Types of Car Insurance Policies

Most motorists buy one of two kinds of policies, depending on the value of their automobiles, budget, risk preferences, individual circumstances and other factors that affect rates. Ordinarily, people are expected to make a decision based on cost-benefits analyses. However, all sorts of reasoning influence people’s choice. Let’s explore what is available in the market.

Every vehicle owner must at least buy the minimum to comply with their state’s requirements. In addition, you can buy protection for various risks relating to driving and owning an automobile. Each addition will increase your premium cost naturally. Occasionally, you may be lucky to get them as free extras or very cheap.

Here is a list of vehicle insurance coverage options available to purchase. They are usually packaged together and some of them can be bought as add-on.

  • Bodily Injury
  • Property Damage
  • Personal Injury Protection
  • Collision
  • Comprehensive
  • Uninsured Motorists
  • Rental Car Reimbursement
  • Accident Forgiveness
  • Business-Use
  • Roadside Assistance
  • Towing & Labor
  • Guaranteed Auto Protection (GAP)
  • Medical Payments
  • Mobility
  • Custom Parts & Racing Equipment
  • Custom Equipment (wheelchairs, business equipment etc)

Usually, buying a standard “off the shelf” package is cheaper and less complicated. That is why most motorists would go with one of these widely available types of car insurance policies and they are Liability Only and Full Coverage. When they don’t meet requirements you start looking for the third option and that is specialist or nonstandard. Let’s have a look at them closely.

 => Liability Automobile Insurance Policies
These are designed to pay for damages and injuries of third parties. They usually have two or three essential parts depending on which state you live in. Bodily injury liability pays for injuries you cause and property damage liability pays for other physical damages to other people’s cars and property. If you live in a no fault state you need to buy personal injury protection for your own and family’s medical bills. You are liable when you cause an accident that hurts occupants of other vehicles or pedestrians and property damages. Every state has a minimum requirement. However, most drivers want to buy much more than what is stipulated by their states. Furthermore, most carriers provide more than the basic limits.

Uninsured Motorist Coverage may be included as part of minimum required up to its limits, as it is required by over 20 states. It compensates your medical expenses and damages if you’re in an accident with an at-fault driver who doesn’t have a policy. Otherwise, the companies include it as it makes it easier to sell. Alternatively, you can ask them to add it and settle the additional premium.

One important point to remember is that third party only doesn’t include physical damages to your car or injuries to you or family.

 => Full Coverage Vehicle Insurance Policies
Motorists with valuable enough automobiles will need to buy physical damage protection for their investment on it. This is possible with full coverage that include Collision and Comprehensive on top of Liability. Collision pays for damages that occur as a result of a crash with another vehicle or object while Comprehensive pays for other damages to the vehicle like fire, theft, storm and falling objects. Having these three components is enough to call it full.

Various other options may be packaged together by underwriters to make them more attractive. For example, qualifying motorists can have accident forgiveness for free or at a marginal cost so that their first accident won’t increase their premiums. A few companies like to offer rental reimbursement that pays for a rental car if yours is being repaired due to damage, either at a reasonable cost or for free.

Most of the auto insurance policy options listed above can be added on if they are not already included, provided you at least have Collision and Comprehensive, in most cases. In a way, these are highly customizable. Generally, standard ones are designed to offer value for money and customizations can increase the premium a lot.

You can read in depth analysis of liability only vs full coverage to make a choice in between. The former is naturally cheaper as they don’t provide protection for your automobile. However, you can find cheap quotes for the latter these days as a result of fierce competition in this segment of the market. That is why you shouldn’t buy the basic before checking the price of a decent one.

Standard liability only and full coverage are the most popular types of auto insurance policies in the US. Most people will choose one or the other. About 72% of motorists buy the latter.

 => Non Standard Auto Insurance Policies
These days you can find several diverse plans. There are a few specialty and high risk carriers that offer different solutions. For example, one of them can offer a reasonable price for a classic car that would make it a hybrid with mileage limitations and additional provisions like “agreed value”.

In addition, there are partly restrictive packages that can answer the need to find affordable prices under difficult circumstances. For example, named driver insurance would only allow the people listed to use the vehicle. This may seem like a burdensome restriction but they allow motorists to exclude a high risk driver in their household and this in turn lets the carrier offer a cheaper price. Another option is bundling home and auto under one roof. More and more choices are becoming available on the market that you may be able to find various combinations depending on circumstances.

Level of Protection You May Need

The answer to this question can be pretty straightforward at times and for some people. For example, you would definitely want to buy a decent insurance policy when you have a fairly new automobile to make sure it has Collision and Comprehensive. Also, this may not be a choice for you when you took out a loan to purchase the auto because the lender would insist on it plus GAP to protect the underlying security for the loan (the vehicle). Then, you will need to decide what other extras you need to add.

You may be alright to buy a third party only policy if you own the vehicle outright, it doesn’t have much value and you have enough savings as a back up. Auto insurers are generally flexible in the way you can tailor. For example, you can drop Collision if it isn’t going to leave its garage for a while. You can discuss specific requirements with agents either at the time of purchase or even at a later stage to make adjustments.

Things will change with the changes in life. Brokers, agents and posts like this can only help you to a point. You are the only person who knows what you need. That is why you need to consider the benefits of buying extras against its costs and make a decision that doesn’t hurt your pocket too much while allowing you to have a worry-free sleep at night.