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Auto Insurance 101

Auto Insurance 101

By Jeff Youngs, August 10, 2012
Unless you live in New Hampshire, you are required to carry a minimum amount of automobile insurance to legally operate your vehicle on public roads. The minimum requirements vary from state to state, and are typically low enough to make basic insurance affordable for most people. As a consequence, however, the minimum coverage generally is not high enough to protect you from lawsuits in at-fault accidents, or to cover all of your potential expenses if another driver is at fault.

Therefore, when shopping for auto insurance, it is important to carefully consider your personal financial exposure in the event that you cause an accident resulting in the injury or death of another motorist, or which generates significant damage to an expensive vehicle. To protect yourself, it is best to increase your bodily injury coverage, your medical payments coverage, your property damage liability coverage, and your uninsured/underinsured coverage.

If your vehicle is financed or leased, you will be required to carry additional insurance coverage to insure against the total destruction of the vehicle. This insurance is called comprehensive and collision insurance, and the more expensive the car, the more expensive the insurance.

These are the baseline factors determining your insurance rates for any given vehicle. Insurance companies also consider other factors in determining rates, such as your driving record and your credit report. If you don't have accidents and you don't get tickets, you are considered to be a low-risk driver, and your insurance rates will be lower. If you pay your bills on time, you will be considered to be a responsible person, and your insurance rates will be lower.

Additional factors, such as your age, the geographic location of your residence and whether your car is garaged at night can impact your insurance rates. The type of car you drive is also a factor. Sporty cars and luxury cars are more expensive to insure than economy cars and family cars.

To reduce your rates, you can buy auto insurance from the same company that issues your life insurance, or your homeowner's insurance, and get a multi-policy discount. You can also increase your deductible amount, eliminate unnecessary coverage, drive fewer miles to receive a low-mileage discount, agree to pay your premium in full when it is due, or sign up for automatic withdrawal from your checking account.

Also, keep in mind that if you drive an older vehicle, you can reduce or eliminate comprehensive and collision coverage with the understanding that if you wreck the car, you--not your insurance company--will be responsible for replacing it. Do yourself a favor, however, and resist the temptation to reduce your liability coverage.

Finally, don't shop for insurance after you've purchased a new car. Find out what it will cost before you sign on the dotted line. Car insurance rates vary widely from model to model, so while the car payment might fit your budget, the cost of the insurance might not.

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