Most motorists have a pretty good idea as to how helpful car insurance can be even if they have never had a claim and never hesitate to arrange decent coverage. 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 knowledge every so often because it deserves attention to detail.
A policy is a contract that is taken out to pass certain risks arising from vehicle ownership and/or driving to the insurer. It clearly defines what is included, up to how much, how long, who can drive, deductibles, exclusions, terms and conditions. The policyholder’s main responsibility is to settle the premium agreed for the duration and abide by basic rules. In return, the insurer promises to compensate the agreed inflictions up to the limits set.
Coverage is the term used for defining what losses are included. You need to have it before you can make a claim on it. You can be protected against various losses by adding the corresponding provision. Essentially, there are two types of policies, even though there are many variations of them. So, it is best to look at their provisions in detail below.
What Is Liability Only Car Insurance?
Whenever you turn on the engine there is always a chance that you may hurt someone or cause property damages by inducing an accident. Liability is bought to transfer the burden of paying for these harms you may cause to third parties.
Typically it 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 where you live as they are set by the state. Although you cannot go below the minimum there is nothing stopping you from increasing the limits. Most experts would advise you to increase the limits to something like $100,000/$300,000/$100,000.
Minimum liability vehicle insurance is the only mandatory requirement. Personal Injury Protection (PIP) would be required as well in no-fault states. All the others we will discuss below are optional but they are usually essential that most people buy them.
What Is Full Coverage Auto Insurance?
Agents, brokers, carriers and policyholders regularly use the term. So, what do people mean when they say they are fully insured? It is not actually one type but it is a combination of different provisions. It is in fact a packaged policy that ensures main risks associated with driving a vehicle are incorporated. In other words, damages and suffering to other people and your own vehicle are included. It deals with the larger risks that can cause financial ruin. However, it may be a stretch to say that you are fully protected when you have it.
What goes into it may change slightly depending on the carrier and location. Usually, typical full automobile insurance policies consist of liability, Collision and Comprehensive.
Uninsured Motorist and Personal Injury Protection may be required too by some states. No-fault states add PIP and some require UM to be included with every policy sold. Some companies add Rental Reimbursement as well on their packages.
These will be explained below.
– Collision Coverage
When people think about this subject they usually think traffic accidents. As the name suggests, collision is designed to deal with physical damages your own vehicle may sustain in an accident. Once you buy it you know that the carrier will make the car good if it ever involves in a crash. If it needs to be repaired they will get it repaired and they will pay its open market value if it is totaled.
– Comprehensive Coverage
Comprehensive and Collision compliments each other and together they compensate for almost all types of losses that may come to a car. Comprehensive is there to handle nearly all losses, except collision. Once you have it your investment is safe because they will either repair or pay enough money to replace it if it is stolen, damaged in fire, flood, storm, crashed by a falling object, vandalized and suffered other incidents like hitting an animal.
– Personal Injury Protection (PIP)
It is designed to pay for 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 family’s injury costs and it is very helpful, especially for people with no health plan, to pay for such medical expenses.
A minimum PIP is required by no-fault states on top of the basic mentioned above. Otherwise, it is optional. If you already have a good health provision you may not see the need for it.
– Uninsured Motorist (UM) Coverage
About 1/7 of US drivers have no policy and there is every chance one of them may crash into you. Also, considering how low minimum requirements usually are it may not compensate for all the carnage they cause, even if they had it. Luckily there is a provision designed to handle losses you suffer due to accidents caused by these drivers. In both cases, your carrier would compensate for the losses.
It comes in two parts. UM Injury is for injuries you and family sustain and it is available when you are a pedestrian as well. The second part is U M Property Damage that is to do with physical destruction to your vehicle for the same reason. The latter may not be available everywhere in which case buying Collision would help you deal with such risks.
Some states’ minimum requirements include UM automatically for the same amount you provide for third parties. Otherwise, it is up to you to include or exclude.
Companies can make full coverage vehicle insurance as basic or inclusive as they want. One of the most common inclusions is Rental Reimbursement that pays for rental cars while yours is being repaired. You can also have towing, emergency roadside breakdown, gap, and accident forgiveness, depending on needs and costs.
There are plenty of options you can add for extra security or take out to save money. Certainly, it may be expensive to include every little thing in there. And it may be pointless to purchase something that isn’t going to serve much purpose because the likelihood of it happening is very slim and you can handle it on your own even if it happens. So, it is sensible to try and find a balance between costs and coverage.