In the previous article we briefly covered different types of insurances. The purpose
of this one is to dive deeper into car insurance, as it is one of the few types of insurance that is
mandatory. We will talk about how to choose the right insurance for you and what factors impact the cost of it. Basically, car insurance is an agreement
between you and an insurance company, wherein you pay a premium in exchange for financial protection against potential losses resulting from accidents, theft, or other unforeseen events. There are typically different types of coverages when it comes to car insurance
Liability Coverage: Covers bodily injury and property damage that you may cause to others in an
accident for which you are deemed at fault.
Collision Coverage: Collision coverage pays for damages to your vehicle resulting from a collision
with another vehicle or object, regardless of fault.
Comprehensive Coverage: Comprehensive coverage protects your vehicle from non-collision
incidents such as theft, vandalism, natural disasters, or hitting an animal.
Personal Injury Protection (PIP) or Medical Payments Coverage: PIP covers medical expenses for
you and your passengers, regardless of fault, in the event of an accident. Medical Payments Coverage
serves a similar purpose but has limitations.
Concept of Deductible: It’s important for college students to understand the concept of a
deductible in car insurance. A deductible is the amount of money you agree to pay out of pocket
before your insurance coverage kicks in to cover the remaining costs of a claim. Typically, higher
deductibles result in lower premiums, while lower deductibles mean higher premiums. When
selecting a deductible, consider your financial situation and how much you can comfortably afford
to pay in the event of an accident.
Factors Affecting Premiums: Several factors influence the cost of car insurance premiums,
including:
- Age and Driving Experience: Younger drivers, including college students, often face higher
premiums due to their perceived higher risk. - Driving Record: A clean driving record with no accidents or traffic violations can lead to
lower premiums. - Vehicle Type: The make, model, and age of your vehicle affect insurance rates. Sports cars or
vehicles with high theft rates typically incur higher premiums. - Location: Where you live and park your car can impact premiums due to factors like crime
rates and traffic congestion. - Deductible: Choosing a higher deductible typically lowers premiums but increases your out-
of-pocket expenses in the event of a claim.
Navigating Coverage Options: There are a lot of coverage options that you need to consider and
there is no perfect one for everybody. It all depends on your financial situation, risk tolerance,
frequency of driving and etc. Here are some different types that you might want to consider:
- One that is most important is liability coverage, because all states (except for Virginia)
require it. Different states have different minimums for liability coverage and thus we
recommend checking this link to find out information about your state. It primarily consists
of three different parts: Bodily injury coverage per person, bodily injury coverage per
accident, and property damage coverage per accident. These parts are primarily shown in
three consecutive numbers in the form of: ##/##/## or 15/30/10 which would mean 15k
per person for bodily, 30k per accident, and 10k in property damages. Most experts
recommend the golden ratio of such coverage to be 100/300/50
- Another interesting one is full coverage, while it costs a bit more it provides you coverage
for liability, collision, and comprehensive cases. Per Nerd Wallet, cost of such coverage
could range from low 2000s to high 4000s per year depending on your age, driver record,
and etc. It is recommended to have full coverage if you are driving a brand new car, have a
loan on it, and it is really expensive to fix it in case of an accident. That’s where the concept
of deductible really kicks in and one needs to find a perfect amount for themselves
Discounts and Savings: Many insurance companies offer discounts that can significantly reduce
your premiums. Common discounts for college students include:
- Good Student Discount: Maintain a certain GPA to qualify for discounts. This can save you
up to 25% on premiums. - Driver Training Discounts: Completion of a defensive driving course may lead to lower
premiums, typically saving around 5% to 15%. - Multi-Policy Discount: Bundling your car insurance with other policies such as renter’s or
homeowner’s insurance can result in savings of up to 20%. - Low Mileage Discount: If you don’t drive frequently, you may be eligible for discounts of
5% to 20%. - Safe Driver Discount: Maintaining a clean driving record can lead to significant savings, with
discounts ranging from 10% to 30%.
Now that you know the basics of car insurance coverages, the reality is that real world is a
lot more complicated than the two pages I talked about in this article. I strongly recommend
checking out the links below and doing as much research as possible before acquiring any kind of
insurance. While the process can be long, if you know the basics of how things
work, everything else will become easier to understand.
Links to help you learn more:
https://www.cashcourse.org/Topics/Protect
https://www.nerdwallet.com/article/insurance/minimum-car-insurance-requirements?trk_channel=web&trk_copy=State%20Minimum%20Car%20Insurance%20Requirem
https://www.nerdwallet.com/article/insurance/full-coverage-insurance?trk_channel=web&trk_copy=What%20Is%20Full%20Coverage%20Car%20Insurance%3
https://www.investopedia.com/terms/a/auto-insurance.asp