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Understanding Your Car Insurance

By Compuquotes Team on October 6th, 2008
Auto Insurance

Many people who think they have sufficient car insurance often find themselves facing an unpleasant surprise when they need to file a claim. It's important to take the time to understand exactly what your car insurance policy covers before you find yourself involved in an accident or needing to make a claim for other reasons.

Whether you're thinking about purchasing a new policy or simply want to verify what your current policy covers, it's important to understand several facts about car insurance. Pay close attention to all of the terms and conditions that impact how much your insurer will pay, and under what circumstances.

What is a Deductible?
The deductible on your car insurance policy represents the out of pocket expense you will be responsible for paying following a covered event. If you're policy has a $500 collision deductible, that means you'll be responsible for paying $500 toward the cost of repairing your car following a collision. Many times, companies that promise reduced insurance premiums offer policies that have high deductibles.

When selecting the best deductible for your policy, stop and think about how much you can afford to pay out of pocket at any given point in time. It's a good idea to put enough money in your emergency savings account to cover your deductible amount, just in case you have a car accident. Many people choose higher deductible policies to save money, but protect themselves by making sure they have enough money in the bank to pay the higher amount if they need to do so.

What are Limits of Liability?
Insurance policies are available with varying limits of liability. If you have a $300,000 limit of liability on your collision coverage, that means you are covered for damages causes as a result of a collision of up to $300,000. If you are involved in a covered collision, your insurance company will be responsible for paying the difference between your deductible and your limit of liability. However, if there is more than $300,000 of damage, you will be responsible for paying the excess yourself.

If you decide to lower your rates by reducing your limits of liability, it's important to understand that you open yourself up to potential financial risk if you are involved in an accident that causes a great deal of damage to other people's property. It's also important to understand that there are different types of liability, and the limits can vary from one type of covered event to another. Make sure you know exactly what liability limits are associated with your insurance policy, so you can be certain that the coverage you have is adequate.

Mandatory Car Insurance
If you live in an area where you are required by law to carry automobile insurance, you're required to have liability coverage. This type of insurance protects the interests of other people who might be injured or experience damage as a result of an accident that is your fault. If you purchase only the minimum coverage required by law, you aren't taking any steps to protect yourself or your vehicle. You'll need to add comprehensive or collision coverage to your policy if you want to make sure you are fully protected.

Make an Educated Decision
When you understand the basic facts about car insurance, you'll be better able to make an educated choice about the best policy for your needs. Don't select car insurance on price alone. Make sure you understand exactly what protection you are paying for when you purchase an automobile insurance policy.

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