When we talk about car insurance, we usually refer to it as if it were a single product. In general, it is true. But more specifically, car insurance is something of an umbrella policy that in some cases can have up to a dozen different sub-policies.
To show you all the moving parts of a car insurance policy ̵
Set Minimum Requirements for Car Insurance
Before going into the many types of car insurance, you should know the minimum legal insurance requirements in your country before shopping for insurance. Coverage requirements may vary significantly from one state to another, and while some types of coverage may be required in your country, others may not.
Every state in the United States requires car drivers to have car insurance. The only exception is New Hampshire, but even in Granite State you must have coverage if you have a loan on your car.
Like virtually all other industries, the car insurance industry has its own "language". State minimum coverage requirements are usually expressed as three digits. It will look about 25/50/25.
Each of these numbers represents coverage in the thousands. For example, it would be more accurate to show it as $ 25,000 / $ 50,000 / $ 25,000. But XX / XX / XX seems to be some form of generally accepted industry shorthand.
The three digits represent the smallest possible coverage for the following parts of your car insurance:
- Liability for bodily injury at most for an injured person in an accident
- Liability for bodily injury at most for all injuries in an accident
- Damages for liability for an accident
Keep in mind when buying car insurance that the state's minimum requirement is just that, the minimum. They can represent an acceptable level of insurance for a young driver without assets and are looking for the lowest possible premium. But if you are older than 25 and have significant assets – such as a house and savings – you need higher coverage.
This is because one of the main reasons for car insurance is to protect your assets if you are in an accident that is your fault. The higher coverage amounts will do so.
Let's move on to the many types of car insurance.
The three big ones: liability, collision and comprehensive
These are the policy types that most consumers are most familiar with. But they may not always be aware of exactly what each one is doing.
Liability is the basic cover of every car insurance. It will pay a claim if you are involved in an accident where you are determined to be wrong. This may include personal injury to the occupants of the other vehicle, as well as damage to their car.
It essentially represents the equation 25/50/25 (or similar) described above, which gives liability for bodily injury and property damage liability
It is important to remember that this part of your coverage will pay the other party, not you. But if the situation is reversed, where you are in an accident that is the other party's fault, their liability protection will pay you.
Collision covers repair costs for damage to your vehicle regardless of whether you or the other party is determined to be at fault. It does not pay for damages caused by the other driver, but that is what the responsibility is for.
Collision may not be required by your state, but it will be required by your lender if you have a loan on the vehicle. The lender wants to make sure that your car will be completely repaired if you are in an accident, to protect the value of their safety.
You may not need a collision if you do not have a loan on your vehicle, or if the car is old and of little value. For example, if your car is worth less than $ 2000, the cost of collision coverage may outweigh the benefits of sales if your car is total.
Extensive is probably more mysterious than a collision because the word "extensive" is not very descriptive. It works in the same way as a collision, except that while the collision covers damage to your vehicle while it is in motion, it covers extensive damage that occurs when the car is parked.
For example, will pay extensively if your car has been stolen. It will also cover damage to your vehicle from natural disasters, such as hurricanes and earthquakes. It even pays off if a tree leg breaks off and falls on your car and smashes the roof.
Think of it as collision = movement, comprehensive = parked.
Other car insurance policies
There is a long list of other car insurance types in this group, and you probably do not know most of them. Some will be state minimum requirements, while others fall into the "nice to have" category. Here are the primary ones:
Uninsured motorist coverage
This is the type of coverage where the car insurance company pays your medical costs if either you or the passengers in your vehicle are injured in an accident caused by a person who does not have car insurance. It also pays for repairs for damage that your vehicle has suffered.
Although it is illegal to drive without car insurance in most states, it is not entirely uncommon. If you have the misfortune of being in an accident caused by someone without insurance, you will be very happy to have this provision in your insurance.
Uninsured car insurance has two parts:
- Uninsured motorists' coverage for personal injuries: Covers you and your passengers for medical expenses, lost wages and pain and suffering resulting from an accident with an uninsured driver. It also covers damage from a hit-and-run collision.
- Uninsured damage to motorists: Covers damage to your car as a result of an accident caused by an uninsured driver.
Uninsured motorist coverage. required in most states. Although it will increase your premium, the coverage is well worth having.
Underinsured motorist coverage
Remember we were talking about minimum requirements for state car insurance? Let's say you end up in an accident with someone who has the minimum coverage required by law. It may comply with state law, but it may not be enough to fully cover an accident caused by that driver.
For example, the third number in the 25/50/25 claim for property liability is at most for an accident. This means that the driver has $ 25,000 to cover damage to your vehicle if he has a fault in the accident.
But you just bought a brand new car for $ 50,000 and the accident caused by the driver amounted to your vehicle. The driver's policy covers only $ 25,000. The remaining balance will be covered by your own insured car insurance.
Like uninsured car insurance, underinsured car insurance is well worth having, even if it is not required by state law.
Personal Injury Protection (PIP)
This is usually called coverage without defects. It pays for bodily injury claims in accidents where the fault cannot be determined. It not only covers medical expenses (not covered by health insurance) incurred in the accident, but also covers lost income, childcare and payment for funeral arrangements.
PIP is not required in most states, but it is an excellent source of income. It will be useful if you are involved in an accident where the only "evidence" is as he / she said. It is also an excellent source of income if you do not have health insurance at all.
Personal Umbrella Policy (PUP)
Do you remember how I said you should have more than the minimum government mandate if you have significant assets? Most conventional car insurances limit liability insurance to a maximum of $ 300,000. If you are worth more than that, you may want to add a PUP provision to your policy.
It could add $ 1 million or more in additional protection if you suffer a lawsuit from an accident where you are determined to be wrong.
Guaranteed Auto Protection (GAP)
Do you know how many car loans are available for 100% or more of the value of the vehicle you buy? If you have such a financing arrangement, you are almost certainly what is called upside down on your car. It is a car industry that describes a person who owes more for his vehicle than the vehicle is worth.
If this describes you, you need GAP coverage.
Let's say you buy a car for $ 30,000 with 100% financing. As soon as you drive the car from the plot, it's worth maybe $ 27,000. But a block from the dealer you hit hard by a pickup that drives 300 miles across the border. Your car is total.
Car insurance only covers up to the value of the vehicle – $ 27,000. But since you still owe $ 30,000 to the lender, you have to bring $ 3,000 in your pocket to meet the loan.
However, if you have GAP coverage, the deficit will be covered by the insurance company.
19659003] GAP is not a standard provision, but is highly recommended for anyone who is even close up and down on their vehicle.
This is a car insurance provision that provides compensation for a rental car while your car is being repaired as part of an insurance claim.
They usually have restrictions, such as $ 30 per day, and may even require you to rent from a specific car rental company. But it is excellent coverage to have because repairs from major accidents can take weeks.
What type of car insurance do you need?
Not all types of insurance listed above will be required by your state, but they are still good to have. Although each one will increase the premium on your insurance, it seems like a small price to pay if you encounter any of the covered events.
Always remember that the whole purpose of car insurance is to protect from the unexpected.
19659003] The more policy provisions you have – and the higher the dollar coverage amount – the better you will be protected. It is much more important than just getting the lowest car insurance premium.
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