What are the different types of car insurance coverages?

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Key takeaways...
  • There are many types of insurance coverage that you may not be aware of
  • Liability insurance is required in almost every state
  • Know your state minimums for liability
  • Comprehensive insurance covers any non-accident situations

When looking for car insurance, it helps to know what the different types of coverage are. This helps you get an edge on the types of coverage you might know. Knowledge is power.

You will want to have a comprehensive view of the types of coverage that are available so that you can make a more educated decision on your coverage. This is especially vital if you fall into the following examples:

  • This is the first time that you have purchased an automobile
  • You are a student driver
  • You are a beginning motorist

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Liability Coverage

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Liability coverage is the most important type of coverage that is required in every state (except Virginia and New Hampshire). Liability, as its name implies, liability is a legal responsibility for something that is considered to be your fault.

Regarding auto insurance situations, it is insurance that covers you in the event of an accident in which you were negligent and which has caused the death or injury of others or causes severe damage to their personal property.

So liability insurance shields you from legal actions that might otherwise be taken against you in the event of death or injury to other people. Liability is one of the types of insurance that is required in every state except those states that do not require insurance.

Know your minimum liability amounts for your state before you purchase insurance.

Liability coverage falls into the two following categories:

  • Bodily injury coverage
  • Property liability coverage

Bodily injury is a type of liability coverage that covers the injury of persons involved in an accident for which you are ruled “at fault.” This is why it is so important that you have adequate coverage (at least the state minimums) in bodily injury liability.

You never know expensive the injury-related costs could run, especially if someone you injured claims to have ongoing injuries or other effects of the accident later on.

Keep in mind that, if an accident is not ruled your fault, or is ruled “no-fault,” you are not liable for damages and your insurance company will not have to pay for the costs.

However, you must still carry the state minimums required in your state of residence to be within the law. If you have an accident and are not carrying the state minimums, you can be fined, even if the crash was not your fault.

Part of the expense of your premium for liability goes to property liability. This is coverage that covers the damage of personal property that occurs during an accident in which you were responsible.

Again, insurance protects you legally from lawsuits that others might bring against you if you damage their property in an accident.

Summary of Liability Coverage

Liability coverage is insurance that is reserved for the purpose of offsetting potential legal actions brought against you by paying for the damages. The minimums vary from state-to-state so you should do your research or ask someone what your state minimums are.

Liability is the most important type of coverage that you absolutely must have to protect you from a huge financial loss in the event someone is injured, or their property is damaged due to your negligence on the road.

It is important to understand that liability insurance is noted as three numbers separated by forward slashes. On most insurance sites, it looks like this 20/40/10

In this example, it means that the liability coverage is for up to $20,000 per injured person in an accident, up to $40,000 for the entire accident, and $10,000 worth of coverage for property damage.

Collision Coverage

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Collision coverage is insurance that covers the resulting damage of your car from an accident. Your collision insurance will cover the cost of repair or replacement of your car whether it is your fault or not.

The collision has nothing to do with liability insurance, which is for the purpose of paying for damage or injury to other drivers and their property.

Collision, unlike liability insurance, is not required by state law but some lending organizations or loan companies that you finance your vehicle through may require it.

It is wise to look into the regulations of your car finance company if you are not sure if you have an obligation to carry collision. Many finance companies do this to protect their investment of your vehicle.

Remember, that until you complete your payments on your vehicle, your lending institution owns your vehicle, and they have a legal right to protect it.

Once a car is five years old or older or you finish your payments, you may not be required to continue to carry collision insurance on the vehicle.

Comprehensive Coverage

Comprehensive coverage is another option you may run into when you are shopping and comparing insurance policies and companies. Comprehensive coverage has nothing to do with accidents. This comes as a surprise to some people who are new to shopping for insurance.

Comprehensive covers anything other than accidents. For example, if your car is stolen, the following types of insurance will do nothing for you:

  • Liability
  • Personal injury
  • Collision

You must have comprehensive coverage in that situation.

Comprehensive coverage covers the following types of incidents:

  • Theft of property – If your vehicle is stolen while it is parked anywhere such as on a street curb, in your garage, or other location, your comprehensive insurance coverage will take care of the loss.
  • Vandalism – Vandalism is also covered by comprehensive insurance and cannot be covered by any sort of accident coverage. Vandalism, by law, is the destruction of property and is a criminal offense.
  • Floods – Floods are considered an “act of God,” which cannot be prevented or deferred and you never know when it might happen.
  • Fire – In the case of most fires, engine parts, wiring, and other key components are so badly damaged that you will have no choice but to purchase another automobile of similar value. Comprehensive insurance will pay for the replacement of your vehicle in such cases.
  • Tornado or hail damage – Tornado or hail damage can do devastating damage to vehicles. Tornadoes often pick up automobiles and throw them through the air at harrowing speeds, slamming them into trees, buildings, or dropping them onto other cars.
  • Earthquakes – Earthquakes, like other events we have discussed, often come quickly and without warning. There is not much a person can do to avoid such situations.
  • Other “acts of God” –– Floods, fires, hurricanes, earthquakes, and other similar incidents are considered events that no one can prevent. If you have comprehensive coverage, you can rest assured that it will be covered if any of these things occur.
  • Objects falling (such as in a garage) – Sometimes the damage occurs even when your car is safe and sound inside your garage. As long as you have not been negligent or careless, you will be covered for these types of damage.

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One Word About Due Diligence

Due diligence, by law, is the requirement that many professionals have such as insurance agents, to do their research, watch out for potential dangers to persons or property, and do everything in their power to avoid a disaster.

Car owners also have a legal requirement, to avoid negligence and do their due diligence in ensuring that their property is safe and secure.

This means that you should follow these guidelines:

  • Do not ever leave your vehicle in a known high-crime area
  • Make all attempts to lock up your car at night so that it is not stolen
  • Take whatever course of action necessary to protect your property at all times

Driving recklessly or leaving your automobile in harm’s way may make an insurance company question whether or not you may have contributed to the incident.

But when these events occur, in spite of your best intentions, comprehensive coverage guarantees that it will be paid for and you will not be responsible for out-of-pocket expenses.

Uninsured and Underinsured Motorist Coverage

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Another type of insurance that you may want to add to your policy is uninsured or underinsured coverage. This kind of coverage covered your property and liability situations even when the other drivers involved were uninsured or underinsured.

Uninsured means that they had no insurance while underinsured means that they did not have enough insurance to cover the damages.

In these cases, the law allows your insurance to kick in and cover damages and avoid you being personally responsible for paying for your vehicle or medical injuries.

This would only be relevant in cases where the accident was the fault of the other driver since it is their insurance that would have paid, had they had enough to cover the damages.

Medical Payments

Another type of insurance you might want to consider is medical coverage. This type of coverage covers additional medical expenses that might be incurred as a result of an accident that you caused.

This is an extra type of coverage and does not come automatically with a plan, though it may be offered when you get a quote.

Personal Injury Protection (PIP)

The last type of coverage is known as PIP or personal injury protection.

This kind of protection will kick in when your liability or personal injury coverage was not enough to cover the damages or injuries inflicted on others as a result of your negligence.

It is a legal type of coverage that adds additional monies to take care of other claims revolving around the accident.

If someone files an insurance settlement against you, you will need this type of coverage to help in the negotiation process when the insurance companies make a decision on some damages.

Shopping for Car Insurance

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All of these types of insurance do one thing: protect you from financial loss. They also shield you from legal actions that other may take against you.

Always weigh the cost of the insurance with the risk you are taking and make your decision based on that.

If you have a good attorney and are willing to take the risk of personal injury cases, or if you have the funds to cover such incidents when they occur, you can opt not to take personal injury protection.

PIP is considered an additional but not mandated coverage, and this is up to you.

Ask for advice when you get a free quote and ask the important questions before you decide. Drive safely!

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