Types of Auto Insurance Coverage
Auto insurance can be quite complex. Every driver in the United States is required by law to purchase auto insurance, but you may feel confused about how it works. What does it cover? How much does it cost? And why does it cost so much? Let’s take a closer look at how it works, and what can save you time and money.
Types of Auto Insurance Coverage
One of the reasons auto insurance can seem complicated is that it can include many different types of coverage. There are minimum coverage requirements in most states, and you can add additional coverage to help cover costs in more situations. Here are the types of coverage you’ll find in auto insurance policies.
Liability
This coverage is required in most states. Your policy may have two types of liability coverage: bodily injury liability and property damage liability. If you are found to be responsible for an accident, liability insurance helps cover the costs incurred by the other party.
With bodily injury liability, your insurance helps cover the medical bills of the other party. With property damage liability, your insurance helps cover damages to the other party’s vehicle or the property you hit with your vehicle.
Liability coverage is usually written on your declarations page as a set of three numbers. For example, you might have 25/50/10 coverage. The first number (25) means that up to $25,000 can be paid for one person’s injuries in an accident. The second number (50) means that up to $50,000 can be paid for injuries to multiple people in an accident. The third number (10) refers to property damage, meaning coverage is provided up to $10,000 for damages to someone else’s property.
Note: Liability insurance does not cover the costs to repair your vehicle or your medical bills. It only covers the other party if you are found responsible for the accident.
Personal Injury Protection and Medical Payments
Some states require you to purchase personal injury protection (PIP) coverage. In other states, you may have the option to purchase either PIP coverage or medical payments coverage. Personal injury protection provides more comprehensive coverage than medical payments insurance. PIP insurance covers you and your passengers in the event of an accident. PIP pays for medical expenses, lost wages, and non-medical costs.
Medical payments coverage helps pay medical bills for you and your passengers if there are injuries resulting from a car accident. It doesn’t matter who is at fault. It should not be used as a substitute for health insurance because it only covers medical expenses for injuries that occur in a car accident.
Uninsured/Underinsured Motorist Coverage
Most states require you to have uninsured/underinsured motorist coverage. This helps cover medical expenses and damages to your vehicle if the other party is at fault for the accident but does not have insurance or does not have enough insurance. For example, if your car is damaged in a hit-and-run accident and the other party is not found, your repair costs may be covered by uninsured motorist insurance.
Collision
Collision insurance helps pay for the repair costs of your car if you are at fault for an accident. A collision occurs when the vehicle is in motion and hits another object. This could be a mailbox, guardrail, another vehicle, or any inanimate object. Collision may also be covered if you hit a pothole or your vehicle rolls over.
Comprehensive
Comprehensive insurance covers
Comprehensive insurance covers a wide range of damages to your vehicle, as long as they are not a result of a collision. Most policies cover damages caused by hail, floods, hurricanes, collisions with animals, fire, theft, vandalism, and damages resulting from falling objects.
Windshield damage may also be covered under comprehensive insurance. Some insurance companies also offer separate full glass coverage that allows you to replace your windshield glass without paying the comprehensive insurance deductible.
Roadside Assistance
This is an optional type of coverage, but it is usually affordable. If your car breaks down, you can have it towed to a local service facility (according to your policy terms). Roadside assistance may also include help if you lock yourself out of your car, need a new battery, or run out of fuel.
Rental Reimbursement
Access to a rental car after filing a claim is important for many drivers who do not have a backup vehicle. Rental reimbursement covers some of your rental costs if you need to rent a car while your current vehicle is being repaired. This coverage may have daily limits, and the insurance provider may set the number of days you can use the coverage.
Some insurance companies may automatically include a small amount of coverage if your vehicle is in a covered accident. Otherwise, you will need to add the coverage to your policy.
Gap Insurance
Do you owe more than your car is worth? Gap insurance covers the difference between your car’s value and what you owe if you file a claim for a total loss. You can often purchase this from the car dealer when buying a new vehicle, in addition to getting it through your loan or insurance company. You may want to consider all available options before deciding where to buy gap insurance.
Factors Affecting Car Insurance Costs
Car insurance costs vary from one insurance company to another. They also vary from person to person, even if you buy the same coverage from the same company. These factors affect your car insurance costs.
Your Policy Choices
You have some control over your policy costs (also known as premiums). As long as you meet the minimum requirements of your state, you can adjust your policy limits, the types of coverage you have, and your deductibles.
Policy limits: The more coverage you get, the higher your costs will be. While it may be tempting to stick with the minimum coverage required by the state, you should consider getting more if possible. Liability limits in states are low, and the actual costs associated with an accident can be high. Medical care bills, for example, can become very expensive very quickly. Types of coverage: Comprehensive insurance and collision insurance are often optional, but your lender or leasing company may require you to have these types of coverage if you financed or leased a vehicle. If this coverage is optional for you, get quotes with and without this coverage when shopping for a policy. And remember that not having this coverage means higher potential costs you may incur if something happens with your vehicle. Premium maximum: The premium maximum is the amount you pay out of pocket after filing a claim before your insurance coverage kicks in. A higher premium limit usually results in lower insurance premiums. There may be different underwriting considerations for different types of coverage.
Rating Factors
Insurance companies also use statistical data to determine which drivers are likely to be high-risk. They charge higher insurance rates to high-risk drivers. Here are some common rating factors. Your age: You probably already know that age is a factor. New drivers pay more, then rates decrease as they gain experience. Prices start to rise again later in life. For example, a 75-year-old driver can be charged rates similar to newly licensed teenagers. Your vehicle: If you have a high-value vehicle, your insurance cost will be higher. Your costs will also be higher if you have a sports car instead of a family vehicle. Your driving record: You will pay more for insurance if you have a history of speeding tickets or other driving violations. Your claims history: Insurance companies also consider whether you have filed car insurance claims in the past and what those claims were. If you frequently file claims, you are likely to be charged higher rates. Your location: Where you live can also be a factor that affects your car insurance rate. Insurance companies monitor claims from different areas and may charge higher rates for drivers living in areas with higher claim frequencies.
Source: https://www.thebalancemoney.com/car-insurance-guide-4802701
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