Car Insurance Simplified

I recently bought a car, and a few days after adding the “new” vehicle to my car insurance, I noticed Geico automatically tacked on a few unwanted charges.

The first thing I noticed was an added service for Rental Reimbursement at $21.12 PER CAR per 6 months. That’s $42.24 of our hard earned dollars spent every half-year just so that we can still continue to drive two cars for a few days on the off chance that one of us gets in an accident. And that’s only if the accident happened to be our fault. Sure, it would be convenient to have an extra set of wheels, but I think we can manage to work out some transportation for a few days in the event of a car repair or replacement. Ambrey could drop me off at the bus stop for work or we could find some other creative solutions. I’d much rather have $42 in my pocket for a dinner date or to put toward a downpayment on a house.

Now, I’m not dissing Geico. Last year I set aside a few hours to make phone calls to several car insurance companies and get quotes on the best prices for the coverage we needed. As it turns out, Geico, who we were already with, was cheaper than the rest by a long shot.

But, no matter who you choose, you need to take a close look at each piece of coverage you’re paying for in order to get the best value. You don’t want to be bankrupted by a car wreck, but at the same time, you certainly don’t want to be wasting precious money on coverage you don’t need. Plus, you may be able to score some discounts on the prices you’re already paying just for being a long-time customer, getting good grades, or having multiple policies with that provider. Let’s go through the basics step by step:

The first and most important coverage is “liability.” Liability is the amount of money that you’re responsible for paying if you cause damage to another person or vehicle with your vehicle.

The first type of liability is called “bodily injury liability.” Just as the name suggests, this insurance covers any costs associated with injury or death of others caused by you in an accident. It also pays for your legal defense. You really want this coverage to be much higher than whatever the legal minimum is. Just imagine if, God forbid, you happened to strike a pedestrian or got in a severe enough accident that you caused brain damage, paralysis, or even death of somebody else. These costs can really add up, and if your bodily injury liability coverage limits aren’t high enough, the injured party can sue you for your assets, potentially garnishing your wages, wiping out your retirement, and otherwise bankrupting you.

You will see two different limits associated with your bodily injury insurance. The first is the “per person” coverage. This is the maximum the insurance provider will cover per individual in an accident. The next number is the “per occurrence” coverage, which is the maximum your insurance will cover in a single accident. So, for example, let’s say you had $100,000 per person/$300,000 per occurrence coverage and you caused a collision with a minivan on the highway. Let’s assume there were 7 people in their van with significant injuries. The insurance company will cover up to $100,000 per person for injuries, but will cover no more than $300,000 altogether.

The other type of liability coverage is property damage. This one is pretty straightforward. This is the maximum that the insurance company will cover in damage to other vehicles or property. Keep in mind that you could cause an accident with an expensive new car or cause an accident that involves several vehicles, so this limit should also be considerably high.

The good news with liability insurance is that it really does not cost much more to bump up your limits, so it’s probably worth jacking those up substantially to protect your assets from lawsuits.

Now that we’ve covered insurance that covers the cost of damage to others, let’s look at coverage that protects you in the event of an accident.

Uninsured motorist coverage is absolutely essential and protects you against stupid drivers without insurance. Unfortunately, we all pay a cost to protect ourselves from people who choose to ignore the law and carelessly put others in danger. It’s entirely unfair, but it’s just the way it is. This insurance comes in the same forms as liability insurance (“bodily injury” and “property damage”), with “per person” and “per occurrence” limits just like liability. You may think you’re unlikely to be hit by an uninsured motorist, but they’re more common that you might imagine, particularly in low-income areas. Both my dad and brother have been the victims of hit-and-runs while driving in the city. Not cool!

There’s one item on my coverage that I admit I need to do some more research on, and that is Personal Injury Protection (PIP). According to Geico, PIP “pays for necessary medical, dental, hospital and funeral expenses, 85% loss of income and loss of services incurred within three years of a motor vehicle accident. PIP covers you, household relatives, passengers and pedestrians regardless of fault.” Considering that we have other types of insurance for these other expenses such as health, dental, and disability insurance, this seems unnecessary. I’m going to plan to do some more research on this and see if this is duplicate coverage that I could get waived for a reduction in cost. I’ll get back to you on this once I find out.

Collision insurance covers damage to your vehicle caused by hitting another vehicle or object. One thing to keep in mind here is that damage caused by hitting an animal is not covered under collision insurance. Where I live, deer are everywhere and it is definitely not unlikely that you could hit one and total your car. If you’re expecting your collision insurance to cover this, you’ll be out of luck.

Comprehensive insurance basically covers damage to your car caused by situations other than collisions, such as hitting a deer or other animal, theft, vandalism, flooding, hail, lightning, explosions, and a bunch of other cases.

If you drive an older car that’s not worth much anymore and you can afford to replace the car if you needed to, it is worth considering dropping the collision insurance coverage. The coverage may be costing you more than it’s worth. I didn’t carry collision on my old ’97 Jeep Grand Cherokee because it was only worth $1500 on Kelly Blue Book. It wasn’t worth the hundred or more dollars per month for collision coverage when it would be cheaper overall just to replace it if it was totaled. However, now that I have a newer, more expensive car, it is absolutely necessary and worth it for me to have collision and comprehensive to protect against several thousand dollars in damages.

Another way to save some money on your insurance is to raise the deductibles. The deductible is the amount that you owe out of pocket before the insurance will kick in to cover the rest. If you have a $250 deductible and you have $1,000 in damages from hitting a pole, you’ll be responsible for $250 and the insurance company will pay for the other $750. Raising your deductibles causes you to pay less in premiums. Premiums are simply the costs you pay each month for your coverage.

Be sure to look for any discounts that you can apply. If you’re a student, you can usually get discounts for good grades. If you have a good credit score, you’ll pay less. Get renter’s or homeowner’s insurance bundled with your car insurance and you’ll get a discount.

Lastly, opt to pay for your insurance every 6 months rather than on a monthly basis and you’ll save a nice chunk in administrative fees. For me, I can save about $30-$35 every 6 months by paying once. A great way to accomplish this is to set up an automatic transfer into your savings account each month for the amount you would be paying monthly for insurance. Then, when the 6 months are up and your insurance payment is due, you’ve already saved the amount you need plus interest, while avoiding the hefty fees on top of that.

Hope this was helpful to you! If you have any questions on any of this, let me know in the comments below and I’ll do my absolute best to answer them for you. Most importantly, I encourage you to take a few minutes to look through your coverage and find out what tweaks you need to make. Call around to different companies, as well, and you could save yourself a few hundred dollars. Good luck!