The Basics of Auto Insurance

An auto insurance policy is actually a package of different coverage’s. Most states require you to purchase a minimum amount of certain kinds of coverage. But if you're interested in protecting yourself from a lawsuit or from wicked repair bills, then it makes sense to buy more than what's required.

Liability Insurance 
Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the bodily injury and property damage expenses caused to third parties in the accident, including legal bills. Bodily injury expenses include medical bills and lost wages. Property

damage expenses pay for the repair or replacement of things you wrecked. The third party may also decide to sue you in order to collect "pain and suffering" damages.

Remember, if you cause a serious accident, minimum insurance may not cover you adequately. That's why it's a good idea to buy more than what your state requires. 
 

Collision And Comprehensive Coverages 
 

Collision 
If you cause an accident, collision coverage will pay to repair your vehicle. You usually can't collect any more than the actual cash value of your car, which is not the same as the car's replacement cost. Collision coverage is normally the most expensive

component of auto insurance. By choosing a higher deductible, say $250 or even $500, you can keep your premium costs down. However, keep in mind that you must pay the amount of your deductible before the insurance company kicks in any money after an acci

dent.

Insurance companies often will "total" your car if the repairs the company must pay exceed what the car is worth.

Comprehensive 
Comprehensive coverage will pay for damages to your car that weren't caused by an auto accident: Damages from theft, fire, vandalism, natural disasters, or hitting a deer all qualify. Comprehensive coverage also comes with a deductible and your insurer wi

ll only pay as much as the car was worth when it got wrecked.

Because insurance companies normally will not pay you more than your car's book value, it's helpful if you have a rough idea of this amount. Most insurance adjusters use the Kelley Blue Book. The National Automobile Dealers Association also publ

ishes the Official Used Car Guide, which is updated each month. If your car is worth less than what you're paying for the coverage, you're better off not having it. 
 
 

Medical Payments, PIP, And No-Fault Coverages

MedPay will pay for your and your passengers' medical expenses after an accident. These expenses can arise from accidents while you're driving your car, someone else's car (with their permission), and injuries you or your family members incur when you're

pedestrians. The coverage will pay regardless of who is at fault, but if someone else is liable, your insurer may seek to recoup the expenses from them.

Personal injury protection (PIP) and broader "no-fault" coverages are expanded forms of medical payments protection that may be required in your state. Some states have optional PIP or no fault. Expanded features include lost wages and payments for child

care.

Uninsured/Underinsured Motorists Coverages

Uninsured motorists (UM) coverage pays for your injuries if you're struck by a hit-and-run driver or someone who doesn't have auto insurance. It is required in many states.

Underinsured motorists (UIM) coverage will pay out if the driver who hit you causes more damage than his or her liability coverage can cover. In some states, UM or UIM coverage will also pay for property damages.

Add-On Features

Several supplemental auto coverages are available, either as separate premium items or included in augmented policies.

• Rental reimbursement, a common add-on, covers vehicle rentals required because your car is damaged or stolen.
• Coverage for towing and labor charges in case of a road breakdown is also common.
• Auto replacement coverage guarantees car will be completely repaired or replaced, even if these costs exceed its depreciated value.

Life Insurance Basics

The main reason for life insurance is to provide income replacement to your beneficiaries if you die. But if you are interested in estate planning, cash accumulation, wealth transfer, and estate tax liquidity, life insurance can also help you achieve these goals.

Put simply, term life insurance provides death-benefit protection for a specified period of time (for instance, you might buy a policy that has to be renewed in two years). Generally speaking, if you're looking for coverage for a short period of time, term life makes more sense.

But if you are looking to have a policy for the rest of your life, or have investment goals, permanent insurance is a better fit. All life insurance policies will require that you meet certain medical criteria.

Term Life Insurance 
Non-Guaranteed Term Life 
Non-Guaranteed term life provides coverage only for a short time (usually a year) and is pure death-benefit protection. The risk with term life is that your health might deteriorate and you could be unable to get another policy once the term is up. Premiums can also increase dramatically as you age, but term life insurance is usually a good choice for young people who can't afford the higher expense of permanent insurance, or for people covering specific needs that will disappear in time, such as a car loan or a mortgage.

Yearly Renewable and Convertible Term 
Yearly renewable term insurance offers a longer term, usually for five, 10, or 20 years. By buying a longer term policy, your costs can be stretched out to avoid the annual increases found in non-guaranteed term life.

Convertible term is like yearly renewable term but it also offers conversion to a permanent policy in the future — when regular term premiums might become cost-prohibitive or if your health declines. Convertible term policies usually provide the maximum protection with the smallest amount of cash outlay required. This is a good choice especially for young people who are unable to afford the higher cost of permanent insurance right now but need maximum life insurance and also want to have the option of converting to permanent coverage in the future.

Permanent Life Insurance 
Whole Life or Ordinary Life 
Similar to yearly renewable term and convertible term, whole life policies stretch the cost of insurance out over a longer period of time in order to level out the otherwise increasing cost of insurance. In this case, however, it is spread not over a few years but over your entire life. Your excess premium dollars are invested in the company's general portfolio. Because you aren't personally managing that investment, your selection of an insurance company is vitally important.

With this type of policy, however, the inflexibility of premium payments could become a burden if your expenses increase or if you lose your job.

Universal Life 
This option offers greater flexibility than whole or term life. After your initial payment, you can reduce or increase the amount of your death benefit (although to increase the amount, you'll probably have to give the insurance company medical proof that you are still in good health). Also, after your initial payment, you can pay premiums any time, in almost any amount within the policy's required minimums and maximums.

You will need to actively manage these policies to maintain sufficient funding, especially because the insurance company can increase charges (like mortality and expenses). Plus, part of your premium is invested by your insurance company, so you'll need to be careful when choosing a company.

Variable Life 
There are both Universal and Whole Life versions of Variable Life. This option provides death benefits and cash values that fluctuate with the performance of the insurance company's portfolio of investments (you'll receive a prospectus along with your policy). The cash value is not guaranteed, but you get to choose where your premium dollars go among the variety of investments in the portfolio. Thus, while there is no guaranteed cash value, you have control over your money and can invest it according to your own tolerance for risk. If your investments perform well, you'll have a higher cash value and death benefit. If they don't, you'll have a lower cash value and death benefit, although some policies guarantee a minimum death benefit.

You can also take loans against the cash value of your policy, but if you don't pay them back with interest, your beneficiaries will receive a reduced death benefit. You can also surrender your policy for cash or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

Look closely at the underlying funds a company offers: Are they well-balanced? Do they give you a range of choices to satisfy all risk tolerances?