Car Insurance: Coverage and Cost Basics

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Narrator: Car insurance is complicated. How much does it cost? And just what do all those numbers mean?

These are tough questions to answer. So, it pays to be informed.

To learn more about these tough questions, let’s listen in on the first part of a conversation between Katie and her father as he explains key information to both consider and be aware of when shopping for car insurance.

Katie: Hey Dad...

Dad: Hey, there. Good to hear from you! You get those car insurance quotes yet?

Katie: Just one so far. They’re so confusing. And MAN is it expensive!!

Dad: They can be quite confusing. How can I help?

Katie: (jokingly) You wanna pay for my insurance?

Dad: Ha! Not the deal! You graduate; you move out, you get to pay.

Katie: But I didn’t expect to pay so much!

Dad: I’m sure you didn’t! Now I bet you understand why we’ve always wanted you to maintain a “B” average for the “good student discount” when you were in school.

Katie: YES I DO! Are you saying it could have cost even more?

Dad: Yep. The price of insurance is based on many things. Your credit score is one of them. Age is another, as well as experience. More driving experience generally means fewer accidents.

Companies also look at your driving record, the type of car you drive, and where your primary residence is located—in your case that’s your new apartment.

Katie: Is that it?

Dad: Well...not quite. They look at how much you drive, whether you own a home or rent, your marital status and even your gender.

Katie: WOW! All that? And gender too?!

Dad: Yes. Young men pay even more. Statistically, they get more tickets for speeding and reckless driving and they tend to engage in riskier behaviors.

Young men also have more expensive accidents and make the most insurance claims. So, until age 25, males pay much higher rates.

Katie: Will my rates go down as I get older?

Dad: Yes, IF you don’t have accidents or traffic tickets.

Katie: Me? Never!

Question. What do the numbers 100/300/50 and $500 deductible mean in the quote?

Dad: Hmmm...sounds like you need a quick lesson on car insurance.

Katie: Is it that obvious? Yes I definitely do!

Dad: OK, well then, let’s take a few minutes to discuss it. First of all, you should know that all states require liability insurance, but the requirements DO vary from state to state. And since we’re talking about liability, let’s get back to your question...100/300 is the 'bodily injury liability.' This means you are liable—or responsible—for any damage caused by your vehicle if the driver of your vehicle is found to be at-fault in an accident.

The insurance company would pay a maximum of $100,000 per injured person and $300,000 total per accident.

There are several liability coverage combinations available like 50/100/50, 250/500/100 and 300/600/250 among others.

Katie: Hang on... Liable?

Dad: Yes. YOUR insurance could end up paying for the loss if a friend driving your car causes an accident.

Katie: You mean I don’t even have to be the one driving?!

Dad: You got it...so think twice before letting someone borrow your vehicle.

Katie: OK. Bodily injury liability... I get that. How’s that different from 'medical payments'?

Dad: Medical payments coverage is a specified dollar amount—$25,000, for example—that would pay medical bills for anyone in the car, including you, regardless of who is at fault.

So, if you were found at-fault in an accident, medical payments would pay the policy limit for YOUR medical bills, while bodily injury liability would pay for the injuries to people in the other vehicle.

Katie: OK, I see. So what would happen if the total bills for bodily injury liability go over $300,000?

Dad: The insurance company would write a check for $300,000 and YOU would owe the rest.

Katie: OUCH!

Dad: Yes, ouch is right. Drive carefully!

Katie: Always!

So, I get the bodily injury liability and medical payments, but what about that fifty?

Dad: 50 means $50,000 in property damage liability coverage per accident. It pays for other damage you cause to someone else’s property.

This could be damage to other cars, poles, signs, buildings, and just about any property that belongs to someone else. Again, anything over $50,000 would be YOUR responsibility.

Katie: OUCH again! And the deductible?

Dad: The deductible is how much YOU have to pay to get your damaged car fixed. Liability insurance covers damage you do to others’ property, physical damage covers damage to your vehicle. So you’d pay $500 to have your vehicle repaired and the insurance company would pay the rest. Physical damage insurance primarily includes collision and comprehensive coverage.

Katie: So the deductible is part of the collision coverage?

Dad: Yes. If you’re in a collision and it’s your fault, the deductible is the part you would pay to have your car fixed.

Katie: What if the accident isn’t my fault? Who pays for my damages?

Dad: If the accident is not your fault, the other driver’s liability insurance covers the damage to your car.

Katie: Okay! That had me worried. Whew. My brain is full. Can we pick this conversation back up another day?

Dad: Sure! Any time. Just give me a call when you’re ready to talk more.

Narrator: As you’ve just heard, there’s a lot to know before purchasing your first car insurance policy. And due to the number of variables that determine the cost of car insurance, there isn’t just one formula to determine the appropriate coverage. That’s why it pays to be informed!