Your Money_ The Missing Manual - J. D. Roth [113]
Car Insurance
You've had car insurance since you were old enough to drive, but how much do you really know about it? At its heart, your policy probably contains a few basic types of coverage:
In most states, you at least need to have liability insurance, which covers the cost of any damage you do to other people or things with your car. (But note that liability insurance doesn't cover injuries to you or other people on your policy; for that, you need PIP insurance, which we'll cover in a moment.)
Insurance companies quote liability coverage as a series of three numbers, like 50/200/25. The first number is how much, in thousands of dollars, the policy will pay for each person (besides you) injured in an accident ($50,000 in this example). The second number is the total that the policy covers for each accident ($200,000 here). And the last number tells how much property damage will be reimbursed ($25,000 in this case).
Tip
Many experts recommend carrying liability coverage equal to your net worth—the total value of everything you own. This can be expensive to do on individual policies. Instead, it may be more cost effective to buy an umbrella policy, which gives you extra liability coverage above what your home and auto policies provide.
Collision insurance, as you can probably guess, covers damage to your car when it hits (or gets hit by) another vehicle or object. But because collisions aren't the only way your car can get banged up, comprehensive insurance covers damage from events other than collisions: floods, fire, theft, and so on. Collision and comprehensive coverage make more sense for newer vehicles, and are generally required if you're still making payments on your car. They're less necessary—and may actually be a waste of money—on older cars.
Personal injury protection (PIP) insurance is sometimes called "no-fault" insurance, and is required in certain states. It covers medical costs (and possibly lost wages) if you're injured in an accident. It may also cover passengers and pedestrians.
Uninsured motorist insurance covers you and your passengers if you're in an accident caused by a driver who doesn't have insurance. It also covers hit-and-run accidents.
Tip
For more on the different types of auto insurance coverage, check out this handy page of definitions: http://tinyurl.com/cins-def.
Every year, you spend hundreds—maybe even thousands—on car insurance, and chances are, you're paying too much. The August 2008 issue of Consumer Reports estimated that the average family could save $65 per month by shopping around for car insurance. Here are some other ways to lower your costs:
Ditch towing coverage. Towing—or "emergency roadside service," as it's sometimes called—is an easy cost to self-insure (see General Insurance Tips). You likely pay $10–$30 a year for towing insurance, and one tow costs $100. (If you're in an accident, towing is usually covered under collision, but check with your insurance company to be sure.) Sometimes your car will break down, but if it's well maintained, that won't happen often.
Tip
If the value of your car has dropped so low that a major repair would cost the same as replacing it, consider dropping your comprehensive and collision coverage. Then use your savings on premiums to boost your self-insurance fund (see General Insurance Tips).
Plan ahead. Check on insurance before you buy your next car. Insurance costs are based on how likely a vehicle is to be stolen, damaged, or to inflict damage, and how badly occupants tend to get injured in accidents. Repair and replacement costs are also factors. Many insurance companies list cars with lower insurance costs on their websites.
Watch your credit. As mentioned in Chapter 8, most insurance companies now look at parts of your credit report to determine your premiums. They can't adjust rates on your current car if you pay on time and