Auto Insurance is a recurring monthly expense. So, any reduction in the cost of Auto Insurance would keep giving some extra bucks month after month. So, I am visiting this topic in this article, to help you manage your Auto Insurance better, and Save Few Bucks.

The price of Auto Insurance is greatly determined by the kind of coverage that are chosen. Most of the times, people are not aware about the right limits of coverage that have to be chosen for Auto Insurance. As a result, they end up paying a lot more than what they could have been paying with right coverage limits. Lets discuss the various Auto Insurance coverage, and the recommended limits for those. This would ensure you get affordable Auto Insurance (You can use to try different coverage limits and check how does that impacts your premium).

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First lets talk about those coverage which are important, and should be present in your Auto Insurance policy:

1. LIABILITY COVERAGE: This coverage has two parts: Property Damage Liability and Bodily Injury Liability. This covers other people’s bodily injuries or death for which you are responsible. If your car damages someone else’s property including their car, fence, house or any other property damaged in an accident, that is covered under Property Damage Liability. This coverage also provides for a legal defense if another party in the accident files a lawsuit against you. This is one coverage for which I always advise to choose a higher limit. People sometimes tend to go with the state minimum limits for this, but actually, this is the most important coverage for which you are taking an Auto Insurance Policy. So, try to go with a higher limit for this. (Like this article? Click here to be notified via email when a similar article is published)

2. UNINSURED AND UNDERINSURED MOTORIST COVERAGE: This is an important coverage, which people sometimes decline. This coverage essentially kicks in if you are hit by a driver who does not carries auto insurance, or whose coverage limits are not enough to cover the damage to vehicle or bodily damage to drivers and passengers (of your car). So, it is advisable to take this coverage. However, keep the coverage limits very low on this, lowest possible. Also, this coverage is very cheap, so it won’t increase your auto insurance premium a lot.

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3. TOWING AND LABOR: This is also called Road Side Assistance. Everyone should have Road Side Assistance. Normally, people go with separate road side assistance services (like AAA), and do not choose the one provided by their auto insurance. However, the one that comes with auto insurance is normally very cheap, and carries the same benefits as other services (like AAA). The best part is that if you are purchasing this from your auto insurance provider, you can get it for very cheap. I have to pay just $15 every year as a part of my auto insurance premium for this coverage, while AAA was going to charge me $75 for this. So, that did help me to Save Few Bucks.

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All the above are very important coverage, and really necessary to be included in one’s policy. There are many other coverage as well, that are mentioned below, and these might be important for a few, and can be removed for others:

4. COLLISION COVERAGE: Covers damage to your car when your car hits, another vehicle, or other object. It Pays to fix your vehicle less the deductible you choose. This coverage sometimes turns out to be the most expensive part of your Auto Insurance premium. And in many cases, it is not even required. Here is my thumb rule: if the value of car is less than $5,000 than it is better to not take this coverage. This is because the high premium does not justifies the maximum value that you can get out of this coverage. For example, if the value of your car is $4500 and you have a deductible of $500, then essentially you will get maximum $4000 back if your car is totaled. However, the premium itself might be $400 per year, so, the premium does not justifies this amount. Another thing to keep in mind is that this coverage kicks in only if you have yourself totaled the car. If the car has been damaged by other driver, then their liability coverage will cover this for you (and if they are underinsured/uninsured, then your Underinsured coverage will cover this). However, your needs might be different and you might want to evaluate the need for this as per your circumstances. It is a good idea to have this for new cars. (Like this article? Click here to be notified via email when similar article is published.)

5. COMPREHENSIVE COVERAGE: This is another expensive coverage. It covers your vehicle you may be driving for losses resulting from incidents other than collision. For example, comprehensive insurance covers damage to your car if it is stolen; or damaged by flood, fire, or animals. It pays to fix your vehicle less the deductible you choose. It is a good idea to have this for new cars. However, if the value of your car is less, than it is not a good idea to add this coverage.

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6. PERSONAL INJURY PROTECTION: This covers the medical expenses of the driver and passengers of your car if you are in an accident. In some states, it also covers for the medical expenses of some pedestrian hit by the car. If you already have a health insurance, then this coverage might be ignored as your medical expenses can be covered by your health insurance itself. In case you drive in some area where there are lots of pedestrians, then you might want to check with your auto insurance provider whether this coverage includes them (it might also be possible that pedestrians are already covered under Liability coverage, so confirm that as well). Denying this coverage would again Save Few Bucks. (Like this article? Click here to be notified via email when a similar article is published)

7. RENTAL CAR REIMBURSEMENT: This coverage is sometimes misunderstood. People sometime think that this coverage kicks in if they take a rental car for vacation or some other purpose. That is not true. This coverage reimburses the cost of rental cars only if your car is hit in an accident, and cannot be driven. So, if you think that in such a scenario you can take other alternate mode of transport (other car/train/bus/car pool), and would not need a rental car, then it is better to decline this coverage. Again Save Few Bucks.

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The coverages mentioned above are all the basic coverages that are included in an Auto Insurance policy. When you are taking an Auto Insurance Quote, it is better to ask the insurance company about break up of each of your chosen coverage in your final quote. Then, you would be able to make a more informed decision regarding which coverage to keep, and which to decline. Also, try to play around with various coverage limits to see how they impact the premium. You can use to try different coverage limits and check how does that impacts your premium. As I mentioned in the beginning, Auto Insurance is a recurring expense, so the savings would keep on adding up.

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The whole process would ensure that your Auto Insurance policy would have the right coverage as per your need, and you would have saved few bucks as well. Peace of mind, and joy of wallet!

Once you have decided the right coverage limits, there are some tips to further reduce the auto insurance. Check out my article: Tips to Reduce Auto Insurance Premium

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2 Responses so far.

  1. Thanks for entering this in the Top Ten Article for Frugal Scholars!

    – Nate

  2. […] Sometimes people have more insurance than they actually need. I have written a whole article just around this topic. Check it out here: Tips to Choose Right Coverage Limits for Auto Insurance […]

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