Car Insurance Explained - Understanding the basics of Car Insurance

Hey, what's up everyone? Rich McCormick here, School of Personal Finance. In this video, we're going to be talking about everything that you should know about car insurance. So when I think about car insurance, I think about, you know, a bill that I have to pay every six months, an expense. But I also think about, you know, that I just want to be protected, that I just want to know that if something were to happen, that I'm covered. I don't want to have to worry about it. I want to deal with a company that's easy to deal with, where I'm not hassling with them about claims and paperwork and all this, you know, stuff that's a real pain. So it's important to work with either an individual broker or with a company that you could build a relationship with, that you could trust, that you could reach out to, that's going to educate you. You know, all states have different minimums, different requirements, things you can do, things you can't do. So it's very state-specific and you have to be sure that you're dealing with somebody who really understands this stuff, because there's no way that us as individual, you know, drivers are going to know all the ins and outs of the state laws for car insurance. So when I take a step back and I think about car insurance, I start thinking of different scenarios and I'd want to make sure that I was covered in each scenario. So like, for example, if somebody slams into my car in a parking lot, or if I hit somebody, if I run somebody over and they get really badly hurt, or if I get into a bad car accident and somebody gets killed, or somebody's in the hospital and their medical expenses are like, you know, hundreds of thousands of dollars, all these different scenarios, I'd want to make sure that I have adequate coverage and that I'm not putting, you know, myself and my family and everything that I've built throughout my life at risk for one, you know, accident because I'm not properly insured. So the easiest way for me to talk to you about what you should know or what you should look for in an insurance policy is to show you my own. I've been using Geico, I think it's for like maybe four years now, and their website is great. It's so simple to, you know, kind of break it down and understand what's going on. The customer service is awesome. Their mobile app is awesome. So I've had a good experience with Geico. But I will say this, you have to shop insurance pretty often because the premiums, the costs, they just keep on creeping up and creeping up. You have to make sure that you're always getting the discounts that you deserve. I mean, I always recommend shopping it at least once a year. Just call around the different companies, insurance agents, brokers, having them shop for you. You know, people want your business out there. So it's worth calling, seeing if you could get better rates than where you're currently at. When I changed, I think the company I was with before was Allstate. And when I changed, I literally saved, you know, like $500 on my car insurance. And all the coverage, everything was the same. It was just that Allstate kept on creeping up, creeping up, creeping up, and I never did anything about it. And I let them get away with it for a while until I actually made the switch. So now with Geico, you know, I usually call like once a year just to make sure that I'm getting the best rates that I can. I'll call around to other places. I have a couple of friends that are insurance brokers. I'll let them shop it out, see what's out there. But it's important to stay on top of this. If you just kind of let it go, then you end up paying more than you really need to. All right. So here's the Geico website. This is my personal policy. And we're going to go through each of the different aspects of a auto policy. So for the first one, we're going to look at liability. So now liability is what you would owe to somebody else, what you would be liable for if you were to either hurt them if it's bodily injury or if it's their property, if it's property damage. So we could see my coverage right here for bodily injury liability. And now this is tremendously important. If you hurt somebody, if you get into an accident and they're really badly hurt and they have hundreds and hundreds of thousand dollars in medical bills and you don't have enough coverage, you could really be screwed. So you want to make sure that you have a good amount of liability insurance with your auto policy. And on top of that, I personally also have an umbrella policy to cover me up and beyond what I have within the auto policy. So as you see here, it's $500,000 per person and 500,000 per occurrence. And then if we look below that, we see property damage liability. So now this is also 500,000 per occurrence, which might seem like a lot, but the dollars in cost difference between 100,000 and 500,000, it was so minimal that I just went with a 500,000 per occurrence. So if I happen to take out a few Lamborghinis on the highway, I'll be covered. So now if we go over, so this is the liability stuff. All right. Again, very important liability stuff. It's requirements on auto policies, and you want to make sure that you have adequate insurance. And again, I recommend getting an umbrella policy above and beyond that. So now if we go to the next part of our coverage, which is, let's look at the comprehensive first. So for comprehensive, that's coverage to your car, to your vehicle, typically when it's not moving. So if a tree falls on your car, or if somebody vandalizes your car, things along those lines, that will be covered with your comprehensive insurance. And now comprehensive, it is subject to a deductible. So you see right here, my deductible is $1,000. So what that means is that I have to pay the first $1,000 out of pocket before this insurance will kick in. So if I have $7,000 worth of damage to my vehicle, I have to pay the first 1,000, and then the insurance will pay the next 6,000. The amount of your deductible is a pretty important decision, and you want to compare the cost for it. If I had a $250 deductible, the cost of my insurance would be probably close to 10% higher than what it is. So you could have a higher deductible, which will in turn reduce the cost of your insurance. But if you have something that comes up, you've got to pay out of pocket, you know, in my case for the first 1,000 bucks. So if I were to change this to a $250 deductible, my premium would go up, my cost would go up, but if I have a claim, I would only have to pay the first $250 out of pocket. Now let's look at collision. For collision, that is, as it sounds, if your vehicle collides with something. So if you drive into a telephone pole, if you drive into another vehicle, if you drive into a house and your car is damaged, your collision insurance will cover that. So again, this is subject to a deductible of 1,000 bucks here, but that's what collision is for. So now if somebody else drives their car into me, into my car, and I have damage from that, and it's the other driver's fault, then I am going to go after the other car's insurance company. I'm not going to have to pay a deductible for that. The person who's at fault is going to have to pay a deductible to their insurance company to go ahead and cover the damage to my car. So I won't have to put in a claim with my insurance company. The driver of the other vehicle who's at fault, they'll be required to go in, put the claim in, and pay the deductible on theirs. And then you could also see on here, I have a couple additional services. So typically, comprehensive, collision, emergency road service, rental reimbursement, these are all optional. If you're financing your car or leasing your car, they're going to require you to have collision and comprehensive on the vehicle. But if you have a very old car and it's not worth having the collision coverage or comprehensive coverage, then you could choose not to. Another thing to keep in mind is that if you were to, let's say, total your car and you're financing it, you're going to get reimbursed for whatever the book value is for your car. So it's not what you paid for it. It's not what you owe on the financing of it. It's what they actually determined to be the book value. So you could get left holding the bag if you still owe $10,000 on a car and the insurance company comes back and says, well, it's only worth seven. So we're only going to give you $7,000 back. And that's where gap insurance comes into play. So now if we go back up, PIP. So this is what's called no-fault insurance. So I'm in New York state. In New York, they require us to have no-fault insurance. I believe it's $50,000. So this covers you, your family, and your passengers, if you're injured in an accident, regardless of who is at fault. And then we have the last part, which is the uninsured motorist. This will cover you in case you're in an accident and the person who's at fault is not insured or they're underinsured. I forgot the statistic. I think it was something like 15% of drivers on the road are either uninsured or underinsured. And that's pretty much it. One last thing that I wanted to show you on here was the discounts. So you want to make sure that you're getting all the discounts that are available to you. So if you see with mine, total six-month savings, $468 in these different discounts. As I'm saying this, I'm remembering that I have to take the defensive driving course again, because I believe that mine expired. I think it's good for three years every time you take it and that'll be an additional discount. But you could see here all the different discounts that I get and there are additional ones too. Like if you're a student, there's a discount for that. And again, it's worth comparing, but when you do compare with other companies, just make sure that you're comparing apples to apples, that you're looking at the exact same coverage that you currently have compared to what it would be at another company. All right, back to the video. All right, well, thanks for watching. I hope that that was helpful. If you haven't done that in a long time, call your insurance company, make sure you're getting all the discounts, make sure you're getting the best rates, call a couple different companies, see what they're offering. Start building a relationship with an independent insurance broker who could shop many different companies at once. Just be proactive and you can probably save yourself some money. So thanks again for watching. Please make sure to check out schoolofpersonalfinance.com. Please join my Facebook group, subscribe to my YouTube channel. You can follow me at Twitter. All of my stuff is in the description here in this YouTube video, and I will see you again soon. Thanks.