Orlando Harmon
Auto insurance offers financial protection to you, your family, other passengers, and your vehicle in the event of an accident. It covers damage to your vehicle, damage to other people's vehicles, injuries to yourself and others, and in some cases, damage to property such as fences or buildings. Auto insurance policies are made up of multiple coverages, including liability insurance, collision coverage, and comprehensive coverage, which can be tailored to meet your needs and budget.
| Characteristics | Values |
|---|---|
| Bodily injury liability | Pays for injuries or death resulting from an accident for which you are at fault |
| Property damage liability | Pays for damage to someone else's property resulting from an accident for which you are at fault |
| Medical payments coverage | Pays for medical expenses related to a car accident |
| Personal injury protection coverage | Pays for medical treatment, lost wages, or other accident-related expenses regardless of who caused the accident |
| Uninsured motorist coverage | Compensates you for your injuries or property damage caused by a driver without insurance |
| Underinsured motorist coverage | Protects you from at-fault drivers with insufficient insurance coverage to pay your claim |
| Collision coverage | Pays for damage to your car when it hits, or is hit by, another vehicle or other object |
| Comprehensive coverage | Pays for damage to your car from theft, vandalism, flood, fire, or other covered losses |
| Guaranteed auto protection (GAP) insurance | Covers the difference between an insurance settlement and the amount still owed on a car loan |
| Classic car insurance | Helps pay the cost of specialized repairs or restoration for antique, classic, and exotic vehicles that increase in value over time |
| Rental car reimbursement | Helps pay the cost of a rental car while yours is in the shop |
| Custom parts and equipment coverage | Helps pay the cost of restoring cosmetic modifications or equipment you've added to your car |
| Rideshare or delivery driver coverage | Protects you and your automobile when the company's insurance does not cover you |
| Roadside assistance | Helps pay for flat-tire changes, fuel delivery, locksmith services, and towing |
What You'll Learn
Liability insurance
Most states in the US require drivers to carry a minimum amount of liability insurance, although the specific requirements vary from state to state. Failing to obtain liability coverage could result in fines, license suspension, or even jail time for repeat offenses. When determining how much liability coverage you need, it is recommended to consider your net worth and choose a limit that will adequately protect your assets in the event of an accident.
To enhance your understanding, here are some examples to illustrate how liability insurance works:
Example 1: You are involved in a collision at a four-way stop, and it is determined that you are at fault. Your liability insurance will cover the costs of repairing or replacing the other driver's vehicle, as well as any other property damage resulting from the accident. Additionally, if the other driver sustains injuries, your liability insurance will cover their medical expenses.
Example 2: You are at fault in an accident involving multiple people, and each injured person's medical expenses total less than your bodily injury liability limit per person. In this case, your liability insurance will cover the medical costs for all injured individuals. However, if the total costs exceed your bodily injury limit per accident, you will be responsible for the additional amount.
In summary, liability insurance is crucial for protecting yourself financially in the event of a collision. By understanding the coverage limits and tailoring them to your needs, you can ensure that you have sufficient protection while also complying with the legal requirements of your state.
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Collision coverage
It's important to note that collision insurance only reimburses you for damage to your own car, not for damage to other vehicles or objects, or for any bodily injuries sustained in the accident. Additionally, collision coverage does not apply to collisions with animals or damage caused by events outside of your control, such as natural disasters or theft. These types of incidents may be covered under comprehensive insurance.
While collision coverage is not legally required in any state, it may be required by your lender or leasing company if you are leasing or financing your vehicle. If you own your vehicle outright, collision coverage is typically considered optional. However, it can provide valuable financial protection in the event of an accident, especially if you drive an expensive car or would struggle to pay for repairs on your own.
The cost of collision coverage can vary depending on factors such as the value of your vehicle, your ability to pay out of pocket, and whether your vehicle is in storage. When deciding on collision coverage, it's important to consider the potential risks and costs associated with repairing or replacing your vehicle in the event of an accident.
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Comprehensive coverage
The decision to opt for comprehensive coverage depends on several factors, including the value of your car, your financial circumstances, and personal preferences. If your vehicle has a low cash value and a high deductible, comprehensive coverage may not be worth the additional cost. On the other hand, if your vehicle is valuable and you cannot afford repairs or replacement, comprehensive coverage can provide peace of mind.
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Personal injury protection
PIP covers reasonable medical costs, including surgeries, medications, diagnostics (X-rays, CT scans, etc.), prosthetics, nursing care, physical therapy, and medical devices. It also covers lost wages resulting from the accident and the replacement of necessary services provided by the injured party, such as childcare or household maintenance.
In some states, such as Texas, PIP insurance is not mandatory, but you may have to sign a waiver if you want to decline the coverage. Other states, known as no-fault states, require drivers to have PIP coverage.
The cost of PIP insurance varies depending on your location, the amount of coverage you want, and your driving history. You can typically increase your coverage if you want additional financial protection. The policy limit refers to the total amount your insurance will pay per person injured in an accident.
When filing a PIP claim, it is important to include all relevant documentation, such as receipts, bills, and proof of income, to ensure that your claim is processed quickly. PIP insurance typically provides coverage for costs that occur within three years of an accident.
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Uninsured/underinsured motorist coverage
Uninsured motorist coverage comes into effect when you are hit by a driver with no auto insurance. This coverage is essential as it shields you from the financial burden of paying for medical bills or vehicle repairs out of your own pocket. It is a mandatory requirement in many states and highly recommended for all drivers, given the significant number of uninsured drivers on the roads.
Underinsured motorist coverage, typically offered alongside uninsured motorist coverage, comes to your aid when you are hit by a driver whose insurance coverage is insufficient to pay for the damages or injuries they caused. This coverage ensures that you are not left bearing the financial brunt of another driver's inadequate insurance.
In some states, uninsured/underinsured motorist coverage is required by law, while others may offer it as an option. The coverage may be structured differently depending on the state, with some offering separate coverages for bodily injury and property damage, while others combine them.
Uninsured motorist bodily injury coverage (UMBI) takes care of medical bills for both you and your passengers when involved in an accident with an uninsured driver. On the other hand, uninsured motorist property damage coverage (UMPD) addresses the repairs needed for your vehicle in similar circumstances.
Underinsured motorist bodily injury coverage (UIMBI) and underinsured motorist property damage coverage (UIMPD) are the equivalent coverages when the at-fault driver has insufficient insurance.
It is worth noting that uninsured motorist coverage also applies in hit-and-run incidents, providing valuable protection in such uncertain situations.
When selecting your coverage limits, it is generally advisable to match the amount of your liability coverage for bodily injury protection. As for property damage, you can set a limit close to the value of your vehicle.
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Frequently asked questions
Liability insurance covers expenses like personal injury to others when you’re at fault or damage to a vehicle. It covers medical expenses for the other driver, as well as property damage, but not your own vehicle.
Collision insurance covers damage to your vehicle and is usually required with leasing or when you have a car loan. It covers damage to your vehicle caused by hitting another car, an object, or as a result of flipping over.
Comprehensive insurance covers damage to your vehicle that isn't caused by a collision. This includes damage from fire, theft, flooding, vandalism, falling objects, and collisions with animals.
Uninsured motorist coverage protects you if an uninsured driver is at fault for an accident that damages your vehicle. It helps pay for medical expenses for you and your passengers, as well as repairs to your vehicle.
Personal injury protection (PIP) covers medical expenses, lost wages, funeral expenses, and other costs for you and your passengers, regardless of who is at fault for the accident.
