Car insurance is complicated. How much does car insurance cost and what do all those terms and numbers mean? These two segments of Personal Finance 101 Conversations offer insights and information about purchasing car insurance. The content for these videos was reviewed by members of the Missouri Insurance Education Foundation. This segment discusses types of coverage, optional add-ons, and possible discounts.
Segment 1: Coverage and Cost Basics
Below is a full transcript of this video presentation. It has not been edited or reviewed for accuracy or readability.
Narrator: Car insurance is complicated. How much coverage should I get? Is comprehensive insurance really necessary? And what about those add-ons and discounts?
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 second 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, Katie. How’s it going?
Katie: All is good here. I’ve been doing a little more research on car insurance, and I have a few more questions.
Dad: Sure. What’s up?
Katie: Ok. My first question...Can you tell me about comprehensive coverage?
Dad: Comprehensive or “Comp” pays for damage to your car for almost any event other than a collision. For example, comp would cover hail or fire damage.
Comp also has a deductible, so, for repairs, you’d pay the deductible and the insurance company would pay the rest.
Although most often you don’t actually pay a deductible, the company subtracts the amount from the loss settlement.
Katie: Wow, there’s A LOT to this! Do I need comp and collision?
Dad: Both are optional in most states unless you have a car loan and your lender requires you to carry both. So, since you have a car loan, you will need both.
Katie: OK. The quote also says uninsured and underinsured coverage. What does that mean?
Dad: UNinsured coverage means that if you are hurt by a driver who has no car insurance, your policy will pay for your medical bills.
UNDERinsured coverage means that if the person at fault doesn’t have ENOUGH coverage in their bodily injury insurance to cover your medical bills, your insurance will pay the difference between those bills and the coverage limit.
Katie: That coverage seems like a good idea.
Dad: It is, but you don’t HAVE to get it. Each state has different requirements for liability limits and uninsured and underinsured motorist coverage.
Katie: Well, how do I know what coverage to get?
Dad: Many agents and attorneys recommend you buy enough insurance to cover the total value of all of your assets, such as savings, cars, homes, or more. Listen to the professional’s ideas and make a reasoned judgment based on what you can afford.
Katie: But what do YOU recommend?
Dad: I recommend you get more quotes.
Katie: How many?
Dad: At least three with the same coverage options so you can compare prices. Shop around.
Katie: How do I know if I’m getting the best deal?
Dad: Once you receive the quotes, choose the agent you like best or the best price.
Katie: Really? It’s that simple? I expected another "Dad thesis!"
Dad: Thesis? Funny! Car insurance contracts are written according to state requirements, so the actual legal contracts are the same for every company in a given state.
Katie: So, policies are basically the same from company to company?
Dad: Yes. But companies do have slight variations in the coverage options available for you to purchase. For example, they may offer coverage for roadside assistance, rental cars, or full glass coverage.
Katie: Why would I want to pay extra for full glass coverage?
Dad: It waives the deductible on broken glass claims and usually provides windshield repair at no additional charge. So, it saves you some cash should you need a windshield.
Katie: At this point I am all about saving cash!
Dad: Well, then don’t forget to ask about discounts. Most often you can get a discount for having another policy like renter’s or homeowner’s insurance with the same company. Discounts vary by company, so be sure to ask.
Katie: I will...but back to the coverage options. Which ones SHOULD I get?
Dad: Good question.
Katie: Do you have a good answer?
Dad: Yes, but that would be too easy. Think about what you need and can afford, then get some more quotes based on different options. Then, let’s talk before you make a decision.
Katie: Thanks, Dad. You’ve been very comprehensive!
Dad: Ha ha...very punny.
Narrator: So many questions to consider when preparing to buy car insurance.
Just liability? Or collision and comprehensive, too? What about all the add-ons and discounts? So much to think about! It may be a hassle, but carrying auto insurance is very important.
Being uninsured can subject you to fines, suspension of your auto registration, and suspension of your driver’s license, depending on your state’s laws. Being underinsured may force you to pay for part of the damage you cause to others. Insurance reduces those risks, and that’s why it pays to be informed!