Alyssa Lane
Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay an annual premium, and the insurance company agrees to pay out for losses as defined in the policy. Auto insurance provides property, liability, and medical coverage. Property coverage pays for damage to, or theft of, the car. Liability coverage pays for the policyholder's legal responsibility to others for bodily injury or property damage. Medical coverage pays for the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses.
| Characteristics | Values |
|---|---|
| Purpose | To protect your investment and offer reassurance in case of an accident, theft, vandalism or damage |
| What it covers | Vehicle damage, property damage, bodily injuries, medical bills, funeral expenses |
| Who it covers | You, family members, other drivers with your permission |
| When to buy | When you buy or lease a car |
| Cost | Premiums and deductibles |
| Policy length | Six months to a year |
| Renewal | Insurance company sends a notice when it's time to renew |
| Customisation | Coverage amounts can be customised to suit your needs and budget |
| State requirements | Most states require minimum liability insurance; some require uninsured motorist coverage |
| Additional coverage | Collision, comprehensive, glass, gap insurance |
What You'll Learn
Bodily injury liability
The importance of this coverage is underscored by the fact that it is required by law in most states. The specific coverage limits, however, vary from state to state. To ensure you are adequately protected, it is recommended to purchase coverage beyond the state-mandated minimums. This is particularly important if you have substantial assets, as these could be at risk in the event of a lawsuit.
When purchasing bodily injury liability insurance, you will typically encounter two types of coverage limits: a per-person limit and a per-accident limit. The per-person limit refers to the maximum amount that will be paid out for each individual injured in an accident, while the per-accident limit is the total coverage available if multiple people are injured in a single incident.
It is worth noting that bodily injury liability insurance does not cover your own medical expenses or those of your passengers. For that, you would need to consider additional coverage options, such as medical payments coverage or personal injury protection (PIP).
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Medical payments
Unlike health insurance, medical payments coverage has no deductibles or co-payments, and it starts paying from the first dollar of incurred expenses, regardless of who is responsible for the accident. It typically covers medical treatments, surgeries, procedures, deductibles, co-pays, extended nursing services, and hospitalization. Additionally, it may cover expenses that your health insurance does not, such as chiropractic visits or ambulance rides.
The cost of medical payments coverage varies, but it is generally inexpensive, with many policyholders adding it to their auto policy for $5 to $8 per month. The cost increases with higher coverage limits. While most states do not require medical payments coverage, it can provide valuable financial protection in the event of a car accident, especially if your health insurance does not fully cover accident-related expenses.
When deciding on the amount of medical payments coverage to purchase, it is essential to consider the limits of your health insurance coverage for accident-related injuries. If your health insurance does not cover the full extent of potential medical costs from a car collision, you may want to consider adding Med Pay protection to your auto insurance policy.
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Property damage liability
In addition to property damage liability coverage, a basic auto insurance policy typically includes bodily injury liability, personal injury protection, collision, comprehensive, and uninsured/underinsured motorist coverage.
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Uninsured motorist coverage
Underinsured motorist coverage, often offered alongside uninsured motorist coverage, comes into play when the at-fault driver has insufficient insurance to cover the full extent of the damages. This coverage ensures that you are not left paying out of pocket for repairs, medical bills, or other related expenses. It is designed to fill the gap between the at-fault driver's insurance coverage and the total cost of the claim.
In some states, uninsured and underinsured motorist coverage is mandatory, while others may only require coverage for bodily injury. Even if it is not mandated in your state, opting out of this coverage could leave you vulnerable in the event of an accident with an uninsured or underinsured driver. It is worth noting that your health insurance may overlap with certain aspects of uninsured motorist coverage, so it is important to consider your specific needs and consult with your insurance provider to determine the best coverage options for you.
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Collision coverage
It is worth noting that collision coverage does not include damage to another person's property or vehicle. Instead, this would be covered by property damage liability insurance, which reimburses others for damage that you or another driver operating your car causes to another vehicle or property.
While collision coverage is not required by law, nearly four out of five drivers choose to purchase it. By having collision coverage, you can drive with peace of mind, knowing that your car is protected in the event of an accident.
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Frequently asked questions
Auto insurance is a contract between you and your insurance company that protects you against financial losses in the event of an accident or theft. In exchange for an annual premium, the insurance company agrees to pay your losses as outlined in your policy.
Auto insurance provides coverage for property damage, liability, and medical expenses. Property coverage pays for damage to, or theft of, your car. Liability coverage pays for your legal responsibility to others for bodily injury or property damage. Medical coverage pays for the cost of treating injuries, rehabilitation, lost wages, and sometimes funeral expenses.
Your auto insurance policy will cover you and other family members listed on the policy, whether driving your insured car or someone else’s car with their permission. Your policy may also provide coverage if someone who is not on your policy is driving your car with your consent.
There are two main types of auto insurance coverage: required and additional. Required coverages include bodily injury liability, property damage liability, and uninsured motorist coverage. Additional coverages include emergency roadside assistance, rental reimbursement, and mechanical breakdown insurance.
