Auto Insurance Basics

April 21, 2009

Automobile insurance is essentially insurance that individuals or companies can purchase for any kind of vehicle in order to protect against losses sustained in traffic accidents. Auto insurance policies are, in reality, a bundle of different types of coverage. This insurance will usually cover the insured party, the insured motor vehicle, and any third parties involved. Different policies will identify the situations in which each of these entities is covered.

Below are many of the coverage types involved when you purchase car insurance.

  • Liability Insurance: Liability coverage is the most basic and foundational coverage in car insurance policies and is required in most states. This coverage ensures that if you are the one at fault in an accident, your liability insurance will pay for the physical injury and property damage expenses of any third parties involved. This coverage includes legal bills. Remember that third parties can sue you for “pain and suffering” damages. Minimum insurance may not sufficiently cover you in more extreme cases, which is why many people recommend that drivers purchase more than the state minimum required.
  • Collision Coverage: In the case that you are in an accident, collision insurance will pay for the repairs that your vehicle requires. Collision coverage is usually the most expensive coverage that you will have to pay for. Insurance companies will declare a vehicle “totaled” or a “write-off” if the replacement would be cheaper than the repairs needed.
  • Comprehensive Coverage: This coverage will pay for any damages to an automobile that were not caused by an accident. Qualifying damages include damages arising from carjackings, vandalism, natural disasters, and hitting an animal.
  • MedPay, PIP, and No-Fault Coverages: MedPay will pay for the medical expenses of you and anyone else in your car after an accident, regardless of whose fault the accident was. PIP (Personal Injury Protection) and “no-fault” coverage are other forms of medical payment protection. They are broader than MedPay and may be required in certain states.
  • Uninsured and Underinsured Motorists Coverage: UM (Uninsured Motorists) coverage will pay for injuries you have sustained if you are involved in a hit-and-run by a driver who does not have auto insurance, and is mandatory in many states. UIM (Underinsured Motorists) coverage will pay for you if the driver who hit you creates more damage than their liability insurance can cover.
  • Supplemental Coverage: Rental reimbursement is an add-on that will cover rented vehicles in case of damage or theft. Auto replacement coverage ensures that your automobile will be fully repaired or replaced even if the costs are more than its depreciated value. Coverage for towing and labor covers you in case of an auto failure on the road where towing is necessary. This supplemental coverage is usually offered as separate items or included in larger policies.
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