Auto Insurance 101

While many of us drive a car, most of us have no understanding of our auto insurance policy. What do the numbers mean like 50/100/25 coverage? How often should I compare rates with other insurance companies? Or, understand terms like liability, collision, bodily injury, etc. I guess we will call this auto insurance 101.

Let’s start with when you need to get insurance. You can buy a car, new or used without purchasing insurance, unless you are borrowing/financing the car. It is when you request a license plate that you are required to show proof of insurance. For most of us that happens simultaneously with buying the car. The requirement is actually proof of liability coverage as needed for registration, which is covered under what is called compulsory automobile coverage. Liability is when you are held responsible for the damage to another or their property. 

50/100/25???? These are simple numbers to explain how you are covered by your insurance policy. It falls into three categories: per person, all persons, and property for each accident. The 50 actually means that each individual is covered up to $50,000 per person in an accident; 100 is $100,000 in payments to all persons in an accident – this is also referred to as bodily injury coverage. And you guessed it, 25 is $25,000 for property damage. 

States vary on minimum requirements. For Maryland, it is 30/60/15. Now think about this, how quickly would someone’s medical bills reach that 30 or 50 limit. So, who would be responsible for payment after that? It could be you. Think carefully when making decisions about how much coverage you need. 

Now if you have a loan on your car, the lender may require some additional coverage such as collision coverage or comprehensive physical damage. This is to protect the lender from losing money if something happens to the car. Collision coverage is just as it sounds; if there is a collision, the insurance fixes it. Comprehensive physical damage is to cover the car if something else happens like a hail storm puts dents in your car. 

The cost of your policy is determined by how much coverage you want and other factors such as the value of the car, safety features on the car, miles driven, how well you drive, age, gender, etc. Another item to consider is how often to compare insurance prices. Ideally, I suggest you get quotes every year, but at least check every other year. You may be surprised how much money you can save by switching plans.