Car insurance 101—What you need to know

Sometimes car insurance can seem like a different language. How much car insurance do I need? What does reaching my deductible mean? How can I save money on my auto policy? We’re breaking it down into the most comprehensive terms—after all, auto insurance should be helpful, not intimidating.

Most states have a minimum requirement for insurance. Commonly, drivers must have both types of liability insurance (which cover medical and repair expenses for another person and their vehicle in an accident). On top of that, personal injury protection is often required; PIP covers medical costs of you and anyone else in your car at the time of an accident. Some states also require drivers to have uninsured motorist coverage, in case you get in an accident with someone who has too little or no insurance, and you need a way to cover repairs and medical bills.

Another aspect of auto insurance that can be confusing is your deductible. This is simply the out-of-pocket money you must pay for repairs or medical expenses before insurance money can be used. For example, if you back into a wall and crunch your bumper, you’ll take your car into the shop where they might quote you $800 for the repair. If your deductible is $500, you will need to pay $500 out of pocket, and your insurance company will cover the remaining $300.

It’s important to note that, unlike health insurance deductibles, car insurance deductibles don’t “stack,” meaning if you pay $500 for the crunched bumper and then hit a deer a few months later, your deductible is still $500 for the damage caused by the deer. Your policy will take care of any bills beyond your $500 deductible for the destruction the deer caused. If a repair cost is less than your $500 deductible, you must cover the whole thing out of pocket.

You can actually find ways to save money on your insurance policy, though. A clean driving record goes a long way for cheaper auto insurance, as well as living in a more suburban or rural area. But, if there’s no changing your record or your environment, try adjusting your deductible.

Raising your deductible from $500 to $1,000 (or more) allows your insurance to provide you a lower premium. Keep in mind, though, if you need an expensive repair, you’ll now be required to cover $1,000 out of pocket, so if you don’t have an emergency fund, it might be smart to keep a lower deductible.

You can also ask your insurance provider about possible discounts. One of the most common is bundling insurance packages together, like signing up for auto and renters insurance with the same provider. Safe drivers often get discounts, too, plus buying a car that’s cheaper to insure will save you some money, like one that’s less expensive to repair or replace, or less likely to be stolen.

Auto insurance is different for everyone. Costs depend on the type and age of car, your age, your driving record, and even your gender (statistically, males have a higher chance of getting in an accident and pay more for insurance). Be sure to ask your provider about any possible discounts, and always know which types of coverage are best for you and available to you.

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