Auto Insurance Policy: What To Carry And Why

Car insurance is a necessity for drivers in most states. While the specific requirements vary across the US, there are some standard components of an auto insurance policy that you should be aware of. Understanding these basics will help you make informed decisions about the level of coverage you need and ensure you're prepared in case of an accident or other vehicle-related incidents.

Firstly, it's important to know the difference between liability coverage and full coverage. Liability coverage is mandatory in almost every state and covers injuries, deaths, and property damage you cause to others in an accident. On the other hand, full coverage includes liability coverage and adds protection for damage to your own vehicle, regardless of who is at fault. This typically includes collision coverage for crashes involving another vehicle and comprehensive coverage for situations like vandalism, theft, or deer collisions.

When deciding on the amount of coverage, consider your net worth and how often you drive. You want to ensure your policy can cover the full cost of an accident without putting your assets at risk. Additionally, look into optional coverage types, such as uninsured motorist coverage, glass coverage, and medical payments coverage, to ensure you're prepared for specific scenarios.

Keep your insurance cards easily accessible, with one in your vehicle and the other safely stored or carried with you. These cards provide proof of insurance and are essential if you're pulled over or in an accident. You can also store digital copies on your phone or in a cloud service. Remember to update your insurance cards whenever there are changes to your policy or personal information.

Bodily Injury Liability

Most states in the US require drivers to have a minimum amount of Bodily Injury Liability coverage. The specific limits vary by state, but it is generally recommended to have higher coverage limits to adequately protect yourself financially in the event of a serious accident. The coverage limits are typically represented as three numbers, such as "$100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability." The first number refers to the maximum amount covered per person, while the second number refers to the total coverage limit for all injuries in a single accident.

When choosing your Bodily Injury Liability coverage limits, it is crucial to consider your financial situation and the potential costs of medical care and legal expenses. While state minimums are a starting point, they may not be sufficient to cover the costs of a severe accident. It is generally recommended to have enough coverage to protect your assets and cover potential expenses. Additionally, consider purchasing additional coverage, such as umbrella insurance, to further protect yourself in the event of a lawsuit.

By understanding the specifics of Bodily Injury Liability coverage and the requirements in your state, you can make an informed decision about the level of coverage that best suits your needs and provides adequate financial protection.

Property Damage Liability

The cost of Property Damage Liability insurance depends on various factors, including your location, age, gender, driving record, and credit score. On average, the annual cost for liability car insurance (including both property damage and bodily injury liability) is $650.35.

When choosing a policy, consider the total value of your personal assets and select a coverage amount that will protect your financial well-being if you are at fault in an accident. It is also worth noting that Property Damage Liability insurance does not cover your own vehicle or your medical expenses, so additional coverage such as collision and comprehensive insurance may be necessary to ensure full protection.

Medical Payments or Personal Injury Protection (PIP)

Understanding Personal Injury Protection

Personal Injury Protection (PIP) is a type of auto insurance coverage that offers reimbursement for medical expenses and lost wages resulting from an accident, regardless of who is at fault. PIP is designed to cover the policyholder, family members residing in the same household, authorised drivers, and passengers. It ensures that accident-related medical expenses and funeral costs are covered within a specified period (usually up to three years). Additionally, PIP provides coverage for lost wages, paying 80% in most cases. If the injured person is unemployed, PIP can also cover essential services like childcare and lawn care.

Medical Payments Coverage (MedPay)

Medical Payments Coverage, often referred to as MedPay, is another crucial component of auto insurance. MedPay focuses specifically on covering medical payments resulting from an accident. It protects you and your passengers, regardless of who is at fault in the accident. While your health insurance may cover some medical costs, MedPay fills in the gaps, especially in cases of low coverage limits or high deductibles. MedPay can help with hospital expenses, medications, dental care, and even funeral expenses if the worst should happen.

PIP and MedPay: How They Differ

While both PIP and MedPay offer financial protection for medical payments, there are some key differences to note. Firstly, PIP covers a broader range of expenses, including lost wages and essential services for unemployed individuals, while MedPay is primarily focused on medical expenses. Secondly, PIP is usually written specifically for car-related injuries, whereas MedPay may have limitations or exclusions for car accidents in certain health insurance policies. Lastly, PIP coverage limits and requirements can vary by state, with some states mandating PIP coverage, while MedPay is often optional.

Why You Need PIP and/or MedPay

In the unfortunate event of an accident, having adequate medical coverage is essential. PIP and MedPay provide financial peace of mind by ensuring that medical expenses are taken care of, regardless of fault. They bridge the gap between health insurance limitations and the high costs of medical care. Additionally, PIP offers the added benefit of lost wage coverage, which can be crucial for maintaining financial stability during recovery. While your state's requirements may dictate your decision, it's always beneficial to consult with a skilled insurance agent to determine the right coverage for your needs, lifestyle, and budget.

Uninsured Motorist Coverage

The UMBI aspect of the coverage takes care of medical bills for both you and your passengers, while the UMPD component covers any damage inflicted on your vehicle. In some states, Uninsured Motorist Coverage may also include Underinsured Motorist Bodily Injury (UIMBI) and Underinsured Motorist Property Damage (UIMPD) provisions. These components come into effect if you're hit by a driver who has some insurance but not enough to cover the costs of the damages or injuries they caused.

Benefits of Uninsured Motorist Coverage:

This type of coverage also offers protection in hit-and-run scenarios, where the at-fault driver flees the scene. Additionally, Uninsured Motorist Coverage can extend beyond situations involving cars, providing coverage if you are injured as a pedestrian or bicyclist by an uninsured motorist.

Considerations for Uninsured Motorist Coverage:

While Uninsured Motorist Coverage is mandatory in many states, it is not required in all. Even in states where it is optional, it is highly recommended for all drivers to consider. The primary factor to weigh is the financial risk you would assume without this coverage if involved in an accident with an uninsured or underinsured driver.

When determining the amount of Uninsured Motorist Coverage needed, consider matching the limits of your liability coverage for the bodily injury portion. For UMPD, you can select a limit that aligns with the value of your vehicle, especially if you don't carry separate collision coverage.

Collision and Comprehensive Coverage

While neither collision nor comprehensive coverage is mandated by state law, they are typically required for car loans or leases. The cost of these coverages depends on factors such as the insurer, your location, the value of your vehicle, and your chosen deductible. The deductible for both collision and comprehensive coverage is usually between $100 and $2,000, and you can choose different deductibles for each. However, selecting the same deductible for both can make it easier to predict your out-of-pocket expenses in the event of vehicle damage.

When deciding on collision and comprehensive coverage, consider factors such as the value of your car, your driving frequency and routes, and your current savings. If your car is valuable, you drive frequently or on busy roads, or you don't have sufficient savings to cover repair or replacement costs, these coverages are highly recommended.

Frequently asked questions