The Most Common Types of Auto Insurance Coverage
Shopping for a new auto insurance policy can be challenging. Many customers rely on their insurance agent to tell them what coverage they will need to protect their vehicle and their assets. They don't know if they're buying too much coverage or too little to protect themselves.
Arming yourself with knowledge about basic insurance terms can be empowering. It can cut through the confusion and help you to make more educated choices.
In this article, you'll learn about the basic terms and coverage that are on auto insurance policies.
What are the Basic Types of Car Insurance Coverage?
Are you a new customer shopping for car insurance and confused about what coverage to select? In this section, we'll overview the different types of basic types of coverage available on an auto insurance policy.
Liability Insurance Coverage
Most states mandate liability coverage for their drivers, and each state has different liability limit requirements. In some cases, liability insurance may pay for your legal fees. It is expensive to hire an attorney. If an injured person decides to sue you, this coverage will pay the costs of your legal counsel.
Most states require their residents to buy the minimum amount of liability car insurance coverage by using three numbers to indicate how much liability insurance that drivers should buy. When purchasing this coverage, visit SmartFinancials state's insurance pages to learn how much minimum coverage you'll need for your situation.
For instance, if a state requires you to purchase a minimum of 20/50/20
The first number refers to the maximum paid out for one person's bodily injury expenses per accident. In this case, the number 20 indicates that $20,000 is the maximum paid out.
The second number refers to the maximum payout per accident. In this case, 50 means the insurer will payout $50,000.
The third number refers to the maximum an insurer will pay for property damages. In this case, the third number (20) means they'll pay out $20,000 maximum.
There are two components for liability insurance: bodily injury liability coverage and property damage liability. In upcoming sections, you learn about the different amounts of coverage each one provides.
Bodily Injury Liability
Another auto insurance coverage that most states mandate is bodily injury liability. This insurance will cover the medical costs for another person or people you injure in a car accident. These parties can include a driver, their passengers or pedestrians.
Bodily injury liability coverage pays for expenses such as emergency services, hospital care and other costs. It will also pay for their compensation for lost wages. For instance, this coverage would provide compensation to a person who cannot perform their job because of the injuries they sustained in the accident. States limit the amount that most injured people receive for lost wages after an auto accident.
If the injuries a person sustains in a car accident exceeds your bodily injury liability coverage limits, you may have to pay this coverage out of pocket. To avoid this, consider purchasing liability coverage that exceeds the minimum amounts required by your state. You can even buy umbrella insurance if the maximum limits are too low for the assets you have to protect.
Property Damage Liability
Property damage liability is another liability coverage that most states mandate by law. It is the second component of liability coverage.
When you are at fault for a car accident, this insurance helps pay or repair damages to another person's vehicle or property. In some cases, property damage liability coverage will pay for damages to telephone poles, fences, lamp posts and public structures you damage in an accident.
This insurance doesn't cover damages to your vehicle or property or that of your passengers. Collision or comprehensive coverage pays for damages to your car.
Like bodily injury liability coverage, states require drivers to carry a minimum property damage liability insurance by law. If someone's property damages exceed your coverage, you may have to pay for their damages out of your pocket. To protect yourself, purchase PD coverage that exceeds your state's minimum requirements.
Collision Insurance Coverage
Collision insurance coverage pays to repair or replace your car after an accident, regardless of fault. For instance, collision insurance may cover your repair costs if you hit another vehicle. It will also pay for the cost to replace the actual cash value of your vehicle (ACV) if it's totaled in a car accident.
Collision coverage differs from liability coverage since you don't have to set a limit for this coverage; however, you will have to select a deductible amount. A deductible is a cost that you share with the auto insurance company. If you file a claim, you must pay a deductible before your carrier pays the remaining costs. It's much like a co-pay.
Collision insurance will help pay for your vehicle if you are:
- Hit another car
- Get hit by another vehicle
- Hit immobile or inanimate objects like a fence, pole or sign
Although states don't mandate collision insurance by law, a lender or bank may require this coverage if you financed or leased your vehicle. You should also consider this coverage if you can't afford to replace your car when it's damaged unexpectedly in an accident.
What Collision Coverage Doesn't Cover
Collision doesn't pay for situations such as hitting an animal, theft, vandalism, natural disasters (floods or earthquakes) or fires.
How Much Does Collision Coverage Cost?
The cost for collision coverage is an average of $396 per year. Insurers add this premium to the total cost of your liability coverage. The size of your deductible determines how much your collision coverage will cost. Most deductible range from $100 - $1,000.
The higher your deductible, the lower your premium will be. Your insurance company will only pay for your repairs if they exceed your deductible up to the policy's limits.
Comprehensive insurance is optional coverage. It is also called other-than-collision coverage by car insurers. This coverage pays to replace or repair your vehicle in accidents that are unrelated to a collision.
These include situations when your car is damaged or stolen by an event unrelated to a car crash or other collision event. A bank or lender will require you to get this coverage if you financed or leased your vehicle.
Comprehensive insurance covers damages from the following events:
- Contact with animals
- Social Unrest
- Weather-related natural disasters, earthquakes, floods and hurricanes
- Vehicle theft (including parts of certain vehicles)
- Broken windshields
- Falling objects (rocks, hail, branches, trees)
Comprehensive insurance usually costs less than $200 per year. Insurance companies base the cost of your premium on the vehicle's actual cash value and your deductible.
Comprehensive insurance deductibles range between $100 and $1,000. As mentioned earlier, these costs that you share with an insurance company. The total cost of your repairs must exceed your deductible.
Some insurance companies will subtract your deductible amount from your insurance settlement, so you don't have to pay this amount upfront.
Uninsured Motorist Insurance and Underinsured Motorist Insurance
Some states require their drivers to purchase uninsured motorist coverage and underinsured motorist coverage. These auto insurance coverages are handy if you're involved in an accident with a hit-and-run driver or an uninsured person.
Uninsured motorist property damage (UMPD) pays for your vehicle and other property when a driver without insurance hits your vehicle. This coverage not only covers damages to your car. In some cases, it will pay for damaged property within your automobile. These may include car seats and other items inside your vehicle's compartment.
Underinsured motorist property damage (UIMPD) will pay for vehicle damages when a person with inadequate insurance crashes into your car.
Uninsured motorist bodily injury insurance pays for your medical expenses when an uninsured driver crashes into your vehicle. It will cover your medical bills and other fees. Underinsured motorist bodily injury insurance will pay for your healthcare expenses when you have an accident with a driver with inadequate coverage.
We Can Help you Find the Right Coverage
Additional Coverage Available from Your Car Insurance Company
The basic coverages can provide adequate protection in cases where you are liable for an accident. They can also pay for damages to your vehicle if you have collision and comprehensive insurance. Drivers should consider these optional auto insurance coverages which can pay for medical expenses, roadside services and other necessities.
Medical Payments Coverage (MedPay)
Medical payments (MedPay) coverage is an optional coverage that's not available in every state. This insurance will pay for your medical expenses if you're injured in an auto accident, regardless of who caused the accident.
These insurance payments pay for the following costs for you and your passengers.
- Ambulance and emergency medical tech services
- Doctors, hospital visits, surgeries
- Medical tests
- Prostheses and medical supplies
- Professional nursing services
- Your health insurance deductibles and co-pays
Medical payments coverage differs from the bodily injury portion of your liability coverage, which helps pay for another party's medical expenses. Medical payments cover your medical expenses in an accident you caused, so you don't have to pay for these bills out of pocket. It will also pay for the medical expenses of your passengers.
No-fault auto insurance states offer MedPay, instead of Personal Injury Protection (PIP) insurance.
Personal Injury Protection (PIP)
According to the Insurance Information Institute, several states passed laws to introduce a no-fault insurance coverage called Personal Injury Protection (PIP). This coverage can help pay for your medical bills if you get into a car accident.
It is no-fault insurance coverage that pays for medical expenses, regardless of who is at fault. PIP may be a required coverage depending on where you live. This coverage can also cover your medical costs, even if you're not riding in a vehicle.
For instance, this car insurance coverage would pay for your medical expenses if you were a pedestrian who was hit by a car while crossing a median. This auto insurance would also pay for your hospital costs if a vehicle slammed into you, even if you were riding a bicycle.
You should purchase PIP even if you decide to skip comprehensive or collision coverage on your vehicle's insurance policy. Personal Injury Protection will pay for the following:
Medical expenses – PIP will cover your medical costs related to the accident. These may include surgeries, dental services, optometric treatments, ambulance, nursing care, medications, prosthetics and even medical supplies.
Lost wages – PIP helps pay the lost wages of survivors who can't work due to accident-related injuries.
Substitute services – Some policies will pay for substitutes to pay for services you cannot perform. For instance, they can hire a cleaning service to complete your household tasks, such as laundry or washing dishes.
Funeral expenses – If a driver or passenger dies because of accident-related injuries, this service will pay for funeral expenses.
Childcare services - PIP can also cover other non-medical costs, like childcare in certain situations.
Guaranteed Asset Protection (GAP) insurance is an optional auto coverage. It helps you pay off your car loan if it is totaled or stolen in a car accident, and you owe more than the car's actual cash value. You can only purchase this auto insurance policy from carriers or auto financing companies when you're the original loan or leaseholder of a new car.
If you purchase a new car, that vehicle begins depreciating as soon as you drive it off the dealership's lot. If your automobile is totaled or stolen, the insurance company gives you a settlement based on the price you originally paid for your car, only its depreciated value.
Gap insurance pays the difference between your vehicle's depreciated actual cash value (ACV) and the amount you still owe on your car loan.
Glass Coverage Plans
Some insurance companies offer full glass coverage as part of your auto insurance's comprehensive coverage, or as an add-on option. Some insurance companies will only pay for repairs when your damages exceed your deductible. With glass coverage, you may not have to pay a deductible to get your windshield repaired.
Your deductible may not apply in the following situations:
Comprehensive insurance plans with glass repair coverage - If your car insurance's comprehensive coverage includes glass repair, your insurer's deductible would not apply.
Full glass coverage - Your insurance company will repair your windshield without a deductible, in states where this coverage is available.
State laws mandate that deductible doesn't apply - Some states don't allow insurers to charge a deductible on comprehensive claims for damages to windshields or safety glass. You may be able to get your windshield repaired without a deductible in these areas.
New Car Replacement Coverage
Depreciation causes new vehicles to lose their value. If your vehicle is stolen or totaled, your claim settlement may not provide enough money to replace your vehicle with another model year.
New car replacement endorsements pay the difference between your car's actual cash value and the price it would cost to pay for a new vehicle. This coverage is only available to people who own a vehicle that's one model year or newer can purchase new car replacement coverage.
Rental Car Insurance
This insurance pays for the cost of a rental car when your vehicle is undrivable due to a covered loss. After you get permission from the car insurance company, they will allow you to rent a vehicle to transport you while mechanics fix your vehicle.
For instance, if you were in a car crash and needed to send your vehicle to the repair shop, this insurance would pay for the cost to rent a car.
This auto insurance coverage is separated by two numbers. For instance, a 50/1000 limit would mean your car insurance company would pay $50 per day up to a $1000 limit for a rental car. Most car insurance companies will allow their policyholders to select the coverage limit that will fit their needs.
Most insurance companies limit the number of days they will cover your rental car expenses. If your vehicle is totaled, they will encourage you to purchase a new car.
Roadside Assistance Plans
Some auto insurance companies offer roadside assistance plans. It is an auto coverage that helps motorists get back on the road when their vehicle breaks down. The car insurance company works with a network of service providers that can provide some minor fixes. They include the following services
Towing service - It will tow your car to the nearest repair facility up to a specified distance. You will be charged overage if you go over that distance.
Battery jump-start service - This service will restart your battery if it won't start.
Lockout/locksmith service - If you get locked out, the lockout service will use a pump wedge or long reach tool to open your car. If those don't work, they will contact a locksmith.
Fuel-delivery service - This person will give you enough fuel to get to the nearest gas station to fill up.
Extrication/winching service - These persons will help move your vehicle if it's stuck.
Access the Most Affordable Car Insurance Plans Today
Are you searching for an auto insurance plan that meets your needs? You can SmartFinancial an online insurance comparison service to find coverage that's right for you. Compare coverage from different insurance companies in your local area to find the most affordable policy that fits you. We can also email you information and quotes from different insurers within your area. Just enter your zip code to get a free quote from local car insurance companies within your area.
Get a Free Auto Insurance Quote Online Now.
Looking for Auto Insurance?
Compare rates from dozens of companies in less than 3 minutes.