Car Insurance 101: Comparing the Different Types of Coverage
If the thought of purchasing coverage seems overwhelming, we want to make things easier for you. There are many different types of policies and options, so we felt it was important for us to create a resource that clearly explains each aspect of a plan so you can make an informed buying decision. Below we break down the three main types of insurance as well as the add-ons that can enhance your plan and shield you with more vital protection.
- Types of Insurance
- Liability
- Comprehensive
- Collision
- Additional Coverage
- Bodily Injury
- Personal Injury
- Uninsured Motorist
- Underinsured Motorist
Liability Coverage is Essential Protection
Every state requires drivers to carry a policy that includes liability. Therefore, this is the most common type of plan and also the cheapest in many cases. Simply put, this product pays for damages and claims brought against the driver that is at-fault in an accident. This type of plan is broken down into three components: bodily injury per person, bodily injury per accident and property damage liability. When shopping for this type of plan, the three aforementioned components are displayed in a numerical format which expresses how much protection the policyholder would receive in the event of an accident. For example, a liability plan that is shown as 50/100/50 would provide up to $50,000 in bodily injury protection per person, $100,000 in bodily injury protection per accident and $50,000 in property damage per accident. It is important to know the minimum levels required by your specific state so you can stay legal on the roads at all time. That said, we highly recommend you exceed the bare minimum legal requirements to ensure you would not end up in a catastrophic financial situation if you were involved in an accident. It is important to choose a plan carefully because even $50,000 of injury protection might only pay for a week of hospital care. We recommend choosing the highest limits you can afford for maximum peace of mind.
Comprehensive Coverage Fills in the Gaps
The name might sound confusing to you, and rightly so. It isn't a blanket protection that takes care of everything. Instead, comprehensive coverage will pay claims for damage unrelated to collisions or crashes. The most prominent examples are vandalism and theft. Also, comprehensive will shelter against some types of weather damage such as that caused by hail storms. Unlike liability, this is not required by law but you should seriously consider the benefits that are associated with it. Many consumers look for the lowest price when shopping but fail to consider the costs that are associated with claims. The amount this option will cost is dependent on the deductible you choose. A higher deductible will lead to lower premiums, but you will have to pay more if anything happens to your vehicle before your coverage kicks in. This offering is especially valuable if your automobile is new or of high value. Take a minute to think about the cost to replace your vehicle if it was stolen and you will quickly understand how important it is to add comprehensive protection to your plan.
Collision Coverage Protects You in an Accident
Although not required by law in most areas, this add-on is often required by auto financing companies if you currently have any sort of loan agreement. Basically, it protects you in the event you are involved in a crash. There are varying degrees in which insurers will provide compensation. Some policies will only pay for your liability if you cause an accident. An example of this would be if you were to hit a telephone pole. Your insurer would pay for the damages caused to the pole, but you would be responsible for any damage to your vehicle's bumper. Other policy offerings may pay for repairs to your vehicle so it is a good idea to review all plan documents to have a firm understanding of the service you will receive. Always make sure damages to your car or truck are covered in some way, whether through a collision plan or other type of add-on that will keep you out of a financial catastrophe. Additionally, there are other things that most collision policies do not protect, such as vandalism, theft, road issues and inclement weather. Even if your car is damaged by a hit-and-run driver, there is no guarantee it would be covered or replaced by your collision plan. That said, this is a vital component of a well-funded plan. You want the peace of mind that comes from knowing you would be taken care of if you accidently drove through a storefront, hit a mailbox or caused a crash. If your policy covers your own vehicle, you won't have to stress about the costs associated with these scenarios.
Bodily Injury Protects Your Passengers
This is a particularly important aspect of a policy that should be a must for every responsible driver. This goes towards the passengers in your vehicle or any motorists involved in an accident that are not at-fault. Each locality will set different limits in regards to what would be paid out, so you should carefully review your state's particular guidelines. One of the most important aspects of this option is the medical payout. As healthcare costs continue to skyrocket, you need the peace of mind in knowing you would be able to pay for injuries to others in an accident that you cause. This can also extend to lost wages in many circumstances as well as pain and suffering inflicted. Discuss an ideal amount of coverage with your insurer so you can be sheltered in any situation.
It is important to dispel a couple misconceptions when it comes to bodily injury protection. The first has to do with the medical care portion. Someone injured in a crash will not automatically have their treatment covered by this add-on. The insurer isn't obligated to provide compensation until a settlement is reached, so the injured party must rely on their health insurance plan's benefits until this settlement takes place. Additionally, there is no set calculation to determine how much you are entitled to receive when this happens. There are many variables that come into play when trying to reach a fair agreement such as lost wages or the inability to work. Don't count on a certain amount of compensation until an agreement has been reached.
Personal Injury Looks Out for You
Personal injury protection is often abbreviated as "PIP" and plays a fundamental role in your well-funded plan. This is only available in certain states, so you will want to read the guidelines that pertain to your particular residence. It is particularly relevant for drivers who live in no-fault states due to the way claims are paid out. Like liability coverage, you will be required to adhere to the bare minimum standards if you live in a no-fault state. Unfortunately, some policyholders mistakenly believe that they do not need this option because they believe other components of their policies will take care of themselves and their passengers. In a litigious society, this type of add-on is essential. You should always operate under the assumption that the other party will attempt to sue you if you cause an accident. In this scenario, you will definitely want the added peace of mind that comes from personal injury protection.
Protection against Uninsured Motorists
The next time you are driving anywhere, make a mental note of the other vehicles you see on the roads. Industry experts estimate almost one in four drivers ignores state mandates and is driving uninsured. How will you be able to recoup damages from an individual who is uninsured and doesn't have any significant assets? The answer is uninsured motorist protection. This type of add-on has become increasingly popular over the last several years. Some localities may even require it as instances of uninsured motorists causing accidents is on the rise. Thankfully, this type of protection is relatively inexpensive. For a few dollars a month, you can have the peace of mind that comes from knowing you would be taken care of in the event of a collision with somebody who doesn't have a policy. This add-on can extend to punitive damages, injuries, hit-and-run accidents and more.
What about Underinsured Drivers?
We've gone over the importance of being protected against uninsured motorists, but what about those who have coverage - just not enough? This is where the importance of the underinsured driver add-on becomes extremely evident. Like the aforementioned protection, this is vital if you are involved in an accident with someone who chose to only purchase minimal levels of protection that won't fully compensate you for any losses. This add-on is important even if you aren't driving the vehicle at the time of a collision. If someone hits your car in a parking garage, this will take care of any discrepancies in protection. In other words, it shelters you from others' negligence. Being involved in an accident is stressful enough so imagine how it would feel to have to deal with someone who is borderline financially insolvent. Ensure your interests will be taken care of in all scenarios and make sure you add underinsured motorist to your well-funded plan.
Are You Covered Against an Accidental Death?
Accidental death and dismemberment add-ons were established to help loved ones or beneficiaries manage with the costs associated with losing someone as the result of a motor vehicle accident. Each provider will have a different way of underwriting and unique requirements, but most policyholders can add this to their plan with ease. There are usually no health questions asked when applying, although there may be an age restriction established by your carrier.
You may be unaware of the fact that this does more than simply cover an individual killed in an accident. If a policyholder is severely injured and loses one or more limbs, this could very well be a covered instance. This valuable add-on can help pay for medical procedures as well as home renovations to make the residence handicap accessible. It may also contribute to the costs of prosthesis and lost wages. It is another example of an option that is inexpensive but invaluable if you are involved in a crash and severely injured. Don't overlook this valuable protection.
Loss of Use Makes Sure You Remain Productive
How productive could you be without a vehicle? This valuable offering ensures you won't be stranded in the middle of a claims process involving your car or truck. Imagine having to conduct routine business tasks without an automobile. How would you complete your errands such as grocery shopping? Could you get to important meetings without your car or truck? You will quickly begin to understand the importance of the loss of use option offered by most carriers. You will gain the peace of mind knowing that your transportation needs will be taken care of in the event your vehicle is involved in a claim.
The Importance of Filling the Gap
Let's say you are financing your vehicle and owe a certain amount on it. Then you are involved in an accident that causes significant damage. Will the amount the vehicle has depreciated over the time since you bought it cause a discrepancy in the amount you are compensated by your insurer? For example, you financed the vehicle recently at $30,000 but your insurer only values it at $26,000. If it is totaled, you could be responsible for the discrepancy of about $4,000 in addition to your deductible. Gap insurance does just as its name implies and fills "the gap" in what you owe. In most cases, this option is not required by financing companies or insurers. This means the onus is on you to determine if it would make sense to include it on a policy. The good news is that this option is not very expensive so you can add it to your plan without worrying too much about the additional premiums.