Car Insurance Basics
Car insurance is basically insurance that drivers can purchase for any kind
of vehicle in order to protect against losses sustained in traffic accidents.
Auto insurance policies are, in reality, a bundle of different coverages.
This insurance will usually cover the insured party, the insured motor vehicle,
and any third parties involved. Different policies will identify the situations
in which each of these entities is covered.
Below are the specific coverages involved when you purchase car insurance.
- Liability Insurance: Liability coverage is the most basic and foundational
coverage in car insurance policies and is required in most states. This coverage
ensures that if you are the one at fault in an accident, your liability insurance
will pay for the physical injury and property damage expenses of any third
parties involved. This coverage includes legal bills. Remember that third
parties can sue you for “pain and suffering” damages. Minimum insurance
may not sufficiently cover you in more extreme cases, which is why many people
recommend that drivers purchase more than the state minimum required. Liability
coverage limits are usually conveyed with three numbers. For example, liability
limits of 20/50/10 indicate that there is coverage of $20,000 in bodily injury
coverage per person, $50,000 in bodily injury coverage per accident, and
$10,000 in property damage coverage per accident.
- Collision Coverage: In the case that you are in an accident, collision
insurance will pay for the repairs that your vehicle requires. Collision
coverage is usually the most expensive coverage that you will have to pay
for. Insurance companies will declare a vehicle “totaled” or a
“write-off” if the replacement would be cheaper than the repairs
needed.
- Comprehensive Coverage: This coverage will pay for any damages to an automobile
that were not caused by an accident. Qualifying damages include damages arising
from carjackings, vandalism, natural disasters, and hitting an animal.
- MedPay, PIP, and No-Fault Coverages: MedPay will pay for the medical expenses
of you and anyone else in your car after an accident, regardless of whose
fault the accident was. PIP (Personal Injury Protection) and
“no-fault” coverages are other forms of medical payment protection.
They are broader than MedPay and may be required in certain states. These
expanded coverages cover child care and lost wages.
- Uninsured and Underinsured Motorists Coverages: UM (Uninsured Motorists)
coverage will pay for injuries you have sustained if you are involved in
a hit-and-run by a driver who does not have auto insurance, and is mandatory
in many states. UIM (Underinsured Motorists) coverage will pay for you if
the driver who hit you creates more damage than their liability insurance
can cover.
- Supplemental Coverages: Rental reimbursement is an add-on that will cover
rented vehicles in case of damage or theft. Auto replacement coverage ensures
that your automobile will be fully repaired for replaced even if the costs
are more than its depreciated value. Coverage for towing and labor covers
you in case of an auto failure on the road where towing is necessary. These
supplemental coverages are usually offered as separate items or included
in larger policies.
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