When it comes to protecting your car and your financial future, auto insurance is one of the most important considerations. Insurance can help you recover from a wide range of different types of losses related to your car. These include reimbursement for costs related to repairs after an accident, medical bills if someone else is injured in the accident, or their property, and the cost of replacing your car if it’s totaled. But how much auto insurance coverage do you need? To answer that question, you need to understand auto insurance basics. With so many different options available and details like deductible amounts, it’s easy to feel overwhelmed when buying car insurance for the first time. However, by understanding some basic things before purchasing a policy, you can make sure you’re getting the right amount of coverage at a fair price with the right features included.
Stay informed and know what you’re buying.
Before you buy auto insurance, make sure you understand what you’re actually buying. The auto insurance you buy needs to cover both the cost of repairs to your car after an accident and any injuries or other damages that result from the accident. It’s also important to know how your auto insurance is structured.
The type of cover that covers your own vehicle and any damages you may cause to other cars or property (legal liability or 3rd party cover), is called Comprehensive Insurance,
When you ONLY cover for damage you may cause and do not cover your own damage, it is called Third Party ONLY insurance.
A third option is to cover your own vehicle for theft and fire (excluding accidental damage) and any claims from Third Parties. That is call Fire, Theft and 3rd Party Insurance.
Make sure you know what your policy covers and what is excluded.
As an example, vehicles can be covered for Private or Business Use. Private Use is to and from work and recreational. Business Use includes Private Use. That is when you use your vehicle in or for your business. If you insure your vehicle for Private Use, but then use it for work, a claim will not be paid when you have an accident. Even if you use it for Private at the time of the accident.
If you’re not sure what your policy does or doesn’t cover, talk to your insurance provider for clarification.
Decide how much coverage you need.
You can insure a vehicle at three different values.
Retail value is what you will pay for the vehicle when you buy it at the dealer. It is recommended that you always insure at this value.
Trade value is what the dealer pays you when you trade in the vehicle.
Market value is the average of the first two.
A new product is becoming more general these days. It has different names, but I like the Inception Value Policy name. That means you peg the insured value of your vehicle at the time that the policy starts. If you have a write-off after five years, the value that gets paid out is the value at inception of the policy. My recommendation is to take this as a stand-alone product. If it is part of the policy, it becomes very difficult to shop for cheaper premiums.
Check your credit score before buying auto insurance.
Your credit score is a measurement of your financial responsibility. Insurance providers use it to help assess the risk of insuring you. If you have a spotty credit history, you may have trouble getting auto insurance. If you are able to find a provider willing to sell you a policy, you’ll likely pay a higher price. The only way to know for sure if your credit history will affect your ability to buy auto insurance is to check your credit score.
Not all insurers do this credit check. Some do and then you have to grant permission for them to do it.
Identify the right type of coverage for you.
We already referred to this, but it is a good idea to just revisit this.
The type of coverage you buy is extremely important. The right policy can help protect you from financial losses, while the wrong policy can leave you exposed to massive financial risk. The best way to make sure you buy the right policy is to understand the different types of coverage available. The most basic types of coverage are liability coverage and collision and comprehensive coverage. Liability coverage pays for damages you may cause to another person’s car or property, plus bodily harm (BI) coverage for medical bills for other people who are injured in the accident. Collision and comprehensive coverage pay for damages to your car after a collision or if something like a hailstorm damages your car.
Do not forget about “Credit Shortfall” or “Top-up” cover. This covers you for the difference between what you owe on the vehicle and the outstanding amount on your loan. It is a sad fact that motor vehicles depreciate in value a lot quicker than what we repay our loans.
Find the right auto insurance provider and price.
Once you know the specific types of coverage you need, it’s time to shop for providers. You can do this in one of two ways,
You can approach the insurers directly by phone or online. Then you become your own broker. The perception is that it is cheaper, but that is not necessarily true. You then also handle your own claims and have to fight your own battles, should there be a problem with a claim.
The other option is to approach a broker, like myself. Brokers represent different companies and will get you comparable quotes. It is also the broker’s responsibility to match your needs to the best policy and advise you about the terms and conditions of the policy.
In my experience, the biggest difference between going direct and using a broker, is sometimes it takes a bit longer to report a claim.
I am prejudiced, but I will always use a broker, unless you know the ins and outs of insurance very well.
Summing up: With Auto Insurance, Check What You’re Buying
By understanding auto insurance basics before buying a policy, you can make sure you’re getting the coverage you need at a price you can afford. While there is no one-size-fits-all approach to car insurance, there are certain things you should know before you buy. Make sure you know what you’re buying, decide how much coverage you need, and then find the right provider and price. With these three things in mind, you’ll be able to make an informed decision about your car insurance and have the protection you need when something goes wrong