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The Quick and Dirty Guide
to
Auto Insurance

This is a quick and dirty guide we made for Reddit four years ago, and we've improved since then

Our "Quick and Dirty" Tips

I am not an agent and this is not legal advice, and it's nearly all second hand from reading a few thousand Reddit auto insurance posts.

This guide is mostly regional to the US, but has some general purpose information.

The below guide will try to explain three things: 1) What you're buying, 2) What makes insurance "expensive" and where you can save money and 3) the areas where you shouldn't cheap out (liability).

Our 5 Minute Guide to getting the Cheapest, Most Effective Car Insurance

Car insurance is more than just the car. It also includes the squishy, expensive meat in between the seat and the wheel - not just you, but people you might injure or kill with your car - in a case where you are responsible or share responsibility for their injury.

And it's also about the car - they are pretty expensive too, but still less than you and other humans.

What you pay is called your premium and this package from the insurance company is called your policy. This is monthly or more likely every 6 months. (Saving tip - paying in 6 month cycles can save about 10%). A deductible is an amount you need to pay upfront to activate your insurance in the event of a claim (your request for your insurer to cover something)

In fact, your policy can consist of seven different insurance components,

all of which have separate terms and conditions which they cover in the event of a claim.

You might know of all of the above, but if you didn't, now you do. However, it's important to understand the seven sub categories of coverage and to build a picture in your mind of how much coverage you should carry (and pay for.)

Seven Types of Coverage and Explanations

  1. Body Injury Liability - Covers people who may have been injured for an accident you're responsible for (or share responsibility for)

  2. Collision Liability - (Property Damage Liability or Physical Damage)

  3. Collision Insurance - Covers your car in the event of an accident. Usually the part that includes a deductible before you can use it.

  4. Medical Expense/Medical Payments/Med Pay

  5. Uninsured/Underinsured Motorist (UM/UIM)

  6. Personal Injury Protection (PIP) - This varies greatly from state to state and is not offered in some states yet required in other states.

  7. Comprehensive Insurance - this covers your car and parts of you car when it's parked or otherwise damaged. This usually has a deductible.

  8. "GAP" Insurance - Gap insurance covers the difference between your lease amount and your car's value, in case you down own you car. You want to get this if you don't like paying for a car that you no longer can drive.

Next, let's discuss what you are legally obligated to cover and what is optional.

Legally Obligated and Totally Needed - Liability Insurance

Not Always Legally Required But You Really Need to Get

Not Legally Obligated and Maybe Not Necessary in some cases

A Quick Side Trip to Germany

"Just some fun facts from a US expat living in Germany. The legal minimums for liability here are €7.5M (~$10M) for BI and €1M (~$1.4M) for property damage. It's not unheard of to have a policy with a combined liability cap of €100M"

Compare this with some of the states in the US, which carry legal minimums of less than 10,000. This is why it's important to realize that legal minimums don't help much in deciding which insurance levels to get.

The difference between legal minimum coverage in a"low minimum" state versus a "high minimum" state can be drastic and can leave you underinsured if you don't know what you're doing.

Insurance cos. are highly regulated, but those regulations vary from state to state and might leave you choosing some cheap liability insurance options that leave you at serious risk of being stuck with "out of pocket" costs.

If you're only carrying 25,000 liability insurance and someone happens to be Seriously Injured by a car you're driving, your coverage will be quickly exhausted and you could be stuck with debt that you will need to file bankruptcy for or can't discharge at all (like willful negligence or a DUI).

Minimums

Quick and Dirty "Safer" Minimums.

Bodily Injury 100/300 (100,000 per person, 300 per accident)

Property Damage Liability (PDL) 100K Minimum

Also known as 100/300/100.

We recommend that you go as high as long as you can afford it.

A word about Personal Injury Protection (PIP)

In some jurisdictions, this is required, but you should get it. PIP covers you in case you're injured, lose your employment or even funeral expenses. It's usually only a few bucks more per renewal period.

Medical and hospital expenses: Up to $10,000 for reasonable and necessary medical and hospital expenses for each person injured in an auto accident is covered with PIP. This is available for up to three years from the date of the accident. Additional coverage may be added to provide up to a $35,000 benefit for medical and hospital costs.

Funeral expenses: PIP includes up to $2,000 for each person who died due to the accident.

Wage loss: PIP provides up to $200 per week ($10,000 total) for income replacement coverage. This is limited to one year after someone's been disabled for 14 consecutive days after the accident. Consumers may add additional coverage to provide income benefits of up to $35,000, paid at a maximum of $700 per week.

Loss of services: PIP coverage pays up to $200 per week ($5,000 total) to pay non-family members for work you can't do, such as household chores. Additional loss of services coverage can be added to increase the total benefit to $14,600.

From: https://www.insurance.wa.gov/personal-injury-protection-pip

How can I save money on insurance?

Short answer - Shop for quotes every 6 months

Talk to an agent in your state/area or do online quotes directly from Insurance providers.

If you don't drive much? Let it be known when you speak to an agent or get quotes online. The default is based on 15,000 miles a year.

Avoid "Quote Comparison" sites as a general rule. They can spam you for a long time and shop your number around.

What insurance discounts can I get? If you're older than 55, you may be eligible for a Defensive Driving discount. Most of these have a minimum age bracket.

Some professional or school (eg. fraternity and sorority) groups will have a discount rate program.

Military insurance? If you have an immediate family member who served in the military, you are eligible for USAA insurance, and their rates are very good.

Consider companies that offer "insurance telematics" - they will put a monitor in your car and compute a score for you. Most likely, this will become more common. For now, it is possible it will save you money.

Do own an old car? Beat down your insurance price by considering the rule of 10%. If your car is worth less than 10% of what Collision and Comprehensive insurance costs you annually, consider banking that money into a savings account instead - to cover a replacement. However, if your car might be hard to replace, keep in mind you might want to keep comp and collision just in case (but factor in what the deductible will be.)

If you are insuring a second vehicle for weekend use, try to get it insured as a "pleasure vehicle"

Florida Man Effect- What are Insurance Factors that Affect the Cost?

Insurance on the whole is not a huge profit margin business. For a few years in a row, the insurance industry notes that they have paid more out in claims than than they have collected in premiums. (That's not to say they haven't made money - they make money on the money they have in reserve from interest - however, it's still costly to insure people and cars. (Especially with the way some people drive.)

Factors and Tiers

For example, most estimates say that 25%+ of drivers in Florida are uninsured and that may be due to how many personal injury claims the state generates (or maybe many Floridians are not good drivers).

Personal Factors

Some companies call these "Tiers". You are placed into a rating tier based on things like your age, gender, marital status, zip code, vehicle usage, and driving history.

At Fault Accidents and tickets are surcharged for 3 years (or 3 annual policy terms) but remain visible on your record for up to 7 years depending on the incident and your state dmv policies.

So someone who has a hail claim every year, may have a higher rate than the same person with 1 not at fault incident every 3-5 years because you are shown to be higher risk over your history.

The three basic factors of insurance pricing

  1. You. Previous driving history (accidents, tickets), length of time you've been insured, age, gender (in some states, it's not legal), your credit score, some other misc. factors (employment, degrees, etc).

  2. Geography. The area in which you "garage" ie keep your car and drive from. This changes the price based on the amount of claims in your region or the amount of regulations (or lack thereof)

  3. Your vehicle(s) - their cost and how far you are actually driving them

You usually can't change where you live, and you can't change bad marks on your history or your age, but you can change the vehicle you drive and what type of "comprehensive" and or collision insurance you choose to carry on your vehicle.

This should be a personal choice but should be based on the absolute value of your care (consider what it might take to find yourself a replacement that you would want to be driving in, and the amount of time it would take you to find that car)

And, with telematic driving programs, you can potentially affect your rate by how you drive. Although, you are at the mercy of the companies and their "black box" methods of calculating your driving score.

Quick and Dirty: If you get a renewal increase that seems severe, shop around every 6 months or so and make sure you invest some time to getting the best rate available for your situation. It could save you a few hundred bucks, be it with a lizard, or some other anthropomorphized "Insurance company" mascot. But be sure that you're carrying at least 100/300/100 (See above, if you skipped that section.)

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