Car Insurance and the COVID-19 Pandemic
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Whether you’re considering buying your next car or are just looking for updated information on auto insurance during the Coronavirus/Covid-19 pandemic, it’s important to understand the insurance implications of owning a car. Here are the answers to some frequently asked questions about auto insurance.
I’m not driving much, if at all, due to the Covid-19 pandemic. Will I still pay the same for my auto insurance?
Fortunately, many insurance companies are giving refunds and credits to policyholders due to the Covid-19 pandemic. Depending on the insurer, these options can look different: Some are offering credits on premiums paid during a certain time period, others are issuing refunds and some are reducing premiums altogether for a designated amount of time. For example, State Farm is automatically giving most customers a 25% policy credit, with no action required from the policyholder. American Family Insurance is providing a one-time $50 payment to customers for each vehicle insured under one of the company’s personal auto insurance policies.
Reach out to your insurance company for more information on the options available to you.
What insurance will I need if I’m buying a car?
Even during the Covid-19 pandemic, most states require drivers to have at least some level of auto insurance. If you’re shopping for your first vehicle, you should purchase a new policy. If you already have auto insurance, you can simply add a new vehicle to your existing policy.
Car insurance is available with several different types of coverage, all designed to help protect you and your family in different ways. The most common types include:
- Collision coverage, which may help if you’re involved in an accident with another vehicle or if you hit another object
- Comprehensive coverage, which may help cover damage caused by theft and vandalism or by fire, hail and other natural causes
- Liability coverage, which may help cover either bodily injury or property damage
- Uninsured or underinsured motorist coverage, which may help protect you if you’re in an accident with an uninsured motorist who is unable to cover the costs of your injuries or damages to your car
The types of coverage and amount you choose depend on your situation and personal liability. Insurance costs are typically determined by the year, make and model of your car, the state in which you live, your age and years of driving experience, and your accident and conviction record over a period of three to five years. In most states, your credit scores can also play a factor.
How much liability coverage should I purchase?
Liability coverage, mandatory in most states, helps ensure that money will be available to cover the costs if an accident results in personal injury or damage to a car or other property. Each state has its own liability requirements, but choosing only the minimum might not be enough coverage to protect you, your passengers and other injured parties or to adequately cover property damage caused by an accident. If you lack sufficient coverage, you may end up personally responsible for compensating injured parties or for repairing damaged property after an accident.
As with all insurance, choosing the amount of coverage you need to meet or exceed minimum requirements depends on your assets and the level of risk with which you’re comfortable. It’s generally recommended to obtain enough liability insurance to cover the total cost of your net worth in the event the other party involved in an accident decides to pursue legal action for damages. However, this level of coverage may not be possible depending on how much room you have in your budget for auto insurance.
You may also want to talk with your insurance agent about whether you need an umbrella policy, which provides extra liability coverage that can give you another layer of protection.
Do I need comprehensive and/or collision coverage?
Unlike liability insurance, which pays for injury or damage to another person or another person’s property caused by an accident, comprehensive and collision coverages pay for repairs to your own car, including if your vehicle is totaled. In addition, comprehensive coverage covers your costs if your car is damaged or totaled in a natural disaster or fire.
Because comprehensive and collision coverages are intended to repair or replace your vehicle, the cost can vary widely. High-performance, luxury and sports cars, for example, are more expensive to insure than more basic models. However, despite what you may have heard, the color of your vehicle does not impact the cost of your auto insurance.
If you finance the purchase of a new or used vehicle, or if you lease a vehicle, the lienholder will require you to secure comprehensive and collision coverages before driving the car home.
Depending on where you live and your driving record, buying certain types of insurance coverage can be expensive and you may decide it’s not worth it. The price of your vehicle may be, in some cases, lower than the cost of the insurance policy. For example, if you received your car as a gift from a relative, you may opt for liability coverage that exceeds state requirements, rather than purchasing comprehensive and collision insurance. Research your car’s value using Kelley Blue Book and its safety ratings using SaferCar.gov. You’ll then be equipped to make a more informed decision about whether to purchase physical damage coverage.
When do I have to tell my insurance company about my new car?
It’s best to contact your agent before picking up your newly purchased car so they can provide you with proof of insurance before you drive the vehicle home. If you have an existing auto policy at the time of purchase and fail to notify your agent, you may have anywhere from five to 30 days of automatic coverage for your replacement vehicle, depending on the state in which you live. However, it may only be liability coverage. If you do not have an existing auto policy, you will definitely need to secure coverage before picking up your new car.
You also need to make sure you’re following the vehicle registration laws in your state. Even if you have insurance coverage in place when you drive your new car home, it’s wise to get your department of motor vehicles (DMV) paperwork in order as well.
What discounts are available to help reduce the cost of my insurance?
Most new cars come equipped with safety features that can reduce the cost of your auto coverage, including airbags, alarms and anti-lock brakes. Similarly, during the Covid-19 pandemic, many insurance companies are offering discounts, refunds and credits to make your coverage more affordable. Other factors that may help reduce your insurance costs are:
- Defensive driving classes
- Good student discounts
- Overnight garage parking
- Pleasure use vs. driving to and from work
- Higher deductibles on physical damage coverage
- Mature driver/retiree discounts
- Multi-car and multi-policy discounts
Whether you’re buying a car for yourself or a loved one, it’s important to give your insurance agent as much notice as possible. That way, you’ll have enough time to review your options and choose the right coverages for you before driving that new car home.