You’ve got your license, your car, and a topped-off tank of gas. You’re good to go, right? Think again. You could be going nowhere fast, unless you’ve got auto insurance. Choosing the right coverage can seem like an intimidating and potentially expensive prospect, but it doesn’t have to be. Read on to find out what types of coverage are out there and which ones are right for you.
Insurance Definition and Types
Just what is auto insurance, anyway? Simply put, you make payments to an insurance company and in return, the insurance company protects you from financial losses that occur as a result of an accident. There are six different types of auto insurance coverage. Depending on your particular circumstances, you may only need one or two, or you might need them all. Let’s start with an explanation of each type:
• Property Damage Liability: This is one of the most basic types of coverage. Property damage liability or, “PD” as it is often referred to, protects you by paying for any damage your vehicle causes to another vehicle, or to private or public property (such as street lights, guard rails, homes, etc.) PD can cover both you and someone else driving your vehicle with your permission. This type of coverage is required in most states and by most insurance companies when you buy coverage.
• Bodily Injury Liability: This pays for any injuries you or a family member on your policy inflict on someone else in an auto accident. It will also cover you if you are driving someone else’s vehicle (with their permission, of course). This coverage is good to have in case the injured party decides to sue for damages.
• Comprehensive: Comprehensive covers any damage to your car that happens by some means other than a collision with another vehicle. For example: theft, vandalism, natural disasters, or collisions with animals are all things you will be reimbursed for with comprehensive. Comprehensive requires a deductible, which is an amount you pay before the insurance company pays the rest. Windshield breakage is also covered, though whether with or without a deductible depends on your insurance company.
• Collision: Not only does collision cover – you guessed it – a collision with another vehicle, it also covers colliding with another object, damage resulting from your car flipping over, and damage from potholes. Like comprehensive, collision also requires a deductible. In some instances if the collision was not your fault, you may not have to pay the deductible to have your car repaired.
• Uninsured/underinsured motorist: If you or your vehicle is hit or damaged by an uninsured driver, uninsured motorist will cover the damages. This coverage also applies to hit-and-run drivers or if you are a pedestrian hit by a vehicle. Underinsured motorist will reimburse you for damages caused by a driver whose insurance doesn’t cover the total loss of your car.
• Personal Injury Protection (PIP): Also sometimes known as Medical Payments, PIP covers injuries you or your passengers incur during an accident. In some cases, PIP coverage can extend to cover medical expenses such as rehabilitation, or even other expenses such as lost wages or funeral costs.
As mentioned above, insurance coverage often requires deductibles. Deductibles are the part of the insurance claim you are required to pay out of pocket before your insurance company covers the remaining costs or damages. Deductibles can vary widely and usually apply to comprehensive and collision coverage. An average deductible for either can be as low as $300 or as high as $1000. Lower deductibles often mean higher insurance premiums, because your out-of-pocket expense is lower. Conversely, higher deductibles result in lower premiums because you will have to pay more for damages up front.
Factors and Fine Print
In addition to what coverage you decide to purchase, a large number of variables also play a part in your insurance costs. These variables can include the year, make and model of your vehicle, your age and gender, your driving record, how many miles you drive, safety features on your vehicle, and where you live.
Some insurance companies offer multiple car discounts and good driver discounts, so it’s always a good idea to ask what discounts you might qualify for.
Finally, before buying an auto insurance policy, always check to see what your state’s laws and requirements are. The penalties for driving without insurance are just not worth the risk.