urn on the TV or radio these days and you’re almost guaranteed to hear an advertisement for car insurance. But when it comes to buying or choosing the right insurance, what do you really need? Your first step in finding the right policy is to make sure you meet the state’s minimum insurance requirements. If you don’t know your state’s requirements? Visit the insurance commissioners website for your state or call their office, they’re happy to help you get started.
But what about all the types of coverage and services that are offered. What do you need to really be protected on the road? an easy way to think about auto coverage is in terms of to whom the benefits will be paid. Personal coverage pays you as the vehicle’s owner. Liability coverage pays others for damages you’re legally responsible for as the result of an accident.
First, we’ll focus on coverages that benefit you as the policyholder. There are two types of physical damage coverage available with car insurance policies, collision coverage, and comprehensive coverage. Collision and comprehensive coverage are similar, that they both cover the loss related to your vehicle.
1. Collision Coverage
However, collision insurance specifically covers damage caused by accidents with other vehicles and stationary objects like trees or road signs, even potholes.
It is important to remember that collision coverage only handles repair and replacement costs up to your vehicle’s actual cash value. Your vehicles actual cash value is not how much you paid for it or still owe the loan, instead, the actual cash value is the vehicle’s current value considering factors like it’s age mileage and condition.
With this coverage, you’ll be asked to select a deductible. The deductible is the amount you’ll be responsible for paying for each covered loss, but more about deductibles in a moment.
2. Comprehensive Coverage
The second type of damage coverage for your vehicle is comprehensive. This covers damages your vehicle incurs from non-accident events like weather, wind hail, or ice, as well as theft and vandalism.
Two other types of personal coverage you should consider are rental reimbursement and gap insurance.
a. Rental reimbursement
It pays for a rental vehicle if your car is not drivable as the result of a coverage, or insured loss. It is optional and not required as part of your insurance policy. However, it can be beneficial if your car must be in the repair shop for several days, and if you do not have access to another vehicle.
b. Gap insurance
If your vehicle is financed you may also want to consider gap insurance. This pays the difference between the actual cash value of a vehicle, and the balance still owed to a lien holder or in a car loan or lease program. It helps prevent you from being upside down on your loan or owing to the bank more than the actual cash value, in the result of a total loss situation.
However, before you purchase this coverage from your insurance agent, be sure to check your loan or financing agreement. Many times gap insurance is a part of a loan agreement when you purchase the vehicle. However, double check to make sure you don’t already have gap insurance.
3. Uninsured or Underinsured Motorist Coverage
Uninsured or underinsured motorist coverage provides reimbursement if you are involved in an accident with a driver who doesn’t have sufficient or any liability insurance. Without this type of coverage, you could be stuck with a hefty repair bill, and medical bills you’d if the accident was not your fault.
The key to this coverage is that it pays damages that are not covered by the physical damage coverage of your policy, and its limits with medical payment coverage. With an increase in uninsured drivers over the last few years, this is a critical coverage of considering adding to any insurance policy.
Property damage insurance covers the cost of repairs for damage done to another person’s property in an accident. It also covers court costs and legal expenses. United States law requires drivers to carry at least $5,000 property damage coverage per accident. However, the minimum in States is higher. Remember, the minimum amount most likely will not cover all the expenses in a serious accident. Most car insurance professionals recommend at least $50,000 of property damage liability insurance. Many consider $100,000 per accident the ideal amount.
In 2013 the average price of a car was $31,000. You can see how quickly damages can add up if multiple vehicles are involved. We don’t have time to cover all the different types of insurance available.
Now, let’s talk about deductibles. Basically, a deductible is the amount of money you must pay when making a claim on your policy before your insurance company begins paying additional costs.
For example, suppose you have a policy with a $500 deductible, and you have an accident that causes $3,000 in damages to your vehicle. You are responsible for the first 500 dollars of repairs. The insurance company pays the remaining 2,500 dollars for repairs. The amount of the deductible you choose makes a difference in the amount of your insurance premium.
A low deductible means a higher premium, a high deductible means a lower premium. However, it is possible that should you be in an accident, your deductible might not fit your budget. If your budget allows for a high out-of-pocket expense, choosing a high deductible might be worthwhile for the lower premium. However, if a high deductible is not in your budget, a higher premium may be best for you.
All of us on the road at some point have worried about the dangers of an uninsured or underinsured driver causing an accident. That’s why uninsured motorist coverage can be a financial lifesaver.
However, we hope this has helped explain some of the more common types of insurance you can get for your automobile. Drive safe