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Monday, 13 January 2020

Car insurance provides vital financial protection.

But there are many kinds of insurance and figuring out what you need isn't always easy. Most states require drivers to have some kind of auto insurance. And if your car isn't paid for, chances are your lender will also require you to have some coverage.

So, let's talk about the six basic types of auto insurance and which ones are most likely to be required by your state or lender:

Liability — Property damage liability can cover damage to another vehicle and bodily injury liability can cover medical bills resulting from an accident you cause. Liability coverage is required in most states.

Collision — Can cover repairs to your car caused by an accident or hitting an object like a tree. Collision is optional in most states, but if you have a loan or lease, your lender will most likely require you to have it.

Comprehensive — Can cover damage to your car not related to an accident, such as weather or vandalism. It's often sold with collision. This coverage is optional in most states.

Uninsured Motorist — If you are involved in an accident with a driver who doesn't have insurance or doesn't have enough, this can cover your medical bills and damage to your vehicle. Some states require this coverage.

Medical Payments — Can cover medical costs for you or passengers in your car who are injured in an accident. This coverage is optional.

Personal Injury Protection — Also known as no-fault insurance, this can cover medical bills and other expenses related to an accident such as lost income. Some states require this coverage.

Factors that affect how much you pay

There are many factors that impact how much you pay for auto insurance: your age, marital status, gender, driving record, credit score, where you live, what kind of car you drive and even your job. For example, having a good driving record and credit score can help you save money, while a bad record and score can cause you to pay much more for your policy. Even if they've never had an accident, teenage drivers will almost always pay more than older motorists with good driving records. And it's typically cheaper to insure an older, less expensive car than a new luxury vehicle.

Required Coverage

When you start building your insurance policy, first find out what coverage is required by your state. Alabama drivers, for example, are required to have bodily injury and property damage liability coverage.

Each state also specifies the amount of coverage each driver must have. Alabama drivers must have $25,000 in bodily injury liability coverage per person, $25,000 in bodily injury liability coverage per accident and $25,000 in property damage liability coverage.

You will also need to check with your lender or leasing company to confirm what type and how much coverage they require you to have.

Optional Coverage

Once you have all the required coverage, you can add coverage you want. For example, instead of $25,000, you could opt for $50,000 of bodily injury and property damage liability. You can also get coverage for things like rental car reimbursement, towing services and even car sound systems — at an additional cost, of course.

Deductibles and Premiums

Your deductible is the out-of-pocket amount you pay when you make a claim and the premium is the amount you pay to keep your coverage in effect. You can pay your premium monthly or twice a year. Many people choose to pay their premium monthly to make payments more affordable.

Typically, if you want a lower monthly premium, you could opt for a higher deductible. While choosing a lower deductible could result in a higher monthly premium payment.

Make sure you're covered

Car insurance isn't cheap. In fact, according to nerdwallet, the average cost of an auto insurance policy in the U.S. is $1,621 a year, which is about $135 a month.

But having enough auto insurance is crucial to protecting yourself financially. It might be painful to make that payment each month, but rest assured the protection is worth every penny. 

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