Adulting 101: Understanding Car Insurance

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Hi, just your fellow aging millennial checking in here to make sure you haven’t sped past learning car insurance on your adulting journey. Are you running smoothly, or is your insurance-education check engine light flashing?

Whether you’ve been driving for over a decade or just starting, understanding car insurance is necessary as you become an adult. Knowing that you have to pay for it and using a car insurance comparison guide to find the least expensive options isn’t enough if you have no idea how to use it properly.

Life is expensive enough, so you don’t need to pay for more than what you need or spend more than required. Understanding car insurance will help you negotiate better deals and ensure that you utilize whatever policy you have to its full potential.

What are the parts of an auto insurance policy?

Every basic policy will include a variation of six features that outline your coverage. A list of each feature you need to ensure a well-rounded policy that will give you the most protection and savings is:

Liability Coverage

We all make mistakes, which is why liability coverage is probably most crucial when designing a policy. Having liability insurance ensures you and anyone you allow to operate your vehicle in case of an accident. 

Since this is fault protection, how much liability coverage drivers have to purchase to be insured on the road can be set by your state law. Liability coverage is made of two parts to help protect you from needing to come out of pocket for another driver’s injuries or damage vehicle. 

Bodily injury liability is designed to cover costs related to a person's injuries. In contrast, property damage liability helps protect the financial need to fix any damage you’ve caused to someone’s vehicle. This coverage is mandatory in almost all states. 

Bonus Insurance Tip — Always know what your liability limit is before agreeing to a policy. This limit will tell you the value of the maximum amount your insurer will pay if you are at fault for an accident. 

The most basic coverage most use to compare the quality of their deal is called "25/50/25" coverage. This means that your policy will pay up to $25,000 per injured person, up to $50,000 per accident, and at least $25,000 in property damage.

Uninsured and Underinsured Motorist Coverage (UIM)

Serves as financial protection if you are hit by a driver who doesn't have insurance, whom you cannot identify (hit-and-run), or whose insurance has lapsed. 

In some states, UIM coverage will pay for your medical bills as well as the cost of vehicle repairs, which is vital when you can’t hold another insurer responsible. 

This coverage also comes into effect if you are hit by a driver whose liability limits aren't enough to cover bills caused by the accident. UIM is required in some states but optional in others.

Collision Coverage

Car accidents are common, and the last thing you’ll want to stress about is how you’ll pay for damages. After being involved in an accident with either another vehicle or an object, collision coverage will guarantee you financial help that will recover or repair your car. 

This kind of coverage is ideal to have included in your policy because it covers you regardless of who is at fault. Collision coverage is not required and is optional in most states.

Comprehensive Coverage

Those funny sketches show moments where a tree branch or something crazy ruins a character’s car isn’t so amusing when it happens to you. For those unpredictable and unavoidable moments, there is comprehensive coverage. 

With this, if you experience non-collision damage from an external non-fault factor such as natural elements, vandalism, flood, fire, or theft, your car is covered. Comprehensive coverage is valuable because it can aid in paying for repair costs or even replace your entire vehicle up to its full cash value. 

Please note that this coverage typically has a deductible, which is the dollar amount you'll have to pay before your insurer reimburses you the claim. Comprehensive coverage is optional but may be required to lease a vehicle.

Medical Payments Coverage

Protects you if you, a family member, or a passenger need to file injury claims after an accident. Medical payment coverage is necessary coverage to help cover any costs associated with injuries you or your passenger gets while in your vehicle.

 

A few examples of what medical payments are covered include hospital visits, surgery, X-rays, and more. Though Medical coverage is wise to have it is only required in some states and is optional in others. 

Personal Injury Protection (PIP) or No-Fault Insurance

Both personal Injury protection (PIP) and medical payment coverage pay for most medical and funeral expenses. 

This policy is used to help cover any bills that accumulate because of injuries obtained during driving. This policy is a preferred coverage option because it will cover expenses other auto insurance policies don’t. 

PIP will help cover expenses such as child care, household expenses, and physical therapy. Though the policy’s title is “personal injury,” this protection also ensures coverage for passengers that may become harmed or killed while traveling in your vehicle. 

Another PIP benefit is that it will help recover lost income due to an accident. PIP coverage is required in some states and optional in others. 

You can decide which policies you need, more or less depending on what you need, what you can afford, and for how long you need your policy.

What to Know About Applying for Car Insurance

The easiest thing about car insurance is finding it. Companies want your business and are dying to tell you, in detail, about all, they can offer.

Before looking at a price and signing an agreement, shop around and vet your agent just as much as you are your deal. Stay mindful about what deals are currently available to you as well as the realities of your application. 

Advertisements may be intriguing with cheap rates, but go over the details with a fine-tooth comb to make sure you’re not sacrificing pennies now for thousands of dollars later on. If you have poor credit, accumulated tickets that affect car insurance, or live in a city that requires high liability, expect higher premium quotes. 

Understanding insurance can be intimidating, but it is simply an agreement between you and a provider for financial protection for unexpected expenses for whatever accidents may come your way. 

Car insurance is one adulting responsibility of many, but if used correctly it can help you maintain and gain more control over your life. 

Danile Beck-Hunter
Danielle Beck-Hunter writes and researches for the car insurance site, CheapCarInsuranceQuotes.com. Danielle is an insurance expert that is passionate about millennial and GenZ financial literacy and insurance education.

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