Ask an agent: obtaining auto insurance for the first time

Q: I'm not familiar with auto insurance - why do I need it and how does it work?

A: Auto insurance is a legal requirement in most U.S. states. You need it to drive a car. But it's not just about complying with the law.


Liability coverage is a legal requirement to ensure that drivers can cover damages to other people or their property in an auto accident they caused. "While at first glance it may seem like liability insurance is designed to protect others, ultimately, it can also help protect you and your financial health

Owning an automobile is a huge responsibility in this country. When accidents occur and property is damaged, or worse, when someone is injured, there may be lawsuits. Depending on the amount of the claim, you may have to hire a lawyer to defend you in court. If you are found liable, you will have to pay medical and property damage costs in addition to legal fees, he says.

The costs resulting from a car accident can severely damage your finances. I've known about people having their wages garnished, and about the risk to their savings and investments because they unfortunately didn't have the protection that auto insurance offers.


Another advantage of purchasing auto insurance is that you are establishing an insurance history. According to the National Association of Insurance Commissioners*, your insurance history can be one of many factors that determine your premium, which is the amount you pay to maintain insurance. Someone with insurance coverage may be considered a lower risk than someone without current insurance. Even one day without insurance can potentially affect your insurance premium, he says.


A typical insurance policy has different coverages that can help protect you from different types of risks or hazards. Here are some common auto insurance coverages to keep in mind:

Liability coverage - If you cause an auto accident, liability coverage helps pay for the other person's medical bills. It also helps pay to repair your damaged vehicle. It is important to understand that your liability coverage does not pay for your medical bills or car repairs. For that, you need to purchase additional coverage, such as medical payments or collision coverage.

Collision coverage: can help you pay to repair your car if it is damaged in an accident with another vehicle or object, such as a tree or fence.

Comprehensive coverage: can help you repair or replace your vehicle if it is stolen or damaged in an accident that is not a collision.

Other optional coverages help protect you against other risks, such as your or your passengers' medical bills resulting from an accident, or protection against uninsured and underinsured motorists.


Each coverage helps pay a covered claim, up to the coverage limit. The limit is the maximum amount your insurance company will pay for costs related to a claim. If the costs of an accident exceed your coverage limits, you will likely have to pay the rest out of your own pocket. That's why it's important to choose the limits in your policy carefully.

Think about the risks involved in driving a car. If an accident were to occur and you were held liable, how much of the costs could you or would you be willing to cover out of pocket? While it may be tempting to set a lower limit on your policy to save money on your premium, keep in mind that the costs associated with an accident can easily exceed your coverage limit, he says.

Some auto insurance coverages, such as collision or comprehensive coverage, have a deductible. Deductible is the amount you pay out-of-pocket before your insurance pays for a covered loss. You choose the deductible on your coverage. In this situation, you may select a higher deductible, if you don't mind paying it out-of-pocket at the time of loss, to get a lower premium.


If you're not familiar enough with auto insurance, the advantage of talking to an insurance agent is that he or she will help you customize an insurance plan that fits your family's needs. "Talking to an insurance agent is like going to a doctor who will prescribe the right medication for you," he says.

Talking to an insurance agent can also help you find out what discounts you can get. Some people don't know, for example, that when they add their spouse to their insurance policy, they may qualify for a married discount. Ask your agent about discounts you may qualify for when customizing your insurance policy.