Car Insurance Coverage Explained

For consumers, knowing what type of car insurance coverage they need, what coverage they should probably have, and what coverage is just a drain on their wallet isn’t always easy. Understanding key words used by auto insurance companies will help consumers make informed decisions when they purchase policies. You’re going to want to compare the extent and type of coverage that is included in order to get a good idea of the value being offered.

Coverage You Must Have

Liability insurance protects you and your vehicle in case of an accident wherein you’re found to be at fault, and this kind of insurance is usually split into two different plans. Two of the most important types of car insurance coverage are bodily-injury liability and property damage liability. Bodily-Injury liability pays for medical expenses, lost wages, lawyer fees and pain and suffering inflicted on the other driver in the case of an accident. Property damage liability covers damage inflicted on the other driver’s car and property, as well as any associated court fees. Each state requires drivers to pay for a minimum amount of liability coverage, but it’s often in the best interest of drivers to purchase more. For example, $30,000 of property damage liability would cover the cost of a new car, which averages about $25,000.

Your monthly rate will be connected to the dollar amount the insurer will cover in case of an accident, and this dollar amount is what to look for when you compare liability insurance rates.

Coverage You Should Have

Uninsured-motorist and underinsured-motorist coverage are two more crucial types of car insurance coverage. This type of coverage pays for medical expenses and property damage if a driver is hit by someone who is uninsured or underinsured. Uninsured means the person didn’t have insurance, didn’t have the minimum amount of insurance, or was a hit-and-run driver. Underinsured means the person didn’t have enough insurance to cover the victim’s injuries. While this type of coverage is not mandated by most states, it is highly recommended by experts because of the large number of motorists who are uninsured or underinsured.

Coverage You Might Want

Personal-injury protection (PIP) is a type of car insurance coverage that pays for an accident victim’s medical expenses and funeral costs, regardless of who caused the accident. It is also called “no fault,” and insurance companies are not supposed to raise their policy-holders’ premiums if they have to pay out the PIP coverage. Some states mandate personal-injury protection, and some employers require it, particularly if their employees drive as part of their job. If the state does not mandate the purchase of personal-injury protection, however, consumers might not want to invest in it unless their health insurance and disability coverage are very low.

Coverage You Might Need

Most lenders require financed vehicles to have collision and comprehensive coverage. Collision insurance will cover the costs incurred when your vehicle is damaged in a collision or accident regardless of who is at fault.  There are two reasons this coverage might be desirable or even necessary.  If you are driving a new car that you have financed rather than purchased outright you may well be required to obtain collision insurance.  Collision insurance is also worth considering because even very safe and skilled drivers can make mistakes.  If you are found to be at fault for an accident and only have liability insurance the damage incurred to your own vehicle will not be covered.  Considering whether or not a given rate includes collision insurance is another way to compare auto insurance rates.

Comprehensive coverage pays for damages incurred by theft or acts of nature like flood and fire. One way to understand comprehensive insurance is that this is a policy that covers the cost from damage incurred while your vehicle is stationary.  Comprehensive coverage would cover the costs of repairing your car after damage from vandalism, damage from weather, and damage from falling objects such as pianos and safes.  The maximum amount of comprehensive coverage you can purchase will be equal to the total blue book value of your car.  If you drive an older automobile the coverage offered will be low.

For drivers whose cars are worth less than $5,000, comprehensive and collision coverage aren’t recommended because the amount paid to the insurance agency through premiums could end up exceeding the amount received in the case of an accident. For drivers who do choose comprehensive or collision coverage, they might want to choose a high deductible over $500 to reduce the price of the premium.

No drivers want to pay more for their car insurance coverage than they have to. As a result, it’s crucial for drivers to know what types of coverage are mandated by their state. They should also take into account their budget, their vehicle, and their personal needs in order to find the best fit possible.

What the Law Requires

Excepting Virginia, every State requires you to purchase liability insurance for your car, however the amount of coverage that is mandatory varies from State to State.  Some states are more lenient and require less insurance than others.  Considering what you are required to purchase as compared to what is optional is another thing to look for when comparing auto insurance rates.

Many factors can go into determining how expensive any given auto insurance plan will be.  There are various deductibles and penalties that can apply given your individual circumstances, but understanding the basics and knowing just what is being offered will definitely help you as you compare auto insurance rates.