What Is Car Insurance, and Why Is It Important?

Payment after payment month after month may leave you wondering what the purpose of car insurance is. If you have never filed a claim, are a new driver, or new to car ownership, it can be increasingly frustrating because of the high cost combined with the feeling of not getting anything in return. Believe it, car insurance does have a purpose and is not a scam. Understanding what car insurance is for will alleviate some of your concerns.

Car Insurance is for Financial Protection
If you carry PLPD only on your car, it is possible you will never file a claim. Insurance is a game of chance. Maybe your car did get damaged and you have car insurance, but no coverage to fix it. It is at this point in time when you feel your car insurance is worthless, but you get what you pay for. PLPD does not cover physical damage to your car. It does however, offer you protection for other types of losses.

•     Injuries, Pain, and Suffering to Others Depending on Your State's Laws
•     Property Damage
•     Medical Costs for You (Automatically included with liability policies if you live in a no-fault state.)

PLPD car insurance protects you against lawsuits. If you are at-fault in a car accident, the injured party will want compensation. Without car insurance, you will be held financially responsible and potentially forced to pay for all the damages out of your own pocket.

Most people cannot afford to self-insure, which is why most states require at least PLPD to be purchased for all drivers.

Years without a claim may make you wonder if you need car insurance at all. Nothing ever happens so why keep paying the premiums? It is good to not have any claims. It will keep your insurance rate lower and you can avoid claim hassles.

By continuing to carry car insurance you are legal to drive and have protection for a possible future claim.

Car Insurance is for Physical Damage Repairs

Car insurance can pay to repair your vehicle after an accident depending on what coverage you select. A vehicle is often a major expense and you want to protect it. Comprehensive and collision each offers coverage for physical damage, which comes with a lot of rules regarding what is covered and what is not.

    Comprehensive coverage is for anything other than a collision. Fire, theft, vandalism, deer, and storm damage all fall under comprehensive. Usually, comprehensive is required in order to get roadside assistance. It is also required in order to purchase collision coverage.
    Collision coverage protects your vehicle against accidents. Collisions with automobiles, mailboxes, light posts, trees, and any other inanimate object. A deductible is often required to be paid before getting your repaired vehicle back. Collision coverage most often comes into play when you are at fault or do not know who damaged your vehicle.

Car Insurance is NOT for Mechanical Repairs

Unless your mechanical damage was caused by an exterior factor such as vandalism, fire, or a collision, your car insurance will not cover it.

Wear and tear or bad workmanship is not something your car insurance handles. All mechanical repairs are your responsibility or possibly covered by your warranty if you have one.

Car insurance is for sudden accidental occurrences, not auto maintenance. For those of you who feel like you have paid in to your car insurance way more than you will ever get out, consider yourself lucky. Claims, especially severe claims are always best avoided. Think of car insurance as protection against the unthinkable. Car accidents occur every single day. Each state mandates its own set of car insurance laws and enforce strict penalties when caught driving without it. Car insurance laws not only protect you from yourself but from the other drivers on the road. Keep your car insurance active at all times, you might be extremely grateful one day for that "useless" policy.

READ MORE - What Is Car Insurance, and Why Is It Important?

How To Buy Car Insurance

Car insurance is one of the necessary evils of modern life. You pay a substantial amount of money each month to the insurance company, and if you are like most people, you have not had an accident or made a claim in years. Yet when you do suddenly find yourself involved in a collision, the insurance premiums you've been forking over all these years will finally pay off.

The advent of the Internet has raised the level of competition between insurance companies. Because you can now sit at home in your bathrobe and compare rates and coverage between companies, they are under more pressure to offer competitive deals. So why not leverage the Internet's potential to help you save time, save money, and find the best auto insurance coverage?

First, let's be clear about the fact that auto insurance is required by law in most states―it's not optional. If you drive a car, you must have auto insurance. So you need to find out what the law requires in your jurisdiction when it comes to how much auto insurance coverage you need to maintain. Print out your state's requirements, and save that information for the next step in the process.

What Can Influence Your Rates
Because insurance prices are all based on statistics, the prices each of us pays varies wildly. Things like the driver's age, years of driving experience, what neighborhood the car is usually parked in overnight, the make and model of the car, what kind of safety features the car has, and whether or not you have antitheft devices installed―all of these variables will factor into the price you'll pay for the particular level of coverage you choose.

Before you get too far into shopping for insurance, you might want to order a copy of your driving record. In much the same way that your credit rating determines what kind of interest rate you'll get when you are applying for financing, your driving record will influence your insurance rate.

When you get your driving record, take a look at it to make sure that it is current and accurate. You would not want an error on your driving record to keep you from getting the best rate possible.

What Coverage Do You Need?
Your state sets forth the minimum liability coverage you must maintain, as mentioned above. But these are just the legal minimums and might not give you the coverage you need. You'll have to decide what you want to buy beyond these minimums. Keep in mind that you are looking to find the balance between having adequate coverage and overpaying.

According to Consumer Reports, a general guideline for adequate bodily injury liability limits is $100,000 per person and $300,000 per accident, plus $100,000 for property damage. These amounts are what your insurer will pay to someone you are in an accident with. For uninsured motorist coverage, you should get the same amount as for bodily injury liability, as this covers your medical costs when someone who is not insured hits you.

Other Types of Coverage
You can always supplement your policy with specific protections (for a higher premium, of course). For example, many motorists get comprehensive and collision coverage. Comprehensive pays out when your car is damaged or lost due to causes other than an accident, such as vandalism, theft, or weather. Collision coverage will pay to repair your own car if you hit something.

These options typically come with your choice of deductible, usually $250 to $1,000. This is the amount you pay out of pocket before your insurance kicks in; the higher the deductible, the lower the premium you'll pay for this type of coverage.

Additional options include rental reimbursement coverage, which pays for a rental car while your car is in the shop being repaired. Roadside assistance coverage will pay to have your vehicle towed. Keep in mind that if you already have an auto club membership, you do not need this additional coverage.

Get the Best Rate
The National Association of Insurance Commissioners (NAIC) recommends that you ask your potential insurer about the following discounts:

Good driving record: Many auto insurers offer discounts to drivers who have not made a claim, haven't been in an accident, or haven't received a traffic ticket in three years.
Good grades: Young drivers can get discounts for maintaining a B average or better in school.
Driver's education: Some insurance companies offer a discount for drivers who complete a driver's education or driver's safety course.
Multiple policies: Some insurance companies offer discounts if you have two or more policies with them.

Safety equipment: Equipment such as antilock brakes and antitheft devices can get you a discount.
Longtime policy holder: If you have kept your policy with an insurer for several years, ask about a discounted premium.
Higher deductibles: A higher deductible usually means lower premiums.

Gather Quotes
Once you know what kind of coverage your state requires, you will need the following information in front of you in order to get an accurate quote for auto insurance:

The age and sex of the driver(s), the number of drivers in your household, and their driver's license numbers.
A description of your car: the make, model, year, and vehicle identification number (VIN).
The type of coverage and limits you want.
Where you park your car overnight.
Get free auto insurance quotes and compare rates by using DMV.org'S Car Insurance Center.

Check References
Now that you have a few comparable quotes and you know which company offers the lowest price for the policy you want, you still need to check out the company itself to find out whether it's reliable.

You can check with your state's department of insurance, which should allow you to compare premiums for insurance companies in your state. You can also check on the financial stability of a company and look up the number of consumer complaints it has accumulated. Take a look at Weiss Ratings to get an independent rating of the companies you are considering. J.D. Power and Associates also offers useful consumer reviews of auto insurance companies.

Review Your Policy
Before you sign, be sure to carefully review your new policy to make sure it includes all the coverage you want. Your policy will need to comply with your state's legal requirements as well as any additional requirements of the company that finances your auto loan.

Proof of Insurance
Most states that require you to have auto insurance also require that you always have proof of your insurance policy in your car or in your wallet at all times. If you are stopped by the police and you are not able to show proof of auto insurance coverage, you could incur serious fines.

Most insurers will issue a handy insurance ID card―one for each vehicle you have insured. Keep this card in your car's glove box along with the registration, and you'll never have to worry about forgetting it. You might even need to provide proof of insurance when you register your car; you can use the insurance ID card for this.

READ MORE - How To Buy Car Insurance

What Car, Life, and Travel Insurance Do You Really Need?

One important way to reduce your overall insurance costs is to avoid purchasing insurance policies that you do not need. So, which car insurance, life insurance, and travel insurance policies are not needed? The list of policies one may not need will be different for everyone because of the difference in individual risk. For example, someone who does not own a home would not need to purchase a homeowners policy because there is no risk to them of losing their home.

That is an obvious example, but there are times when one's risk is very small and suffering the consequences of the loss is a better risk than purchasing a policy. Below is a list of insurance policies that most people would not need to purchase for various reasons (reasons are listed when applicable):

Insurance You Might Not Need
1. Comprehensive and Collision Coverage on Your Car Insurance: This is not necessary for automobiles that have little or no value.

2. Maximum Personal Injury Protection Coverage (PIP) on Your Car Insurance: If you have a good health insurance policy, your injuries should be covered. If you prefer some protection, just buy the minimum.

3. Rental Car Insurance: If you have a current full coverage policy, check with your agent to see whether you're covered. Also, check with your credit card provider — it may offer coverage if you use the card when renting.

4. Mechanical Breakdown Insurance: If you currently own a new car or have a leased vehicle that is still under warranty, you don't need this added to your car insurance.

5. Roadside Assistance: If you already belong to an automobile club like AAA, you don't need this included with your car insurance.

6. Life Insurance: If you are single and have no dependents you will only want life insurance if you are using it as part of a long-term strategy. For example, buying whole life or universal life with values at a young age can save you money since you will build investments that you can borrow from more easily than a bank when the time comes to start a business or a family, and you can also benefit from a lower rate by locking in a policy while you are in good health and have no problem passing the life insurance medical exam.

If you are only looking for term life insurance, find out if you are covered through your employer through their health benefits or other employee benefit packages. Beware, however, that if you leave your employer you may find yourself without insurance. Sometimes it saves you more in the long term to pay less now than try and get life insurance later and pay way more due to age or medical issues.

7. ​Travel Insurance: If your current health insurance policy covers you abroad, you should find out what is covered and then decide if you need to take an extra policy. You may want coverage for lost luggage, but consider that your homeowner policy may cover you subject to your deductible. You may also want to consider any credit card benefits that you may have and contact your credit card company to find out if they offer travel insurance automatically when you purchase a ticket or travel using the credit card before you spend extra money.

If you are traveling for business purposes, a personal travel insurance policy would not cover you, you need to talk to your work about this coverage, so be careful if you are buying a plan to cover professional travel, you may be wasting your money.

If you are traveling for an extended period, but have basic coverage as part of your health insurance plan at work, consider contacting your health insurance provider and getting a top up on your insurance, this is much less expensive than purchasing a whole new policy.

Take advantage of your employee benefits wherever you can.

In all cases, find out what is covered and what is not. For example, does your policy cover air ambulances, is that a concern for you? Once you've explored your needs and options, decide if you want the extra coverage and if it is worth your investment.

8. Extended Warranties on Appliances: In the end, these can cost more than just buying a replacement appliance.

9. Insurance on Outstanding Credit Card Balances: This type of insurance can be costly, and there are a lot of loopholes to go through before any benefit is paid.

10. Credit Insurance and Mortgage Insurance: This is voluntary insurance on your mortgage. A typical life insurance policy would be a better option.

By avoiding the above policies, you will not reduce your risk and you still may experience a loss in any or all of the above categories, you need to weigh the risk or use this insurance as part of a strategy to decide for yourself if in your current situation, the coverage is worth the price of the insurance.

READ MORE - What Car, Life, and Travel Insurance Do You Really Need?

Save Money on Insurance in the Winter Months

As the temperature drops and the seasons change, we spend more time with family and friends -- or maybe snuggled up watching Netflix, or drinking hot cocoa hunkered down with a good book. We look forward to bundling up in sweaters and building snowmen and taking a moment to appreciate the change in nature.

While the aforementioned aspects of the winter probably bring a smile to your face, there’s another element that’s just as important as building family and community ties: protecting your property in case an unexpected storm or other disaster strikes.

Winter is an important insurance season. Weather-related damage often occurs in the coldest months -- you can thank those beautiful snow and ice storms, as well as less-pleasant hail. Insurance is one of those things that needs to be thought of ahead of time. All too often, people are caught unprepared after damage occurs without the proper coverage. Review insurance coverage for all your motorized vehicles when the winter months approach -- otherwise, you may be left with unexpected and unforeseen expenses.

Car Insurance

Really take a close look at your car insurance policy as winter approaches. Think about what new risks occur during the winter months and if changes in coverage are necessary.

·Do you have a vehicle you do not drive in the winter months? It could save you hundreds of dollars to reduce coverage on a parked vehicle during the winter months. Lowering the coverage to comprehensive only will protect your vehicle against things which can happen to it while sitting such as storm damage, fire, theft, and vandalism.

·Consider roadside assistance if you do not already have it. Roadside assistance can be really handy in the winter months. Slide-offs can sometimes be unavoidable even in four-wheel drive SUVs. Being stuck in the ditch is never good. You can avoid big tow bills by purchasing inexpensive roadside assistance coverage on your auto policy.

·Consider increasing your coverage by adding comprehensive and or collision coverage. Determine your risk level during each season. Summertime might bring less risk so reducing coverage makes sense. In the winter time, risk levels often rise, so it might be time to add on more coverage. Comprehensive will protect you against storm damage and collision will protect you against physical damage after sliding on ice.

Motorcycle Insurance
What do you do with your motorcycle in the winter time? If you live in a cold climate, you have options depending on what your particular insurance carrier offers. The most important thing to remember when changing your motorcycle coverage over the winter months is to make sure to change it back when spring fever hits.

·Consider raising your deductibles. Because your motorcycle is being driven minimally if at all, your risk of damage is very small. Increasing your motorcycle deductibles in the winter months will save you money.

·Remove medical coverage while you are not riding. Medical coverage on motorcycles is important, but if you are not riding for a few months, definitely remove this coverage.

·Reduce coverage to comprehensive only. Putting your motorcycle in storage for the winter means the only coverage you truly need is comprehensive.

Quite a few insurance carriers no longer offer this option.

·If you carry liability only on your motorcycle during the summer months, canceling your motorcycle insurance policy while you are not riding in the winter is a viable option.

Boat Insurance and RV Insurance

When the lakes freeze over, your boat is probably parked in the garage. And your RV probably is not seeing much action either. Do you still need to keep insurance on them? If you are concerned about fire or theft, you should keep your boat and RV insurance in place. If you have a loss payee on your toy, you will also need to keep the insurance policy in force. Unless your toy is scheduled on your homeowner’s policy, your home insurance policy will not cover toys.

The vehicles which take on more risk in the wintertime could have their deductibles lowered and or coverage increased.

Meanwhile, your toys which have lowered risk in the wintertime should have deductibles increased and or coverage reduced. Saving money on car insurance in the wintertime is possible. Think smart and consider your risks. True you do not know what will happen in the future, but you can make an educated guess which could save you big.

READ MORE - Save Money on Insurance in the Winter Months

Insurance for Leased Cars, What You Need to Know to Protect Yourself

According to the latest Lease Market Report from Edmunds.com, the leading car shopping, and information network:

• Car leasing volume grew by 91% in the past 5 years
• One-third of millennials who got new vehicles in 2016, leased the new vehicle instead of purchasing it
• Lease payments averaged about $120 less a month than car payments
• Dealer financing has increased as leasing has increased, as opposed to more traditional cash financing or independent financing options.

With this kind of information, it is clear that leasing continues to be on the rise so it makes sense to look into some of the insurance related questions to leasing and car insurance.

What Kind of Insurance Does a Leased Car Require?
Leased car insurance and financed car insurance are not that different than fully owned car insurance. The main difference in the insurance is that financed or leased cars will have to name the lien holder or leasing company as a named insured.

Car Lease Agreements and Insurance
When you do not own your car outright like in the situation of a lease, you may want to think about how to protect yourself and make sure your debt is fully paid and your contractual obligations under a lease are fully covered in the event of an accident or total loss.

Here are some key things to consider when you choose insurance for a leased car, including the type of coverage you need, and some information about Gap Insurance.

7 Tips About the Insurance You Need When You Lease a Car

• Because you do not own the car outright and are only leasing it, you can not take minimum car insurance. You must carry full insurance coverage like comprehensive and collision coverage with your car lease insurance company for gap insurance to pay out.
• When you insure your leased car, you will have to let your insurance company know who the leasing company is. The leasing company becomes a named insured on the policy because they have an interest in the car since it is only being leased to you.
• Don't get confused about the deductible on your leased car insurance, Gap Insurance does not cover your car deductible.
• Check to see if your lease down payment is covered by the gap insurance.
• Don't forget that you can purchase gap insurance after your lease start date.
• Don't confuse gap insurance with wear and tear insurance (i.e., insurance that covers typical wear and tear damage to a vehicle), mechanical breakdown insurance or your leased car's warranty. Neither of these types of insurance policies is gap insurance policies and will not help you if your car is totaled or stolen.

Do You Have to Get Gap Insurance on a Leased Car?Gap insurance is a good idea for leased cars in some circumstances.

While getting the proper car lease insurance from your insurance broker or agent is important, your leasing insurance does not cover a gap that exists in every leased vehicle.

This gap can occur if you total your leased car, if it gets stolen, or is a "total loss" in a claim. To learn more about leased cars and whether you need Gap Insurance Coverage, read our article on Gap Insurance Requirements and Your Rights.

Where to Purchase Gap Insurance
The data on dealer financing shows us that many people are leasing and financing their leased vehicles at the dealership.

How Gap Insurance Works for a Leased Car
Your car insurance will cover the depreciated market value at the time of the collision.

In most cases, because lease payments are usually lower than if you were buying the car and because all new cars depreciate the most in the first few years, the market value of the leased vehicle is much lower than what is still owed on the lease contract. That said, you are still responsible for that difference in terms of what the insurance company will pay and what is still owed on the lease: that amount, or "gap," is what gap insurance covers.

How To Figure Out The Gap for Gap Insurance
The formula for calculating the gap you would want to cover in an insurance claim is as follows: what you owe for lease agreement (-) the insurance company payment = amount you are still responsible for, which could end up being in the thousands of dollars.

READ MORE - Insurance for Leased Cars, What You Need to Know to Protect Yourself