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College 101

Introduction to Auto Insurance
Article Type: Quick and Dirty

You have a car, a license to thrill drive and a burning desire to go wherever the road takes you (probably to school and the grocery store for mom). Feel the leather of the steering wheel...the wind in your hair...the jealous looks of mere pedestrians as you cruise by. That's all great until what looks like a tiny fender-bender sets you back $10,000 and messes with your insurance for the next 5 years. That's the reality of owning a car—they're expensive and even small bumps and nicks can cost thousands to get fixed. Major car accidents can easily send uninsured motorists into bankruptcy. They are a loaded gun, financial or otherwise.

Getting auto insurance is a must, but like every other crucial life lesson, high school and college won't teach you how. That's where we come in. Here you'll find info on what auto insurance covers, policy basics and how to know if you're getting a good deal. Godspeed.

Who Needs Auto Insurance?

Everybody. Well, almost everybody. 49 states and the District of Columbia require drivers to carry at least minimal auto insurance, but states individually decide what that means. New Hampshire is the only state that doesn't require drivers to have auto insurance, but NH drivers have to financially prove that they can cough up cash if they cause an accident. Drivers everywhere except New Hampshire are required to carry liability insurance, which pays for any injuries caused to the other party in an accident that's your fault. It also covers repairs and property damage for them, not for you.

On top of liability coverage, certain states also require you to purchase uninsured motorist coverage, which protects you if you're in an accident with someone who isn't insured. Some states also require Personal Injury Protection (PIP) which pays medical expenses and can cover other costs like lost wages, child care and—set phasers to "morbid"—burial fees. Bodily injury liability and property damage liability are the basic legal requirements along with PIP and/or uninsured motorist coverage if your state requires it. With their powers combined, those things will cover damage to your body, the other party's body, their vehicles and property. Minimum auto insurance will not cover damage to your own car in a wreck.

Ironically, you usually have to purchase more car insurance to cover your own car. Funny how that works isn't it? Adding extras like comprehensive and collision coverage can turn your paltry minimum policy into an impenetrable insurance forcefield. You can also add on coverage for theft, extended warranty protection and rental car reimbursement to save fiscal hassle in the future, but you'll pay more for them.

How Much Will You Need?

Ha ha, good luck. How much insurance you'll need is THE question and it's a toughie. How much liability insurance you're required to carry varies by state. Each state has three minimum insurance requirements—one that dictates the amount your insurance has to provide per person injured in an accident, the amount provided to cover all injuries in an accident and the amount provided to cover property damage caused by a car crash.

Oregon, for example, requires that drivers carry enough insurance to pay each person injured in a crash up to $25,000 with a maximum injury coverage of $50,000. Drivers also must carry at least $20,000 in insurance to cover property damage. In insurance jargon, these minimums would be listed as 25/50/20. (A full list of each state's minimum liability requirements is available here).

We hate to break it to you, but buying minimum coverage is kind of like getting a D-. Yeah, you can pass, but only by the skin of your teeth. Damage from significant car crashes can easily top $100,000, making your dinky 25/50/20 policy look like a Smurf in a bear fight.

How much liability and PIP protection you personally will need gets very complicated very quickly and it's all very personal. The type of vehicle you have, your driving record, your family's financial situation, how much you can afford, the type of insurance policy you buy and where you buy it from will all be factors. Someone with a brand new 4Runner and a tendency to hit a few mailboxes while peeling out of the neighborhood will probably need more insurance than the kid in the clunker from the 80s who's terrified to go 5 over the speed limit.

Only you, your family and a trust-worthy insurance agent can decide how much insurance is right for you. Have a chat about your options and budget before buying a policy.

How Much Will It Cost?

How auto insurance providers arrive at your final price is a mystery of almost Da Vinci Code proportions. Every company has its own formula and no one will share it.

What all auto insurance providers have in common is that how much your monthly premiums cost will largely depend on your deductible. Your deductible is the amount you pay if you're involved in an accident before your insurance kicks in. If, for example, you wreck your ride and have a $1,000 deductible, you'll have to fork over a cool grand before your insurance will pay a dime. The higher your deducible, the lower your monthly premiums and vice versa.

Deductibles are only one of several things that factor into how much you'll pay for insurance. Even if your parents have the same deductible as you, their insurance will probably still cost substantially less because they're older. It's not fair, it's just the way the game is played.

The type and condition of the car you drive, your age, gender, how frequently you drive, your driving history and in many states, your credit score play a part in determining your monthly auto insurance bill. Students can typically get discounts of up to 25 percent for practicing safe driving habits and maintaining good grades. College students frequently get an additional break if they attend a college that's at least 100 miles away and don't take a car. Since insurance providers each have their own formula for tabulating premium price and insurance discounts, shopping around is crucial. Way crucial.

What to Do Now...

Your brain is swimming with questions right? What happens if your car is stolen? Will you be covered if you need to rent a vehicle? If you're in a wreck, will your insurance company just mail you a check? How will you file a claim?

It's complicated because auto insurance policies are like snowflakes—no two policies are exactly the same. Different policies handle issues like payouts when an accident isn't your fault, whether rental cars are covered and the process for filing claims completely differently.

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