Money and You: Course Notes

Car insurance should be simple, but it can be really complicated. Car insurance can protect your car, you, passengers, and other drivers in case you are in an accident or anything happens to your car. In its most basic, there are three components that can come with car insurance.

Liability coverage will cover you in some aspects if you cause damage while driving. In Massachusetts, your liability coverage will pay for your medical bills if you are in an accident. It will also cover the property damage to the other car if you cause an accident. (In “at-fault” states, liability will instead pay for the other driver’s medical expenses if you cause an accident.) In terms of medical expenses, liability coverage will only pay a certain amount (usually up to $8,000, but sometimes only $2,000). Your medical insurance would cover the rest. In terms of property damage to the other car, the amount they would cover is also capped. (In most states, the minimum cap is $25,000, but you can get more coverage.) You would be legally liable for any property damage over this cap (which is sometimes covered by your house insurance.)

Comprehensive insurance will cover your care for non-collision-related damage. Things like theft, scratches or dents from someone opening not being careful around your car, etc. This insurance is usually quite cheap, but it often has high deductibles ($500-$2,000).

Collision insurance will cover the cost of repairing or replacing your car if you cause an accident.

Generally, liability coverage is required by states in order to operate a car. This is definitely true in Massachusetts. Comprehensive and collision coverage are usually required by banks if you take out a loan for your car. If you no longer make payments to the bank, comprehensive and collision coverage are optional.

One nasty thing about auto insurance is the idea of “totaling.” Suppose you have an older car that is only worth $2,000 and you are in an accident. If it would cost more than $2,000 to repair your car, the insurance company will “total” your car. In this case, they would give you a $2,000 check and wish you the best of luck in finding a replacement car for that much. Totaling rarely works out in favor of the car owner, and many people need to seek legal advice when offered a check instead of a car repair.

How much you pay in monthly car insurance payments depends on a number of factors. You driving history, age, car model, where you live, how far you commute, your grades in high school, and whether you went to driving school are common factors. (The grades thing is generally for teen drivers only.) In some states, gender can be used as a factor as well.