What Is Full Coverage Insurance?
Most people are ecstatic when a lender finally greenlights their financing to lease or buy a brand-new car. These loan agreements come with a few stipulations, such as buying the right kind of insurance to protect your vehicle in case an unforeseen event takes place.
If you’re currently financing your car through a lender, they may ask you to buy an insurance policy with full coverage. But what does full coverage mean, and what does it cover?
What is Full Coverage Auto Insurance?
Insurers, agents, and lenders use the term “full coverage” to describe auto insurance that covers both physical damages and liability in a collision; however, there are no policies specifically named “full coverage,” and every company defines it differently.
Insurance companies generally use a combination of different endorsements to provide full coverage. They want you to carry liability, comprehensive and collision coverages, along with other optional coverages required in your area.
Almost every state mandates liability coverage, while comprehensive and collision (physical damage coverages) are optional. Although some agents promise full protection, very few policies will protect against every situation that you’ll encounter on the road. When buying an insurance policy, don’t ask your local agent to provide you with full coverage. Instead, ask your agent about coverages that will provide the best protection for your property and money.
This coverage will protect you if you’re at-fault in an accident. For example, you may get distracted while driving on the road. The traffic light changes, and you accidentally slam into the vehicle in front of you, damaging their rear-end bumper.
Liability coverage will pay any property damages and medical expenses for third-party drivers and their passengers in a collision like this one if you’re at fault in an accident. It also pays for lawsuits that others may bring against you and any legal judgments. This coverage only pays up to your policy’s limits in these wrecks.
There are two types of liability coverage:
Bodily injury liability coverage helps drivers to pay for another person’s medical expenses when they are in an accident.
Property damage liability coverage provides money for damages that you may cause to another person’s vehicle and their belongings in a collision.
Individual states set the minimum liability coverage limits that drivers must purchase. This insurance contains three limits:
- The maximum payment for bodily injuries per person
- The maximum payable amount for bodily injuries per accident
- The maximum payable for property damage.
Some policyholders may need to exceed the state’s requirements and purchase an insurance policy with higher coverage limits. Additional coverage means you’ll pay higher premiums, but you’ll receive more protection if you have an accident.
Comprehensive and Collision Coverage
On the road, an accident can happen that’s out of your control. For example, a deer jumps into your lane. You swerve to avoid it, but you hit it before you can safely stop. In another scenario, a driver slams into your car, then flees the scene without waiting for police officers or first responders. Or maybe your car gets stolen!
Comprehensive and collision coverage will pay for the cost to replace or repair your vehicle after an unexpected event. These scenarios can include vandalism, theft, a broken window, hail damage, or a collision with an animal. This insurance kicks in after you meet your deductible.
Most lenders ask car owners to buy comprehensive and collision coverage if they’re leasing a vehicle or making loan payments. This coverage is optional on auto insurance policies if you’ve paid off your vehicle.
Comprehensive coverage – Some states call this coverage, “other than collision.” It helps reimburses any damage caused by out-of-control events. For example, this policy will cover you when your car is stolen, damaged by hail, vandalism or collisions with animals.
Collision coverage – It will compensate you for repair fees and replacement costs for your car if it’s wrecked or totaled. This policy only covers your automobile. Property damage liability coverage pays for the other driver’s car damages if you’re at fault. It will also compensate you for car repairs caused when you hit an object, such as a tree, guardrail, phone pole, pothole, garage, mailbox or house. Some policies even pay for damages caused by a hit-and-run accident (including in a parking lot).
You don’t have to buy collision coverage if your car has little monetary value, if it’s kept in storage or if it’s covered by another insurance policy.
Uninsured and Underinsured Motorist Coverage
Some car owners aren’t insured, but they’re still driving on the road and putting themselves, and others, in danger, especially when an accident occurs. For example, an uninsured driver may barrel through a red light and hit your car head-on at an intersection.
The collision severely damages your car, and you and your passengers suffer numerous injuries. Since this person doesn’t have any liability insurance, you may have to pay for your medical expenses and car damages out of your pocket.
Uninsured and underinsured motorist coverage protects you against scenarios when an at-fault driver doesn’t have enough coverage. Many states require coverage to protect you when you’re involved in a crash with an uninsured or underinsured driver.
Uninsured Motorist Property Damage Coverage (UMPD) – This insurance pays for repairs for your vehicle when an uninsured driver hits it. Some policies cover damage after a hit-and-run accident.
Uninsured Motorist Bodily Injury (UMBI) – It covers medical bills for you and your passengers when an uninsured motorist hits you.
Two policies can protect you when a driver, who doesn’t have enough insurance coverage, hits you.
Underinsured Motorist Property Damage (UIMPD) – It pays for damages to your vehicle if an underinsured driver hits you.
Underinsured Bodily Injury (UIMBI) – This insurance covers hospital stays and other medical bills you or your passengers may have after a collision with an underinsured driver.
Some states require UMBI and UIMBI coverage. These two policies generally don’t have a deductible for medical care. After an accident, your health insurance may overlap with these policies. If these are optional coverage within your state, you should consider several things. Will your health insurance completely cover the injuries you sustain from a car accident. If not, you may need these additional policies. UMBI and UIMBI can also reimburse some lost wages. If you have passengers who don’t have health insurance, these policies can protect them.
Seven Optional Insurance Coverages for Your Car
Some states require car owners to purchase additional coverage to protect their vehicles from damages. Consider maximizing your insurance with optional coverages when you buy a brand-new car or add another driver to your policy.
Increasing the limits of your liability and coverages will protect you if your car suffers excessive damages or is totaled in an accident. Roadside and rental car reimbursement insurance are normally inexpensive. If your car has a minimal market value (less than $2,000), it may not make sense to have a physical damage coverage policy. If you select liability coverage only, you'll need money to replace your car.
Here are some optional car coverages.
1. Medical Payments and Personal Injury Protection
Insurance companies will also pay for your doctor’s bills or funeral expenses that result from a car accident if you have medical payments or persona injury protection coverage. Some companies extend this coverage to relatives or passengers that were in your vehicle when the accident occurred. A few states use personal injury protection (PIP) as a substitute for medical payments coverage. PIP coverage will compensate you for your medical bills and protect you and anyone covered under this policy. Here is a sample of some things that PIP may pay for after an accident occurs. This coverage varies by state.
This insurance pays for medical bills for you and those covered in your policy. It will also cover you when you’re hit by a car while you’re walking on a road or bike riding.
It covers lost wages (if you or your passengers suffer injuries and can’t work).
This policy compensates policyholders for disability and rehab costs.
It pays death benefits (paid to your family if you’re in a fatal car accident).
In some states, PIP’s non-medical benefits (wages, household services, disability, etc;) will cover you, your passengers, and family members in your household, even if they’re not insured under your policy. PIP doesn’t cover property damage. If you live in a state that requires PIP, some insurers may automatically add it to your policy. When insurers pay claims, PIP typically comes before your medical insurance. In most states, PIP coverage will be in the primary position to pay out coverage. Your health insurance, including Medicare and Medicaid, will come next.
2. Loan/Lease Payoff Coverage (Gap Insurance)
Gap coverage is an optional auto insurance coverage that protects you from depreciation. It’s triggered when your car is totaled in an accident or stolen.
This insurance covers the difference between what you owe on your vehicle and what it was worth. Typically, when you buy or lease a car, its value begins to decrease as soon as you leave the dealership. This drop in value leaves a gap between what you owe and what your vehicle is currently worth. When the amount left on your loan is more than what the car is currently worth, gap coverage can pay the difference. For example, if you took out a $20,000 on your loan, and your vehicle is only worth $14,000, your policy will pay for the $6,000 gap (minus any deductible that you have). Having this coverage is essential to protect yourself in several situations where there is a large difference between your car’s value and what you currently owe. You should consider gap coverage in several situations:
- You’ve financed a car that has a high depreciation level.
- You’ve used a small down payment to lease or purchase a brand-new car.
- You’re financing your vehicle for more than 48 months.
- Your family only has one car and can’t go without it for an extended period.
3. OEM Endorsement
Some car insurance companies don’t always use the car manufacturer’s parts to replace ones damaged in car accidents. Instead, they may depend on third-party manufacturers to provide replacement parts or substitute used parts for your car repairs.
You can use this insurance to buy brand-new, authentic parts from the original equipment manufacturer (OEM).
4. Rental Car Reimbursement Coverage
This coverage is optional, but it’s essential if you only have one car and need it for work or errands. After an accident, you may find yourself without a vehicle. If you’re involved in a collision covered by your policy, your insurer will reimburse you for the fees to rent a car while a mechanic repairs your car. If you have this insurance, you don’t need to depend on others as your source of transportation.
5. Towing and Roadside Assistance
Insurers usually include towing and roadside assistance in full coverage auto insurance policies. It includes towing services, along with other options such as changing a flat tire or jumping a dead battery.
6. Full Glass Coverage
Frequently, any glass damage to your windows will be covered if you get a full coverage insurance option for your vehicle. This damage falls under comprehensive coverage. Some individuals who get a high-deductible comprehensive insurance policy may have their glass coverage wiped out. For better protection, pay a higher premium to get a cheaper deductible on your full coverage policy or one that has a less expensive one only for glass claims.
7. Vanishing Deductible
This insurance doesn’t automatically come with packages that promise full coverage. It’s only offered when your preferred carrier offers a vanishing deductible for every year of your safe driving. You’ll need to pay additional fees to get this coverage before an accident occurs on the road.
If you need dependable full coverage for your vehicle, you can compare automobile policies using SmartFinancial’s transparent insurance technology by entering your zip code below. We’ll ask you a few quick questions about yourself and the coverage you need. Afterward, we’ll sort through hundreds of insurance companies to find the best rates in your area, along with any discounts. You’ll be able to review your offers and find the coverage that best fits you.
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