Vehicle Insurance Basics
What exactly is car insurance?
Auto insurance is designed to protect you in the event you injure others, including property damage and bodily injury, as a result of an accident. Also, depending on the coverage and plan you have, it will reimburse you for injuries and damage done to your vehicle. In its most basic form, auto insurance is a contract between you and your provider. You agree to pay a fixed price, called premiums, in exchange for selected coverages.
The type of policy you have is detailed on the declaration page, so make sure you always read it and understand the exact coverage you have. It’s always smart to review your policy thoroughly and make sure you don’t have overlapping items like renters insurance. This is often covered in your credit card agreement, so you may be wasting money by having it. Remember, you can always update your insurance and cancel it at any time.
What does car insurance cover?
This is a common question new clients always ask agents. The answer is that it depends on the plan and the type of policy you buy.
There are four main categories of protection.
* Liability insurance
This covers injuries to the other party, damage to your vehicle, and property damage as well. If you have a vehicle that isn’t worth much and you don’t drive very often, liability insurance may make sense. It’s much cheaper than the full one, with prices in some states starting at $29 for good drivers.
* Collision insurance
This will pay for damages and medical costs related to you. It’s smart to buy if your vehicle is newer and worth more than $12,000.
* Comprehensive insurance
This is the gold standard of coverage. This type of policy costs more but has extensive protection. Match collision and will repair or replace your car for events causing damage or loss, not related to a vehicular accident. This means that if your car is stolen, you will be protected and able to replace it for its current market value. In addition, weather-related damage caused to your car will also be covered. Typical examples are floods, fires and animal incidents.
* Uninsured motorist insurance
There are more people driving on the roads without insurance than ever before. Buying uninsured motorists insurance will protect you from these illegal drivers. If you are involved in an accident with someone who does not have insurance, you will be insured up to the limits of your policy.
It is important to know that each state has different laws and mandatory insurance coverage. You should familiarize yourself with the limits mandated in your state and stay current with changing laws.
The Most Common Car Insurance Coverages
Each type of coverage you purchase contains a set of limits, policy terms, and multiple conditions. Bodily injuries are very important.
It will pay, as the name implies, for bodily injuries sustained from an incident that you are found to have caused. A good liability policy will also pay legal fees, up to certain pre-defined limits, should you be sued in court.
Liability will also pay for damage you caused to someone else’s property, most often your car, after an at-fault accident occurs. Medical insurance will generally cover you and any passengers in your vehicle who were injured in a crash. Another advantage of having good medical coverage is that it will cover medical costs in the event that you are hit by a car that is walking as a pedestrian.
There are several states that have PIP or personal injury protection laws instead of medical coverage. Some people refer to this as no-fault coverage. PIP insurance will typically pay for medical, funeral, lost wages, and a variety of other costs related to bodily injury sustained after a car accident.
What you need to know before buying auto insurance
The most important thing to think about when shopping for auto insurance is getting coverage that meets your needs. What your specific needs are, including your budget and risk tolerance. Remember, you need to think about the worst case scenario, like buying enough coverage to replace your car and protect the assets you’ve built up.
In general, the higher your personal net worth, the more insurance protection you’ll need. Lawyers also target people who have large amounts of money with aggressive lawsuits, claiming damages. Your insurance plan should follow the growth of your assets and protect you as much as possible.