Making Sense of Motor Vehicle Insurance

Required by law in almost every jurisdiction on the planet, motor vehicle insurance is something every car and motorcycle owner must have before they hit the road. It’s a fundamental factor for enabling so many people to become drivers.

For most people, car insurance is little more than a monthly payment and a card they carry in their wallets. That is until they’re involved in an accident or caught driving without coverage. At that point, motor vehicle insurance becomes a significant part of their lives. Their choice of coverage – or their choice to go without it – will either come through for them or come back to haunt them.

What’s more, the month-to-month cost of car and motorcycle insurance adds up over time, making it a part of personal finance as much as personal responsibility. With this in mind, let’s break down the basics of motor vehicle insurance in hopes readers can apply that information to their decisions going forward:

What’s the difference between full coverage and liability only?

Also known as comprehensive insurance, full coverage policies exist to provide additional coverage on top of what’s required by law. On the other hand, liability insurance is the “bare minimum” required by the state in which the vehicle is registered.

The difference between full coverage and liability insurance is highlighted by the following hypothetical: let’s say you rear-ended another vehicle because you were looking down at your phone. If you have full coverage, your car’s damage is covered as much as the damage inflicted on the other vehicle. If you have liability only, the damage to your vehicle becomes an out-of-pocket expense.

It’s also worth noting that any car with a lien placed on it – such as those financed with car loans – will have to be covered by a comprehensive policy. That way, if the vehicle gets totaled in an accident, the lienholder isn’t left high and dry. Once the car loan is repaid and the lien is lifted, the owner can change to liability coverage.

What happens if you drive without insurance?

Driving without insurance is against the law in almost every state and country. First-time offenders are usually let go with a hefty fine, but repeat offenders will have their licenses revoked.

Getting caught without insurance – or causing an accident without coverage – is guaranteed to cost more than it would to obey the law and drive while insured. Most states require motorists to have an SR22 or SR1P certificate if they’ve been caught more than once driving without insurance. These certificates are issued by insurance companies, most of which will price their premiums higher as a reflection of the added risk.

Simply put, driving without insurance will almost certainly cost you time and money in the long run. If you’re having trouble paying your premiums, talk to your insurance company about ways to lower that price or shop around for a new insurance provider.

Which factors influence price?

The data used to determine the price of a policy varies from one insurance company to another. However, all of them take the driving record into consideration.

Age is another crucial factor that determines how much someone pays for car or motorcycle insurance. Generally speaking, policies get cheaper as people get older.

The type of vehicle is yet another factor that decides the price of an insurance policy. All other things being equal, sports cars or motorcycles will undoubtedly cost more to insure than minivans and sedans. Depending on the company, someone’s ZIP code, credit rating, and grade point average can further influence the cost of motor vehicle insurance.

Car insurance is one thing everyone has, but few rarely think about it for longer than a few minutes. However, given the potential consequences of your car insurance decisions, vehicle coverage is nothing to be taken lightly. The first step towards taking car insurance seriously is to learn more about the variations and variables involved.

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