The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
Auto Insurance 101: What Kind and How Much Do I Need?
How much auto insurance do I need, and what type? Whether it’s your first time buying car insurance in Arizona or you’re re-evaluating your current carrier, understanding the different insurance types is the first step toward putting together the perfect policy for your needs.
Getting your first car is an exciting rite of passage for most Americans. But with the privilege of car ownership comes the responsibility of purchasing auto insurance.
Many people who’ve been driving for years haven’t given much thought to their car insurance policy. But there’s a lot more to it than you might think — starting with the fact that you likely carry several different types of vehicle insurance. Each of your auto insurance types are typically bundled into a single policy, which is why you only make one car insurance payment.
In Arizona, two types of insurance are mandatory1 when you own a vehicle:
- Bodily injury liability: Minimum $25,000 single/$50,000 multiple
- Property damage liability: Minimum $15,000
Before you request an insurance quote to see if you’re getting the best deal on Arizona auto insurance, it’s helpful to know some basics.
4 BASIC AUTO INSURANCE TYPES
• Bodily Injury –OTHER DRIVER AND OTHER DRIVER’S PASSENGERS
• Property Damage –OTHER CAR and a HOUSE/FENCE/PROPERTY
• Damage to YOUR CAR
• YOUR CAR being stolen, on fire, and/or damaged in a storm
4. Uninsured/Underinsured Motorist
• Covers YOU
• Other driver leaves, has NO INSURANCE or doesn’t have enough insurance
Let’s take a look at the common types of auto insurance and how they work:
Liability insurance is the most common type of auto insurance and is required in most states, including Arizona. There are two varieties of liability insurance: property damage liability and bodily injury liability. As expected, bodily injury helps pay medical costs for the other driver and his/her passengers as a result of an accident where you are determined to be at-fault.
Property damage liability doesn’t just cover damage to the other driver’s car — it also covers any personal property, including homes and landscaping. So, if you accidentally back your pickup into your neighbor’s fence, your liability coverage would kick in to pay some or all of the damage.
Next-Level Tip: You may see three numbers associated with your liability coverage (for example, the minimum required in Arizona is 25/50/15). The first number represents the maximum amount your insurance will pay one person for bodily injury. The second number is the total max payout to all individuals for injuries, and the final number is the max property damage coverage.
Collision insurance covers damage to your vehicle, regardless of who is at fault or what type of accident you have. Whether you hit another car, a tree, or your neighbor’s fence as in the earlier example, collision coverage will cover repairs to your ride.
However, most policies have a deductible — a portion of the repair bill you have to pay out-of-pocket before your insurance starts paying. As with most insurance, policies with a low deductible (say, $250) will typically cost more per month, while policies with a higher deductible may be cheaper overall.
Next-Level Tip: Weigh the costs of your collision policy with the value of your ride and the likely repair bill. If you drive a newer model vehicle, you may want to spring for more extensive coverage, while you probably wouldn’t need a top-tier policy for a hand-me-down ride.
Comprehensive covers damage to your vehicle from situations other than a collision; for example, fire, theft or hailstorms. This type of insurance is generally required by the lender if you lease or finance your ride. While comprehensive doesn’t cover every situation, it does cover a wide variety of natural events and vandalism and is relatively inexpensive.
Next-Level Tip: Storms can be troublesome even if you live in a relatively mild winter climate. On October 5th, 2010, the costliest local hailstorm on record hit Phoenix, Arizona — resulting in a whopping $2.8 billion in property damage!2
Uninsured or Underinsured Motorist Insurance (UM/UIM)
What happens if the other driver is found at fault, but they don’t have insurance that covers your injuries and/or damage to your vehicle? Or worse, what if the other driver flees the scene of the accident?
There are two types of Uninsured/Underinsured motorist insurance:
- Bodily injury (UMBI)
- Property damage (UMPD)
UMPD covers damage to your vehicle if hit by an uninsured driver, while a bodily injury policy covers personal injuries if you are hit by an uninsured driver while driving, walking or biking.
Next-Level Tip: According to the Insurance Information Institute, 12% of Arizona drivers are uninsured.3 That’s a more than 1 in 10 chance that the driver of the other car may be uninsured the next time you get into an accident!
Other Insurance Types to Know
- Gap Insurance: This insurance type covers the difference between what you owe on your vehicle loan and the amount the insurance company pays. Example: The balance on your auto loan is $20,000 when you get in an accident, but your insurance company only values your car at $17,000. Gap insurance could potentially cover the remaining “gap” of $3,000.
- Rental Reimbursement: Pretty straightforward. If you get in an accident and your vehicle isn’t drivable, your insurance will cover the cost of a rental car for a certain period of time.
- Towing & Labor: An optional add-on to your comprehensive coverage, this type of insurance covers roadside labor and towing. Note that it doesn’t cover any labor costs associated with repairs.
- Personal Injury Protection (PIP) and Medical Payments Coverage (MedPay): While both cover medical expenses following an accident, and can be used to pay for your medical insurance plan deductible, the specifics differ:
- PIP covers medical expenses for you and your passengers, up to a maximum dollar amount specified in your policy
- PIP can also cover lost wages as a result of an accident
- MedPay helps to cover you and your passengers, regardless of which driver is found at-fault
Tip: Check to see if your comprehensive insurance already covers these costs; if yes, then you would only need Towing & Labor if your vehicle breaks down on the road. AAA and similar roadside assistance plans may also cover these costs.
Thinking about buying a new ride? Don’t forget to include your auto insurance as part of the total cost of car ownership.
If this sounds like a lot to learn just to insure your car or truck, don’t worry! We’ve got your back. At Desert Financial Insurance Services, we’ll do the shopping around to find an auto insurance policy that fits your individual needs and your budget. This way, you can avoid the hassle of calling multiple insurance carriers and just focus on the road ahead. Contact an insurance representative today to get started!