Although it is a specialized, multifaceted product, car insurance doesn’t have to be difficult to understand. It’s crucial to understand the common types of insurance coverage in order to comply with your state’s minimum insurance requirements as well as to safeguard your finances from a significant out-of-pocket payment in the event of an accident. In order to assist you better understand how your insurance functions, Bankrate explains the various coverage options on a personal auto policy.
the most typical kind of automobile insurance
Although many of the top auto insurance providers offer a variety of coverage options, you might find it simpler to comprehend your policy if you divide it into two categories: mandatory coverage and optional coverage.
Liability insurance is nearly always required, much as bodily injury and property damage coverage. You might also need to carry uninsured motorist coverage and personal injury protection, depending on the minimal standards set forth by your state. Contrarily, personal auto insurance is not required (unless you’re financing or leasing a vehicle).
1. Liability insurance
Being liable denotes having a legal obligation to do something. Liability in the context of auto insurance refers to the harm and losses you contribute to during a collision. Most typical auto insurance policies cover both bodily injury and property damage as categories of liability.
2. Bodily injury liability (BI)
What it addresses: If you caused the collision, bodily injury liability coverage will cover the other party’s medical costs. Your insurance provider will typically write bodily injury claims on a per person, per accident basis. For instance, your motor policy might specify bodily injury coverage at $25,000/$50,000. This means that you have a maximum of $50,000 per accident and $25,000 of bodily injury coverage per person.
Example of coverage: You strike another car after running a red light. The second vehicle’s driver breaks his leg, incurring $15,000 in hospital expenses. Up to the amount of coverage you carry on your policy, your bodily injury coverage would take effect to pay for those expenses.
3. Risk of property damage (PD)
What it addresses: When you cause damage to someone else’s property—not your own—in an accident for which you are at fault, property damage liability coverage pays to fix the harm. This will most likely be recorded by your insurance provider as a single limit. For instance, your motor policy’s property damage coverage may show $25,000 as an example. This indicates that you have coverage for $25,000 to fix anything you strike, including another automobile, a pole, a house, or another immovable item.
Example of coverage: You crash into a light pole after running onto a patch of black ice. The cost of repairing the pole, according to the city’s assessment of the damage, will be $5,000. You would have more than enough coverage to cover the cost of the repairs if your insurance covered $25,000 in property damage.
4. bodily injury liability for uninsured and underinsured drivers (UM/UIM)
What it addresses: Despite being two different types of coverage, uninsured and underinsured motorist coverage are typically combined on your auto insurance policy. If another driver hits you and they have no or insufficient bodily injury liability to cover your medical costs, uninsured motorist coverage and underinsured motorist coverage pay for your medical bills and other losses. If you are the victim of a hit-and-run, this coverage can also be applicable to you. Depending on your state, some coverage options may or may not be required.
Example of coverage: The other driver was uninsured, and the collision was not your fault. You accrue medical expenses of $25,000 and have $25,000/$50,000 in uninsured motorist insurance. You could save money on out-of-pocket medical expenses if you have this coverage.
5. Vehicle coverage
In addition to the necessary liability insurance, you might want to think about collision and comprehensive insurance for your car, especially if it’s more recent or expensive. Although these coverage kinds are not legally required, your lender will probably demand them if you have a loan or lease on your car.
6. Collision (COLL) (COLL)
What it covers: Collision insurance pays for vehicle damage, regardless of who caused the collision. Collision coverage doesn’t have a specified limit, in contrast to the options for liability coverage. Instead, it will provide coverage up to the actual cash value, or ACV, of your car after depreciation. There is a deductible associated with this plan, which you are responsible for paying.
Example of coverage: While changing lanes, you are distracted and fail to check your blind area, sideswiping a car. Your car has sustained a total estimated damage of $1,200. Your car is covered by collision insurance with a $500 deductible. Since you are responsible for the deductible, your insurance provider would contribute $700 to the cost of the repairs.
7. Comprehensive (COMP or OTC)
What it addresses: Your car’s damages from natural disasters (including hail, wind, and floods), fire, theft, vandalism, falling items, and animal collisions are all covered by comprehensive coverage. Also includes protection for your windshield Comprehensive also has a deductible, much like collision.
Example of coverage: A deer darts in front of you, and you collide with it. The outcome is significant front-end damage to your car, which will cost $7,000 to fix. You have comprehensive insurance with a $500 deductible, so your insurance company will contribute $6,500 to the cost of the repairs, leaving you to pay the remaining amount.
8. Uninsured motorist property damage (UMPD)
What it covers: If someone hits you without having insurance, uninsured motorist property damage pays to fix the damage to your car. Uninsured property damage may be required in some states. Others do not provide it. If your state offers this coverage, it often has a low deductible of $100 to $300.
Example of coverage: Your car sustains $700 in damage after being struck in a parking lot. There is no insurance on the driver. However, since you have uninsured motorist property damage coverage on your policy, your insurer might pay for your car’s repairs after deducting your $100 deductible.
1. Health insurance coverage (MPC or MedPay)
What it includes: No matter who was at fault for the accident, medical payments coverage typically is offered as an optional coverage (although it is required in a few states, like Maine). It pays for medical expenses for you and your passengers. The maximum for this coverage, which is written on an individual basis, often runs from $1,000 to $10,000. In addition, if you are struck by a car while walking, medical costs coverage can protect you.
Example of coverage: You are rear-ended and get whiplash as a result. Your hospital cost is $3,000, and your motor insurance policy includes $5,000 in maximum medical payments coverage. Your medical expense would be fully covered by your medical payments insurance in this scenario.
2. Protection from personal injury (PIP)
What it addresses: Similar to medical payments insurance, personal injury protection covers your and your passengers’ medical expenses regardless of who caused the accident. It can also pay for costs like child care or housekeeping that medical payments do not cover. Even while not all states need it, personal injury protection might be necessary if you reside in a no-fault state.
Example of coverage: As you cross the intersection, a car blows through a stop sign and strikes you. Your personal injury protection may cover the $4,000 in chiropractic care that your injured passenger needs.
3. Gap insurance
What it covers: When financing or leasing a new car, some consumers choose to add gap insurance as an optional coverage. A car’s value decreases as it becomes older. Due to this depreciation, you may occasionally owe more on your car than it is worth. If your new vehicle is totaled in a covered loss or stolen and unrecoverable, gap insurance may kick in to cover the shortfall.
Example of coverage: Your financed car’s true cash value is $15,000, but you still owe $20,000 on the loan. When you are found to be at fault for an accident, your insurance provider will declare your car a total loss due to the extent of the damage. Your claims cheque is for $14,500 after deducting your $500 collision deductible. The $5,500 difference between the real cash value of your car and the outstanding loan debt could then be covered by your gap insurance.
4. substitute new vehicle
What it covers: If your automobile is totaled and under a specific age or mileage limit, new car replacement coverage, which is optional, will pay for a brand-new car.
Example of coverage: Despite having just recently been in an accident, your brand-new car that you purchased six months ago was totaled. Your insurance company would pay for a brand-new vehicle rather than one that is six months old if you have new car replacement coverage on your policy (which would have been comparable to the vehicle that was totaled in the covered loss).
5. Coverage for roadside assistance
What it covers: When you have comprehensive or collision insurance, roadside assistance coverage is typically an option. Roadside assistance varies from provider to company, but it often includes towing, flat tires, and even a locksmith.
Example of coverage: You’re on a road trip when your automobile breaks down. You call your auto insurance provider since you have roadside assistance coverage, and they will send a tow truck to you at no cost to you.
6. Car rental insurance
What it covers: Rental car coverage, often known as rental reimbursement, will cover the cost of your automobile rental if you require one while having a covered loss cause your vehicle to be repaired.
Example of Coverage: Your automobile runs off the road, requiring expensive repairs that your collision insurance will pay for. Because you have rental car insurance, your insurance company would pay for your rental up to a set amount each day rather than making you pay for it out of pocket if your car needs to be in the shop for two weeks.
How can I locate the greatest insurance for me?
Your personal needs determine the sorts of auto coverage you decide to include in your policy. You must carry the minimal amounts mandated by your state in order to be in compliance with the law. To better safeguard your finances, the majority of insurance experts advise that you carry higher liability limits. If you’re at fault in an accident and only have the minimum coverage, you could incur thousands of dollars (or more) in out-of-pocket costs.
If you’re financing or leasing, you’ll probably also need comprehensive and collision insurance. Lenders typically impose restrictions on the amount of your deductible (the range is typically $500 to $1,000). However, you have a choice in terms of coverage choices like gap insurance and emergency roadside assistance as long as you comply with your state’s and your lender’s standards.
Asking questions is always a smart idea, whether you’re looking for the finest auto insurance provider or have concerns about the coverage under your current policy. Speak with an insurance expert and ask for a review of the policy.