Everyone probably has an idea as to what is car insurance. However, there is no harm in properly defining it and various coverage options in detail to avoid false expectations. Also, it is always a good idea to refresh your knowledge every so often because insuring a vehicle requires attention to detail.
Auto insurance is a contract that is taken out to pass certain risks arising from ownership and/or driving the insured vehicle to the insurance company. This contract (policy) clearly states what is insured, up to how much, how long, what is the deductible, who is insured to drive and what are the terms and conditions of the policy (contract). The policyholder’s main responsibility is to pay the premium agreed for the term and make sure not to break policy terms and conditions. In return, the insurer promises to pay for the agreed damages up to the limit set on the policy.
Auto insurance coverage is the term used for defining what damages and losses are insured. You need to have the coverage in your policy before you can make a claim. You can be insured for various damages and losses by adding the corresponding coverage onto your policy. These covers will be discussed below.
What Is Liability Car Insurance Coverage?
Whenever you start driving there is always a chance that you may injure someone or cause property damages by causing an accident. Liability car insurance is bought to transfer the burden of paying for these damages and injuries you may cause to third parties in the process of driving to your insurer.
A typical liability auto insurance coverage has two components; the Bodily Injury Liability is for injuries and Property Damage Liability is for monetary damages you cause. It is usually expressed like $25,000/$50,000/$25,000 and that means;
$25,000 bodily injury liability limit per person injured
$50,000 bodily injury liability limit per accident
$25,000 property damage liability limit
The minimum limits vary depending on which state you live as they are set by your state. Although you cannot go below the minimum there is nothing stopping you from increasing the limits set by your insurer. Most experts would advice you to increase the limits to something like $100,000/$300,000/$100,000.
Minimum liability auto insurance coverage set by your state is the only mandatory car insurance coverage you have to buy. Personal Injury Protection (PIP) would be required as well in no-fault states. All the other covers we will discuss below are optional but they are usually essential that most people buy them. You can read further if you ask how much car insurance do I need?
What Is Full Coverage Auto Insurance?
Agents, brokers, insurers and policyholders regularly use the term full coverage. So, what do people mean when they say they are fully insured? Full coverage car insurance is not actually one type of coverage but it is a combination of different types of covers. A full coverage policy is in fact a packaged policy that ensures main risks associated with driving a vehicle is included in a policy. In other words, damages and injuries to other people and your own vehicle are insured. Full coverage auto insurance policies provide good coverage by including the larger risks that can cause financial ruin. However, it may be a stretch to say that you are fully insured when you have a typical full coverage policy.
What goes into full coverage auto insurance may change slightly depending on the insurer and the state you live in. Usually, typical full coverage car insurance policies consist of liability, Collision and Comprehensive Coverage.
Uninsured & Underinsured Motorist and Personal Injury Protection (PIP) covers may be required to be included by some states. No fault states require minimum Personal Injury Protection and some states require Uninsured Motorist Coverage to be included with every policy sold. Some insurers include Rental Reimbursement Coverage as well on their packages.
Liability Coverage is already defined above and the rest will be explained below.
– What Is Collision Car Insurance?
When people think automobile insurance they usually think traffic accidents. As the name suggests, collision auto insurance coverage is designed to deal with physical damages your own vehicle may sustain in an accident. Once you buy collision coverage you know that your insurer will make your car good if it ever involves in an accident. If it needs to be repaired they will get it repaired and they will pay its open market value if it is totaled.
– What Is Comprehensive Auto Insurance?
Comprehensive and Collision Coverage compliments each other and together they cover almost all types of damages that may come to an insured car. Comprehensive Car Insurance Coverage is there to handle nearly all losses, except collision. Once you buy comprehensive coverage your investment on your vehicle is safe because your insurer will either repair or pay enough money to replace it if it is stolen, damaged in fire, flooded, storm damaged, crashed by a falling object, vandalized and suffered other accidental damages. You just need to make sure your full coverage policy has Collision cover too.
– What Is Personal Injury Protection (PIP) Coverage?
Personal Injury Protection (PIP) is a type of auto insurance coverage that is designed to cover medical costs and consequential losses of the policyholder and his/her family after a vehicular accident, regardless of who is at fault. So, it is there to pay for your and your family’s injury costs and it is a very helpful cover, especially for people with no health insurance to pay for such medical expenses.
A minimum PIP coverage is required by no-fault states as part of your minimum coverage set by the state. Otherwise, this coverage is optional. If you already have a good health insurance you may not see the need for this coverage.
– What Is Uninsured & Underinsured Motorist Coverage?
About 1/7 of US drivers are uninsured and there is every chance one of them may crash into you. Also, considering how low minimum coverage requirements in many states are their insurance may not pay all the damages they cause, making them underinsured. Luckily there is a coverage designed to handle losses and injuries you suffer due to accidents caused by uninsured or underinsured drivers. In both cases, your insurer would step in to pay for your losses should you have Uninsured & Underinsured Motorist Coverage.
This Coverage comes in two parts. Uninsured Motorist Injury Coverage is for injuries you and your family sustain because of an accident caused by an uninsured driver and it covers you when you are a pedestrian as well. The second part is Uninsured Motorist Property Damage Coverage that is to do with physical damages to your vehicle, again in an accident caused by an uninsured driver. The latter may not be available in every state in which case buying Collision coverage would help you deal with such risks.
Some states require liability policies to include Uninsured Motorist Coverage automatically for the same amount you provide for third parties. Otherwise, it is up to you to include or exclude this coverage.
– Other Possible Inclusions to Full Coverage
Insurers can make full coverage auto insurance policies as basic or comprehensive as they want. You can also add one or two additional covers to your standard policy. One of the most common inclusions to a full coverage policy is Rental Reimbursement Coverage that pays for rental cars while yours is being repaired after an insured damage. You can also have towing, emergency roadside recovery, gap, and accident forgiveness coverage on to your policy depending on your requirements and costs.
Hopefully this post helped and you are now better equipped to deal with the question of what is auto insurance. You can bolster what you learned on this post by reading what does car insurance cover. You have plenty options when it comes to insuring your automobile. There are plenty coverage options you can include in your policy for extra protection or take out to save money.
In addition, there are many different insurers in your state from large national corporations to local insurers to choose from. You should always keep in mind that the premium difference between the cheapest insurer and most expensive one could be several folds. That is why you need to compare auto insurance companies not only for quality but also for price. Some people may be worried about the time they need to put aside to shop around for the best coverage and deal. Those people can find out how long does it take to get car insurance?