2 Things You Need to Know Before You Buy Auto Insurance

What grade did you receive in your Introduction to Auto Insurance class?

Wait – you mean you didn’t take such a class in high school or college?

So how are you expected to know the ins and outs of auto insurance?

Unfortunately, most Americans don’t receive any “formal” instruction on how to purchase auto insurance, even though these policies are necessary in order to drive legally. With that in mind, here are the basic concepts about auto insurance that you should know before signing your name on a policy:

1. The parts of an auto insurance policy.

Here’s a quick glossary of words and phrases:

• Term: The length of time your policy covers (usually one year).
• Declarations page: the page of your policy that summarizes your auto insurance. Think of it like the paper version of the “dashboard” for your policy.
• Endorsements: changes to your policy (i.e., an additional driver, roadside assistance coverage, etc.)
• Exclusions: the types of scenarios where your auto insurance policy will not pay out any money. Examples include damages incurred while using your car to make money (like Uber drivers), intentionally damaging your vehicle, damage incurred while drag racing, or damage from certain catastrophic events (like a nuclear disaster).

2. What the different monetary amounts mean.

• Premium: The amount of money you agree to pay for your auto insurance policy.
• Quote: An estimated cost of a policy issued by an insurer – it is neither exact nor binding, and it is subject to change based on the insurance company’s research into your driving record, credit score, etc.
• Deductible: The amount of money you agree to pay before the auto insurance coverage kicks in (much like a co-pay for health insurance). So for example, if you file a claim that totals $3,000 and your deductible is $500, the insurance company will pay out $2,500 to you.
• Limits: The maximum amount of money the insurer will pay for a given type of claim. So if you cause $50,000 in damage to another vehicle and your policy limit is $30,000, you could be on the hook for the remaining $20,000.