GAP).

    Whether you’re shopping around for new car insurance or you just want to check if you have the right coverage in your current policy, skip the hassle and get an independent insurance agent to shop around for you.

“We were just tired of our auto insurance climbing $50 to $100 every six months . . . We ended up saving around $800 a year on coverage [by contacting an agent]. And that helped us free up more money to attack our debt.” — David R., Detroit, Mich.