With so many advertisements and choices of auto insurance, it can be confusing as to what to look for when selecting a company. The amount you are willing to pay compared to the amount you want the auto insurance company to cover will help you determine the company you choose. It’s important to learn some basic information before making your selection on an auto insurance company. Understanding the various words and phrases of the auto insurance industry is essential.

Some auto insurance terms you should know include:

• Policy – this is the name given to the package of coverage you are purchasing from the company.
• Deductible – a predetermined amount of money the insured must pay before the insurance company will pay a claim. For example, if the amount of damages from an accident is $3,000.00 and your deductible is $500.00, then you pay only $500.00 and the insurance company pays $2,500.00.
• Collision Coverage pays for damages to your vehicle caused by impact with another vehicle or object.
• Comprehensive coverage pays for the damage to the insured vehicle that doesn’t happen from an auto accident such as fire, flood, hail, theft, wind or vandalism.
• Emergency Road Service coverage usually pays for towing, gas delivery, tire replacement, etc.
• Gap insurance pays the difference between the amount of money that is still owed on the vehicle and its Kelley Blue Book (kbb) value. People who lease a vehicle or buy a vehicle with a low down payment or no down payment should have this type of coverage.
• Liability coverage pays for accidental bodily injury and property damages to others. It may also cover defense and court costs. Each state has its own laws requiring the minimum liability coverage you must have.
• Medical Coverage pays for any medical expenses caused by an auto accident no matter who is at fault.
• No-Fault Insurance – Many states now have laws that allow auto accident victims to receive reimbursements directly from their own insurance companies to cover medical and hospital expenses no matter who caused the accident.
• PIP – Personal Injury Protection (PIP) coverage pays for medical expenses for the insured driver’s due to an auto accident no matter who is at fault. Some states require this coverage.
• Premium – This is the amount you pay in order to have auto insurance. Your premium can be paid on one lump sum for the year, or it can be divided into monthly payments.
• Rental Reimbursement coverage pays for a rental car if your car is damaged from an auto accident. There’s usually a daily allowance for the rental car.
• Split Limit coverage is any insurance with limits that are stated separately for various types of coverage.
• Term – This is the amount of time a policy is in effect.
• Underinsured Motorist coverage will pay for your car’s damages when an auto accident is caused by another party who does not have enough liability insurance.
• Uninsured Motorist coverage will pay for your car’s damages when an auto accident is caused by another party who does not have any liability insurance.
• Usage – This refers to the primary function or purpose of your vehicle. For example, if you primarily drive your car to and from work, the usage is considered “commute.”

It’s important to know the laws of your state. Almost all states require liability insurance. A few others require Personal Injury Protection. Most people purchase more than the minimum required by their state in order to have protection for any number of possible problems that could occur.

You also need to decide how much you want to spend on a policy. Aside from the minimum required by law, look at the other types of coverage offered. Imagine the possible scenarios if you were in an auto accident. Can you afford to pay for someone else’s expenses if you are at fault for an accident? Will you need a rental car if your car is damaged from an accident? How old is your car? If it was totaled, would you be able to purchase another for the same value? Know the policies of your health and homeowner’s insurance. Those policies may already cover injuries or court costs so you may not need to pay again for similar coverage on your auto insurance policy.

Once you have an idea as to the type of coverage you may want, it’s important to consider other factors that will contribute to the cost of the policy. Your marital status, age, driving record and gender are all issues that companies consider when you want to purchase a policy. For example, statics show that drivers under the age of 19 have a higher risk of being in an auto accident -due to inexperience- compared to drivers over the age of 26. Male drivers cost more to insure than female drivers and the number of tickets or moving violations you have affects your rate as well.

The distance you drive per year affects your insurance rate. For example, if you drive frequently or for long distances, your chances of being in an accident are higher than someone who rarely drives, who only drives short distances or only on the weekends. When your chances are of being in an accident are higher, then your rates will be higher.

The type of car you own and where you live are additional factors auto insurance companies consider when determining your rate. Some cars are subject to theft more than others. Sports vehicles are more costly to insure than an average sedan or family vehicle. If you live in an area with a high theft rate, your premium will cost more. A few auto insurance companies offer lower rates for owners of hybrid cards. They theorize that a hybrid owner is probably a conservative type of person and would therefore have a lower risk of being in an accident.

Some companies offer discounts on auto insurance. Discounts include: purchasing online, insuring more than one vehicle, good grades for student drivers, a car alarm system, air bags, daytime headlights, etc. You may also receive a discount if you “bundle” your insurance. Combining your homeowner’s insurance, health insurance and auto insurance into one “bundle” or package can save you money if all of it is purchased from one company. It’s important to ask for these types of discounts when shopping around for a policy.

Other things to think about regarding auto insurance are credit scores, personal property inside the vehicle, driver’s education courses and payment plans. Most people don’t realize that credit scores are something auto insurance companies take into consideration when determining your rate. They want to be sure you are worth the risk to insure or if you will pay your premiums on time, for example. Other auto insurance companies may quote a cheaper rate if you pay one full amount for the year instead of paying your premiums in installments. Another important point to realize is that your personal items inside your vehicle are almost always NOT covered by auto insurance if they are damaged or stolen. These items may be covered under your homeowner’s policy, so it’s important to ask when purchasing your insurance.

A little research can go a long way. Aside from comparing quotes and coverage from insurance companies, you should also take some time to check out a few of those companies you’re considering using. Every state has a State Department of Insurance. You can look online to see which companies in your state have the least amount of complaints. Also, you may be able to compare general rates from a variety of companies on your state’s Department of Insurance website without having to input all of your personal information.

Talk to a few auto repair shop owners and employees to see which auto insurance companies they like. They can tell you which insurance adjusters and companies are the easiest to work with. They can also tell you which insurance companies prefer using only after-market parts to save on costs compared to those who allow genuine original equipment manufacturer parts (OEM).

Look at the A.M. Best and Standard & Poor’s ratings. These two companies provide information stating the financial condition of all insurance companies. The ratings are a good indicator of an insurance company’s ability to pay out a claim.

Finally, decide whether or not you want to work with an agent. Some agents are “captives”; they only work for one agency. Other agents are “independents” and can represent a variety of different auto insurance companies. Insurance agents can find policies to fit your needs and will work for you to keep you happy. They can sometimes provide rates for you that are not available to the public and thus save you money.

It’s essential to put forth the effort to decide which type and amount of auto insurance you’ll need. Protecting your health and your assets with insurance is one of the most important financial decisions you’ll make. It’s crucial that you shop wisely and review your policy to completely understand your coverage.