Wed. Apr 17th, 2024

Understanding Different Types of Auto Insurance Coverage

No matter if you are shopping around for auto insurance or already have one in place, it’s essential that you understand all the various forms of car coverage available to you. NerdWallet explains six major types of policies here.

Body injury liability coverage is mandated in many states, while uninsured/underinsured motorist insurance helps cover medical costs and damages if an accident happens with someone who lacks sufficient insurance.

Liability Coverage

Liability coverage, usually mandated by state laws, covers damages to another driver’s property and injuries caused by your actions in an accident that results in property or bodily damage or personal injuries, as well as legal fees should they file suit. It pays both sides involved if this situation arises.

Liability coverage is essential in protecting against large damage claims that require insurance company settlement, which may run into millions. Limits are typically stated per-person and per-accident limits in thousands of dollars; however, some insurers offer single limit policies which apply the same coverage amount regardless of how many people or amounts are involved.

Collision coverage provides for the repair costs (minus your deductible) associated with an accident in which your vehicle collides with another car or object, regardless of who was at fault. It may also help cover rental car costs if necessary after an incident has taken place.

Collision Coverage

Collision coverage helps cover repairs for damage sustained to your vehicle in an accident (regardless of who caused it), such as colliding with another vehicle or object (regardless of fault), or hitting fixed objects like light posts or fences. Coverage usually equals up to the vehicle’s actual cash value minus your deductible amount; collision insurance is typically mandatory if financing or leasing your vehicle, though keeping coverage even after its purchase could still prove beneficial.

Personal injury protection (PIP) is a type of liability coverage designed to reimburse medical costs associated with accidents that you cause, including lost wages and any associated costs.

Comprehensive Coverage

Comprehensive auto insurance (or “Acts of God” coverage) protects you against damage to your vehicle that’s not the result of a collision, including run-ins with deer, hail storms, fire and theft. Policies typically pay out the vehicle’s actual cash value (minus any applicable deductibles) once damage occurs.

Many people choose comprehensive coverage because it can help shield them against events outside their control, such as acts of nature or vandalism. Unfortunately, comprehensive plans usually require paying higher premiums.

As part of your car insurance coverage, consider medical payments and personal injury protection, uninsured/underinsured motorist coverage and uninsured/underinsured motorist supplemental policies such as roadside assistance, rental reimbursement and mechanical breakdown coverage – and usage-based policies which calculate costs according to how you drive – these may all come in handy when looking at various providers before making your final choice. Deductibles and policy terms will likely differ; so compare multiple providers before making a final decision.

Uninsured/Underinsured Motorist Coverage

Uninsured motorist coverage (UM/UIM or UMBI), also referred to as uninsured/underinsured motorist (UIM/UM) coverage can help cover your costs in accidents with drivers who either lack insurance altogether or whose policies don’t meet state minimum requirements. It may be optional in certain states and mandatory in others; typically this form of car insurance covers bodily injury (UMBI) as well as property damage (UMPD).

Without Underinsured Motorist/Uninsured Motorist insurance (UM/UIM coverage), medical bills or repairs after being involved in an accident caused by an uninsured or hit-and-run driver could cost thousands. Luckily, it’s usually affordable coverage that’s a smart addition to any policy.

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