Auto Insurance Coverage Basics

Even a slight fender bender in a parking lot can ruin your day. Road accidents can turn a good day into a wild one, but you should not let it ruin your life. You pay auto insurance coverage not only to comply with the law, but you pay it to protect your assets. If you drive a car, you need to have auto insurance coverage. There are different types of auto coverage; the states require you to have some, but insurance companies suggest you to purchase more. The following passages explain key features of the most important auto coverage.

· Liability Coverage: this coverage comes in two different types including Bodily Injury and Property Damage. In the event of road accidents for which you are liable, the insurance company will pay for the damages and injuries that you cause. Liability coverage prevents you from spending too much on medical payments or repairs for someone else’s injuries and property damage.

· Personal Injury Protection (PIP): it covers medical payment and other expenses for your injuries regardless of who is at fault in an accident.

· Medical Payments: in case the PIP coverage reaches its limit for other expenses following an accident, separate medical payments coverage can be helpful. Sometimes you can use it in conjunction with your health insurance as well.

· Collision: it covers repair cost for any damage to your vehicles due to an accident. It may include paint job, replacement parts, broken windscreen, and engine repair.

· Comprehensive: this coverage covers damages to your vehicle due to non-accident causes. Some common causes are fire, theft, vandalism and falling objects.

· Underinsured and uninsured motorists: in case you are involved in an accident with another driver who does not have enough insurance or no insurance at all, this coverage requires your insurance company to remunerate for the damages to your vehicle.

Every state has different rules regarding auto insurance. Depending on where you live, you may need to purchase all the above coverage or only some of them. The limit of each coverage policy is subject to insurance laws too. This table lists the recommended limits for common types of coverage.

Deductibles & Limits

Bodily injury: $100,000 per person, $300,000 per accident

Property damage: $100,000 per accident

Personal Injury Protection: Either deductible or no deductible; it can be optional or mandatory depending on the state. Either deductible or no deductible; anyone with an existing health insurance may not need to purchase this coverage.

Collision: $500 to $1,000

Comprehensive: $500 to $1,000

Uninsured motorist: $100,000, but if this coverage is less

Underinsured motorists: $100,000

More Optional Coverage

Collision and Comprehensive are optional, but they are important. Even when the state does not list them as mandatory, they are still necessary and worth the money. Apart from those two, insurance companies also offer other optional coverage including:

· Rental Reimbursement: your insurer provides an amount of money as compensation for transportation expense during the period when your car is in the shop for repair after an accident. The amount depends on the company’s policy. The money should be enough to rent a car until your car is ready to go again.

· Roadside Assistance: it can be helpful in case your engine breaks down in the middle of nowhere that you need towing service to a repair shop. Some car manufacturers provide this service free of charge with the purchase of a car, so you may not need to buy this coverage.

Money-saving Tips

Auto insurance does not come cheap, but there are ways to save money on premium. One of the ways is to make use of insurance discounts available from most insurers. Even when you are not eligible, you can reduce the premium by increasing deductible or use a car that meets the insurer’s safety requirements.

A deductible is like reserve cash from you for the insurance company. You can consider this a down payment for the premium. If you pay more for down payment, your monthly installments for premium will be less. Increasing deductible from $250 to $500 can reduce up to 30% of the premium. If you can afford it, going for more deductible is a good decision. Many types of coverage allow for the deductible, but you should focus on Liability Coverage.

The financial impact of an accident for which you are liable can be devastating; total cost of car repair and medical payments can reach hundreds of thousands. By increasing the limit of liability coverage, you have better financial protection from the insurance company. However, higher limit means higher premium, and this is why you should consider increasing deductible.

Collisions and Comprehensive are optional.

The basic rule is that you should purchase both if your car is worth at least ten times the amount you pay for those two coverage types. For many older cars, Comprehensive and Collision coverage are not worth the money. Omitting them can save much money.

New cars are not always more expensive to insure than old ones.

New cars have better safety equipment and protective features to keep the driver and passengers save for examples airbag and restraint system. Alarm system and anti-theft equipment are good safety features as well.

Most auto insurance companies offer discounts for such features.

If your car does not have them, consider installing third-party safety equipment to be eligible for the discounts. A safer car is less risky, and insurance companies are grateful for that.

Auto Insurance Coverages and Discounts Explained

Auto Insurance Coverage

Liability Coverage: Protects you in the event that you unintentionally cause injuries to other drivers or damage to other vehicles or property. This coverage normally comes into play when you are the at-fault party in an accident. Coverage in many states in generally “split limits”, meaning per person coverage, per accident coverage, and property damage coverage are separated with limits defined individually. For example; 50/100/50 means; up to $50,000 of coverage is available if one person claims injury damages, $100,000 is the maximum provided for all injury damages no matter how many people sue, and $50,000 is provided to fix cars or other property damaged by you. In addition, many auto policies provide attorneys fees and court expenses on top of the listed coverages.

Uninsured and Underinsured Motorist Coverage (UM): UM can provide coverage for medical costs, pain and suffering for bodily injury to you and others in your vehicle, if injury is caused by a driver with no coverage or not enough coverage. For example if you are in an accident where the at-fault party has no coverage, very little coverage, or flees the scene and is not found, and your injuries are deemed deserving of compensation in addition to the medical coverage provided by your policy UM coverage may be made available.

Personal Injury Protection (No Fault): Required coverage under Florida’s No-Fault Law. Provides a percentage of first dollar medical expenses to you regardless of fault in the accident. May people make the mistake of thinking that because of this coverage there is “no-fault” in an accident. This is incorrect and only refers to first dollar medical expenses sustained in an accident to a certain limit. The purpose of this coverage is to prevent minor lawsuits for medical bills from tying up the court system.

Medical Expense Coverage: May pay certain medical expenses for injuries sustained while occupying your car, regardless of who is at fault. This coverage is optional and simply provides for additional medical coverage beyond the standard personal injury protection coverage provided required by the law.

Comprehensive Coverage: May pay for damage to your car, less any deductible, caused by things other than collision or upset (fire, theft, glass breakage, for example).

Collision Coverage: May pay for damage to your car, less any deductible, caused by a collision with another object.

Towing & Labor: This coverage may provide a limited amount of reimbursement for expenses such as towing or car repairs made at the site of vehicle disablement.

Rental Reimbursement: This type of coverage provides limited reimbursement for a rental car used while your car is being repaired for a covered claim.

Auto Insurance Discounts:

Discounts may vary depending on the state and company but many are fairly standard across the industry.

Good Driving Record: Generally determined by the insured drivers previous three years driving record. In most cases if the insured driver has been been ticket and accident free there will be a discount available.

Driving a Safe Car: A vehicle safety discount will provide credit for cars that have tested and shown a history of limiting and preventing injuries to the vehicles occupants.

Low annual miles: The price you pay is determined by your risk and one major factor affecting risk is the amount you drive the car. If your annual mileage is below a predetermined number you may be eligible for a discount.

Student away at school without vehicle: If the primary driver of a vehicle is a student that is away at college and does not take the car to college with them a lower premium may be provided. The assumption is that the student will only be driving and have regular access to the vehicle on a limited basis such as holidays and for this reason the risk and price are lower.

Student with drivers education course: One of the most often considered discounts for young drivers. Either provided through a school or the insurance company young driver education can provide a reduction in premium.

Carpools: The reasoning behind this coverage is similar to the low mileage discount. Less driving equals less risk.

Seasonal Driver: Many drivers have vacation homes and keep a car there permanently. Many companies will reduce the premium or suspend coverages during the time when the car is parked and not driven.

Multiple cars insured with a company: A very common discount provided to customers who insure more than one owned vehicle with the same company.

Have additional lines of business insured with a company: Called a multi-line discount, provides a policy price reduction when an insured has vehicles and one other type of coverage such as homeowners insurance.

Longevity with a company: Many companies will allow for a lower premium based on the time a person has been with a company. The discount is intended to provide incentive to stay with that company.

Good Student: Studies has shown that good grades in school correlate to less accidents on the road and therefore insurance companies are willing to provide a lower premium to students with above average grades.

Anti-theft devices: Car alarms can deter theft, and reduce vandalism resulting in less insurance claims and a reason for reducing the premium.

Car Insurance Coverage 101 – What Is Required And What Is Optional?

Are you confused with what coverage you need on your car insurance policy? Most drivers don’t understand basic auto insurance coverage options and which combination makes sense for them. Today insurance companies try to differentiate themselves from the rest of the pack by coming up with fancy names coverage options. This only confuses the customer when they are trying to compare rates from other companies which is probably the plan all along. I will try to better explain which options you have for car insurance and why you might need them.

As an auto insurance consumer you need to understand the two types of coverage available on any standard car insurance policy.

Required Coverage – Most states have a minimum level of coverage that is legal to own and operate a motor vehicle. This usually includes liability insurance for bodily injury, medical payments and property damage.

Optional Coverage – Beyond what is required to meet state law you have many more options to add-on an auto policy. This optional coverage can provide protection for your vehicle, towing services, and much more.

I will first discuss the details of required coverage and then explore many of the most popular optional coverage features available today.

Required coverage is often referred to as “minimum liability limits” or just “liability insurance”. Each state will have their own set of limits that is required by an owner of a motor vehicle. These limits provide protection for all other drivers in the event of an accident. Here is an explanation of the most common required coverage limits:

  • Bodily Injury – Expenses resulting from other people’s injuries or death for which you are legally responsible. Such expenses include loss of income, medical bills and pain & suffering. Most states will have a minimum limit represented in dollars such as $25,000 in bodily injury per person.
  • Property Damage – Coverage for your liability of damaging another person’s personal property after an accident. Such items can include motor vehicle, house, or fence. Again most states will have a minimum limit represented in dollars such as $15,000 in property damage per accident.
  • Medical Payments – Some states have passed laws requiring medical payments coverage or a waiver must be signed to deny it. This coverage pays for medical expenses if you or a passenger in your vehicle are injured. Sometimes coverage will extend to other vehicles you are riding in up to the amount specified on the policy.
  • Personal Injury Protection (PIP) – In no fault states personal injury protection (PIP) is usually required. This coverage allows for a broader range of medical expenses to be covered over standard medical payments coverage. It can cover lost wages and other medical bills that would not be covered by medical payments.
  • Uninsured/Underinsured Motorist Coverage – This covers you and your passengers in an accident where the at-fault party is either under insured or not insured at all. It will also cover accidents where the other party has hit-and-run you in a vehicle or as a pedestrian. While required in most states it can also be waived in most cases. It is not recommended to waive this type of coverage.

Now that you understand what can be required on auto insurance we will shift our focus to optional coverage items. There are too many options to list them all in this article but I will detail a few popular coverages and what they are used for.

  • Comprehensive coverage – True to its name comprehensive coverage encompasses almost everything besides hitting another object. Common claims would include theft, vandalism, wind damage, hail damage and much more. This type of coverage will have an associated deductible that would be due at the time of the claim. If you have a loan on your vehicle this coverage is generally required by your lender.
  • Collision coverage – The name says it all, collision coverage will protect the vehicle against running into something else including another vehicle or object. Usually this is used after an accident where the driver is at fault for the damage done to the vehicle. A deductible is associated with this coverage and can range from $0 up to $1500. If you have a loan on your vehicle this coverage is generally required by your lender.
  • Roadside assistance/Towing – Most insurance companies offer this coverage for a very small premium and it is one of the most used. From a flat tire to a tow to the nearest repair shop this coverage is worth the price. Expect to pay $20 to $50 per year for this coverage depending on the year, make and model of your car.
  • Rental Car Reimbursement – Each company has a different name for this coverage but in the event you need to rent a vehicle while yours is being repaired this is what you will need. It usually only pays for a rental car if the vehicle is in the shop under a covered claim such as an auto accident. Expect to pay between $50 and $150 year for this coverage depending on the daily limit.
  • Uninsured Motorist Property Damage – Most people don’t realize that even if they have uninsured motorist liability coverage that doesn’t mean your vehicle is covered if someone hits-and-runs. This will provide protection for the vehicle in the event you don’t have collision or comprehensive coverage and the vehicle was hit by an uninsured motorist.
  • Glass coverage – Only a few auto insurance providers offer this coverage but it is a very nice coverage to have. It will replace any glass in the vehicle or repair it for a small or no deductible. Expect to pay $25 to $75 per year for this coverage depending on your vehicle type.