CREATE A POLICY
CREATE A POLICY THAT’S RIGHT FOR YOU
You are now equipped with the vocabulary to understand the intensely fascinating process of acquiring an auto insurance policy. Creating a policy that’s right for you is similar to deciding what options you want to purchase when buying a car. If you can live without a leather interior, then it would be silly to spend money on it when what you really want is a CD player. Similarly, when buying insurance you need to establish your priorities. To help you, we’ve broken down the process into the following easy steps:
1. Select your mandatory coverages
2. Select your optional coverages
3. Set your deductible
1. Select your mandatory coverages
We’re assuming that you already own a car or will shortly. After registering your car with the state and getting your personalized license plates (LV NSYNC), you must familiarize yourself with your state’s auto insurance regulations. Whooh-hooh! We’re assuming that you already own a car or will shortly. After registering your car with the state and getting your personalized license plates (LV NSYNC), you must familiarize yourself with your state’s auto insurance regulations. Whooh-hooh! When an accident occurs, an insurance company must be willing to pay up to a certain amount of money to foot the bills — this is called the minimum liability coverage. Why is minimum liability coverage important? Let’s say you get hit by a car. If the driver’s liability coverage is for $7, his/her insurance company will cover your bills up to $7.
Most debilitating accidents will set you back more than $7. So each state requires that all drivers have liability insurance that at least goes up to a reasonable number (though it can be more if you want). New York, for example, requires a minimum liability of 25/50/10:
* The first number is the maximum amount (in thousands of dollars) the insurance company will pay for any one person (in the other car) injured in an accident.
Ex.: $25,000
* The second number is the maximum amount (in thousands of dollars) the insurance company will pay for all parties (in the other car) injured in an accident.
Ex.: $50,000
* The third number is the maximum amount (in thousands of dollars) the insurance company will pay for any car/property damage (again, done to the other car) due to an accident.
Ex.: $10,000
Insure.com offers a handy guide that outlines the minimum coverages required by law for each state. You can also contact your state insurance department to get this info.
While many drivers elect to go with their states’ minimum liability requirements, insurers often recommend going with a higher amount, especially for customers with a substantial net worth. Remember, other people’s pain and suffering are costly propositions, especially in the hands of a talented lawyer.
Also, it’s important to remember that if you’re leasing or financing your car, it’s likely that the dealership will require you to get higher liability coverages than the state minimum. This, of course, will cost you.
2. Select your optional coverages
Here are some optional coverages that you might not need:
* Collision/comprehensive. As we discussed earlier, these coverages pay to repair your car. Paring down your collision/comprehensive coverage (or skipping it altogether) is a surefire way to save money, as these coverages tend to be quite expensive, but we don’t recommend this if you’ve just purchased a spanking new car. Also, if you’re leasing or financing a car, then you must get comprehensive and collision as required by the dealership. If you’re driving a coughing Pinto that can barely make it around the corner, then you should completely forego collision insurance and use the money to buy another car after the Pinto spontaneously combusts.
* Medical insurance for your passengers or drivers that aren’t listed on your policy. Not buying medical coverage for yourself if you already have health insurance that will pay for your hospital bills in case of an accident is a good way to lower your premium.
* Extension of your coverage to rental cars.
* Extension of your coverage out-of-state.
* Substitute transportation coverage. This coverage pays up to a certain amount per day towards a rental car if your car is in some way incapacitated (up on cinder blocks in the front yard is unfortunately an invalid criterion).
* Towing and labor coverage. This pays a certain amount towards the cost of having your car towed if it breaks down. If you own a new Mercedes convertible that purrs like a kitten and never breaks down, chances are you’re wasting your money on this.
3. Set your deductible
Like we said before, lower deductibles mean higher premiums (the insurance company has to pay more if you have an accident), so weigh your options carefully. If an expenditure of $500 will break the bank, then stay low, but if you can muster that amount at short notice without too much trouble, consider higher deductibles.
