Understand your car insurance and what it covers
What is auto insurance? Car insurance is online insurance that provides compensation if the vehicle suffers minor damage such as scratches, dents, to total or severe damage. Most states require motorists to carry at least minimum levels of personal auto insurance, which can help mitigate financial losses in the event of an accident. Is that sufficient? Which choices do we have? Find out the ins and outs of auto insurance and the various policies that can be purchased.
Having auto insurance protects you against:
- Property – Including, but not limited to, the possibility of your car being broken into or stolen
- Liability – Responsibility to third parties under the law for harm to persons or property damage
- Medical –treatment expenses, time away from work, and final costs for the deceased all add up.
Most U.S. states require some level of minimum auto insurance coverage, though the specifics of this requirement can vary widely from state to state. Coverages for auto insurance can be purchased separately (a la carte) and in varying amounts to suit your specific requirements and financial constraints.
Typically, policies are issued for a period of either six months or a year, and are renewable. When it’s time to renew your policy and pay your premium, your insurance provider will send you a reminder.
Whom does my car insurance protect, and under what conditions?
If you or a family member are involved in an accident in either your own or another person’s vehicle, you will be protected by the coverage provided by your auto insurance policy (with their permission). Anyone who uses your car with your permission is also covered by your policy.
Your daily commute, errands, and vacations are all covered under your personal auto policy, but business use is not. If you use your vehicle for profit, such as pizza delivery, you will not be covered.
Similarly, if you use your car for a ride-sharing service like Uber or Lyft, your personal auto insurance will not cover any of the resulting damages. However, some insurance companies are beginning to provide ride-sharing service vehicle owners with supplementary insurance products that, for a fee, expand coverage.
Is auto insurance coverage mandatory?
The minimum coverage levels required by individual states can be quite different from one another. If you need auto financing, your financial institution could have additional guidelines. Owners of motor vehicles are obligated by law in nearly every state to have:
- Bodily injury liability – which pays for damages if you or someone else is at fault for an accident involving bodily harm or death.
- Property damage liability – which pays for repairs to other people’s cars and other property like fences and utility poles if you or someone driving your car damages theirs.
In addition, many states require that you carry:
- Medical payments or personal injury protection (PIP), that will pay for your medical bills in the event that you or your passengers are injured. It will compensate for lost wages and other costs.
- Uninsured motorist coverage pays for damages when an uninsured driver or a hit-and-run driver is to blame for an accident. Underinsured motorist coverage is another option, which kicks in when the other driver doesn’t have enough insurance to cover the costs of an accident.
If personal injury protection and uninsured motorist coverage are not required in your state, you should get them anyway.
How about other common auto insurance coverages?
Basic, legally required auto insurance policies typically only cover repairs to other people’s property, not your own. These are some of the extra protections you can get for your own car:
- Collision covers the cost of repairs to your vehicle if you were at fault in a collision with another vehicle or an immovable object like a tree or guardrail. Damage from potholes or a rollover will be covered by collision coverage, but mechanical failure or normal wear and tear will not be.
- Comprehensive provides protection against loss and damage that was not caused by a collision, such as those caused by theft, fire, flood, vandalism, hail, falling rocks or trees, and even an asteroid!
- Glass Coverage offers protection against a common problem: cracked windshields. Side and rear windows, as well as glass sunroofs, may be covered without an additional deductible by some auto insurance policies. Another option is to invest in additional glass protection.
When do I need gap insurance, and what exactly is it?
In the event of an accident, collision and comprehensive policies will only pay out the current market value of your vehicle, not the amount you owe on it. A “gap” exists if the amount you owe on your car is greater than the amount your insurance pays out in the event of a total loss or theft. Gap insurance could be an option to cover the difference if you need to. Keep in mind that gap insurance is typically included in the monthly lease payments for leased vehicles.