While your auto insurance policy is probably not your favorite reading material, it is important to familiarize yourself with it. When you understand your car insurance policy, you are better able to manage it and make the best choices for your needs.
Our car insurance policy guide discusses the importance of auto insurance, life events that can impact your insurance, when to update your insurance, and how to manage your insurance policy expenses.
Car Insurance Policies Explained
First and foremost, it’s important to understand what auto insurance entails. The purpose of a car insurance policy is to allow you to drive legally while protecting you and your passengers in the event of an accident. Basically, car insurance is a contract between you and the insurance company. If you are paying your premiums, the insurance company should pay for losses up to the limits on your policy.
Is Car Insurance Required in Every State?
Virtually every state, except for New Hampshire, requires motorists to purchase minimum levels of car insurance to operate their vehicles. That said, New Hampshire still requires the at-fault driver to pay the expenses relating to bodily injury or property damage. Failure to pay those costs means their license is suspended. Therefore, purchasing an auto insurance policy is a good idea, regardless of where you live.
What Is the Purpose of Car Insurance?
Depending on your policy and level of coverage, car insurance can also help pay your bills if you are hit by an uninsured or underinsured motorist or if you are the victim of a hit-and-run accident. Even if your state does not require this coverage, consider purchasing it. Otherwise, getting into a collision with an underinsured or uninsured motorist could cost you a lot of money out of pocket.
If possible, purchase more than the minimum mandated coverage amount. The minimal amounts may not cover the costs of a serious accident if you are at fault. Should you not have enough insurance coverage, a car accident victim could file a personal injury lawsuit, putting other assets you have at risk.
Your car insurance policy likely consists of three basic types of coverage:
- Medical: Covers costs of treating anyone injured in an accident when the driver is at fault.
- Property Damage: Covers damage to or theft of the policyholder’s vehicle.
- Liability: Covers the costs of the other driver’s injuries or property damage. It will also pay your legal bills if you are sued.
Full coverage car insurance is a policy that includes comprehensive and collision coverage along with liability.
Depending on the insurance company, consumers may purchase policies on a six-month or annual basis. At the end of that term, the policy is generally renewable.
When Your Auto Insurance Policy May Need Updating
Life events can impact your car insurance policy and the amount you pay for coverage. From purchasing a new vehicle to getting married, if you experience one of the following milestones, contact your insurance agent:
Purchasing New Vehicles
Whenever you get a new car, you will need to revisit and manage your car insurance policy. Perhaps you did not need collision and comprehensive insurance on the old vehicle since it was not worth that much and you owned it outright. A new car may change this.
Not only is a new car more valuable, but if you lease or finance it, the leasing office or finance company will require collision and comprehensive coverage to protect its investment. This coverage pays for repairs up to the policy limits and the fair market value of the car.
If you total your leased or financed vehicle, gap insurance can come in handy. The minute a new car is driven off the lot, it starts depreciating, or losing value. That means if the car is a total loss, or if it is stolen, you could still owe money on it exceeding the depreciated value. For example, imagine your car is worth $25,000 when you purchase it. If you pay off $5,000, you’ll still owe $20,000 on it. However, with depreciation, the vehicle’s current market value has dropped to $18,000. Gap insurance serves the purpose of making up that difference, filling the $2,000 gap so you don’t lose the money.
Wedding bells can also mean auto insurance policy savings. Married couples can take advantage of discounts that aren’t available to singles. If both of you have cars, multi-car discounts are usually available.
Bundling for Savings
If you purchase a house, you can sometimes bundle your auto and home insurance to save money. Many insurance companies offer a discount for customers who buy both auto and home insurance coverage. The savings are primarily on the homeowner’s insurance, but auto insurance costs could also be reduced, depending on the company.
Is your teenager ready to get behind the wheel? If you add your teenager to your car insurance, you may want to buy additional coverage. Teen drivers are more likely to become involved in car accidents than seasoned motorists.
Improving Your Financial Situation
If you come into a large amount of money, that is another reason to review your policy limits. Maybe you inherited a significant sum, got a great new job, or even won the lottery. When your financial fortunes improve, that means more of your personal assets are at risk if you are involved in an accident and don’t have enough liability insurance.
The good news is that you can make these auto insurance policy changes at any time. You do not have to wait until your current policy is expiring to make changes.
Make sure to obtain a new policy before canceling your old one. If your coverage lapses, even for a short time, you could end up paying much higher rates. If you get into an accident when your coverage has lapsed, you are on your own when it comes to paying for the other driver’s medical bills, lost wages, and other accident-related expenses, as well as damage to their car.
Managing Auto Insurance Policy Expenses
Now that you better understand car insurance and what life milestones can impact your policy, it’s time to manage your policy expenses to score the lowest rates. After all, everyone wants affordable car insurance.
Does it make sense for you to lower your premiums by raising your deductible?
You can save money on your premiums by raising your deductible, or the amount you must pay out of pocket before your insurance kicks in. However, this isn’t the right choice for everyone.
For some, raising the deductible to save money on premiums is a good idea. They must have the funds available, though, to pay the higher out-of-pocket costs. If you have a $1,000 deductible and incur $900 worth of damage to your car, all of that sum comes out of your wallet. If coming up with that kind of unexpected payment will put a strain on your wallet, paying a bit more for a lower deductible probably makes sense.
Check if you can drop your collision and comprehensive coverage
If you own your car and most of its value has depreciated, think about dropping collision and comprehensive coverage. While you are no longer paying for that coverage, make sure you can afford to replace the car if it is damaged.
Shop for the lowest car insurance rate
Shopping around for the best rate is a smart way to save money on car insurance. The price of your premium depends on factors such as credit scores and accident claims. If you have been working hard on improving your credit score, you may find that you can receive a lower rate on your auto insurance policy.
Read Your Car Insurance Policy
Though our guide provides some helpful tips for better understanding auto insurance, nothing can take the place of actually reading your own car insurance policy. By reading your policy carefully, you will learn what is covered and what is not. Covered incidents are what the policy will pay for, and exclusions are what the policy will not cover. Some exclusions are obvious. For example, the insurer won’t pay if you intentionally wreck your car or use it to harm someone. Using a private vehicle for any type of business purpose is also an exclusion.
Keep in mind that your car insurance policy covers personal driving only. Commuting is personal driving but using the car as a delivery vehicle for a company is considered commercial use. If you get into an accident while making commercial deliveries, your personal insurance will not cover it. For that, you need a separate, commercial insurance policy.
What’s more, if you want to earn money as a ride-share driver, your personal car insurance probably won’t cover you for that purpose. Ride-share companies should cover you while you’re working, but the extent of that coverage can vary by company and state. Reading your policy will help protect you as you better understand your coverage and its limitations.
The General® Car Insurance – Manage My Policy
At The General®, we make managing your insurance policy easy. Make changes to your auto insurance policy and coverage simply and conveniently. Update your car insurance policy in minutes.
One of the best ways to access The General® insurance Manage My Policy feature is via our state-of-the-art mobile app. With the app, you can:
- Make a payment
- Submit a claim
- View ID cards
- View driver, vehicle, and coverage information
The General® makes understanding and managing your auto insurance policy a straightforward and streamlined process. As you hit different milestones in your life, we are there to support you every step of the way. Get quoted for a policy in under two minutes or read more insurance 101 articles on our blog.