If you are involved in an accident or have your car stolen, having the right kind of auto insurance can help protect you against financial loss. Auto insurance is simply a contract between you and your insurance company. You agree to pay the insurance premium and the insurance company agrees to pay your covered losses in the event of a claim.
Bodily Injury Liability
This vital insurance is required coverage in most states. It
applies to injuries that you, the designated driver or policyholder,
cause to someone else. It pays the medical bills, lost income, pain and
suffering, even funeral expenses for people who are injured in an auto
accident (provided you were held responsible for their injuries).
Family members listed on the policy are also covered when driving
someone else’s car with their permission.
It is very important to have enough liability insurance, because if
you are involved in a serious accident, you may be sued for a large sum
of money. You should therefore consider carefully whether the coverage
you have chosen is adequate to protect your financial security against
the expenses for which you could legally be held responsible. Expenses
are only paid up to the limit of coverage you have selected, so you
should definitely consider buying more than the state-required minimum
to protect assets such as your home and savings.
Medical Payments or Personal Injury Protection (PIP)
This auto insurance pays for the treatment of injuries to the
driver and passengers of the policyholder's car. At its broadest, PIP
can cover medical payments, lost wages, and the cost of replacing
services normally performed by someone injured in an auto accident. It
may also cover funeral costs. In addition, PIP will protect you and
other household family members if you are injured while riding in
another person’s car.
This is an optional insurance*, mainly because it
may duplicate coverage in your comprehensive health plan. However, many
policyholders believe that it is a good idea to carry Medical Payments
coverage for those out-of-pocket expenses their health insurance may
not cover (like an annual deductible or co-payments). Another reason to
consider adding PIP when requesting an auto insurance quote is to
ensure there is some protection for those passengers in your auto who
may not have health insurance.
Property Damage Liability
This coverage pays for damage you (or someone driving the car with your
permission) may cause to someone else's property. Usually, this means
damage to someone else’s car, but it also includes damage caused to
lamp posts, telephone poles, fences, buildings or other structures.
With even used autos having book values of $15,000 or higher, it is in
your best interests to get adequate coverage—enough to repair or
replace someone else’s car.
As with Bodily Injury Liability insurance, it is probably better to
overestimate, rather than underestimate Property Damage Liability
coverage. This type of auto insurance coverage is mandatory in most
states.
Collision
This coverage protects your car. It pays for damage to your vehicle
resulting from a collision with another car or object, or as a result
of flipping over. It also covers damage caused by potholes. Collision
coverage is generally sold with a deductible of $250 to $1,000—the
higher your deductible, the lower your premium.
Even if you are at fault for the accident, your collision coverage
will reimburse you for the costs of repairing your car—minus the
deductible—up to the limit of the actual cash value of your car. If
you're not at fault, your insurance company may try to recover the
amount they paid you from the other driver’s insurance company. If they
are successful, you'll also be reimbursed for the deductible.
Comprehensive
This coverage reimburses you for loss due to theft or damage
caused by something other than a collision with another car or object,
such as fire, theft, falling objects, earthquakes, hail, floods,
vandalism, riots or damage caused by hitting an animal (such as birds
or deer). Comprehensive auto insurance also provides coverage, without
a deductible, for transportation expenses incurred by you in the event
of a covered loss. Comprehensive insurance will also reimburse you if
your windshield is cracked or shattered after your policy’s deductible
(if any) is applied.
If one of the covered damages occurs, you simply pay the deductible
amount, and the comprehensive coverage pays the remaining repair or
replacement expenses, up to the limit of the actual cash value of your
auto. Comprehensive insurance is usually sold with a $100 to $300
deductible, though you might want to opt for a higher deductible as a
way of lowering your premium.
States do not require that you purchase collision or comprehensive
coverage, but if you have a car loan, your lender may insist you carry
it until your loan is paid off.
Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a
designated driver if one of you is hit by an uninsured or hit-and-run
driver who is held legally responsible for your injuries. It pays
medical and other related expenses up to the limits of the coverage you
select.
Underinsured motorist coverage comes into play when an at-fault
driver has insufficient insurance to pay for your total loss. This
coverage will also protect you if you are hit as a pedestrian.
Towing and Labor
Towing and Labor coverage helps to reimburse expenses you incur if your
car is temporarily disabled. It is available if you have purchased at
least Comprehensive coverage.
