Car Insurance - What Are Those Limits Anyway???

Do ever feel overwhelmed or just plain confused when you here an agent or insurance company ask you what limits you have or want on you car insurance.  You're not alone.  Here is a brief explanation of what they mean.


Deductible:  This is the amount of money you will pay out before the insurance kicks in.  If you have a $500 on your collision coverage - you will pay the first $500 to get you car fixed if you hit someone.  Same with comprehensive - which is anything other than collision.  These two coverages can have different deductible amounts.

Liability 100/300/100 - while the amounts can be different - they all mean the same thing.

• The first 100 is the amount that the insurance company will pay for personal injury per person.
• The second amount 300 - is the total amount that they will pay for personal injury per accident regardless the number of people injured.
• The third amount 100 - is the toal amount the insurance company will pay out for property damage (other vehicles, buildings, trains, telephone poles, etc)

A few rules of thumb when buying insurance:

• 4 door cars are cheaper to insure.
• The higher the deductible the lower the premium.
• Look at the cost of vehicles driven in you neighborhood, base your coverage on that since most accidents occur near home.
• If you have a lot of assets, consider Umbrella coverage.  You must have the highest amounts of coverage before the Umbrella policy kicks in.  Then they cover up to $1,000.000 and is sold in increments of such.
• The better driving record that you have, the cheaper your insurance will be.

One thing that irks me is the use of credit reports in auto insurance.  The insurance companies claim that people with better credit have fewer accidents.  I personally think that's crap.  Everyone should be writing their state representatives to have this blocked.  So far, only California prohibits the use of credit reports for auto insurance.