If you've been on your parents' auto insurance up until this point and are now about to buy your own policy, you might be a bit overwhelmed. Between figuring out what the different types of insurance are and what a reasonable deductible might be, it's easy to make some mistakes that might be detrimental if you do get into an accident in the future. To ensure you don't end up without a car or dead broke, take a look at these mistakes that people commonly make when buying auto insurance for the first time.
Mistake #1: Choosing an unreasonable deductible.
Generally, the higher you set your deductible, the less you'll pay for your policy. For instance, your rates will go down if you choose a $1,000 deductible rather than a $500 one. This leads many people to increase their deductible in an effort to save. But, for many people, this is a mistake. If you were to get into an accident and had a $1,000 deductible, that means that you would have to come up with $1,000 to put towards the repairs before the insurance would chip in anything. If you don't have $1,000 set aside, this could put you in a real bind.
When deciding on a deductible, ask yourself how much you could come up with, without too much struggle, if you were to get into an accident tomorrow. Then, set your deductible to that level. It's also a good idea to then set an amount of money equal to your deductible aside in a separate bank account so you know it's there if you do get into an accident.
Mistake #2: Buying the minimum coverage required by law.
Different states have different laws when it comes to minimum coverage. In Alabama, for instance, you have to carry at least $25,000 coverage for each person injured in an accident, $50,000 for the entire accident, and $25,000 to cover property damage. (In insurance "language" this is expressed as 25/50/25.) In Delaware, on the other hand, the minimum requirement is 15/30/10.
Any auto insurance company you buy from should not allow you to purchase insurance that does not meet you state's minimum. However, it is often a mistake to assume that meeting your state's minimum is good enough. If there is damage above and beyond what your insurance policy covers, you will need to pay for it out of pocket. For instance, if you get in an accident and cause $40,000 worth of damage but your policy only covers $20,000, you'll have to come up with an extra $20,000 on your own.
The amount of insurance that's right for you depends on many factors such as your age, the type of car you drive, and how often you drive. An insurance advisor at the company you're considering buying from can analyze your personal information and recommend coverage amounts for you. Following these recommendations is a much safer bet than just buying the state-required minimum.
Mistake #3: Not buying collision and comprehensive insurance.
This is another trap that first-time insurance buyers fall into when trying to save money. States only require insurance to pay for damage you may cause to another person's property (liability), or to your body or another person's body (bodily injury). Collision and comprehensive insurance, which cover damage to your own car, are not required. Some people sign up for basic liability and bodily injury insurance, assuming that their own car will be covered, only to find out that it's not once they get into an accident.
Unless you're prepared to replace your own car out-of-pocket in case of an accident, you should definitely purchase collision and comprehensive insurance. Collision insurance covers damage that occurs when your car is in motion, while comprehensive insurance covers damage when your car is parked -- such as that which would occur if a tree limb fell on your car or someone keyed the paint.
Buying your own car insurance for the first time can be confusing. However, if you choose a reasonable deductible, make sure you purchase enough coverage, and say "yes" to collision and comprehensive coverage, you'll be on the right track.