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Understand your car insurance and what it covers

Basic personal Car insurance is mandated by most states and provides you with some financial protection in case of an accident. But is it enough? What are the options? Learn how car insurance works and what types of coverage are available.

Understanding Car insurance: basics

Auto insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your paying a premium, the insurance company agrees to pay your losses as outlined in your policy.

Auto insurance provides coverage

Property: such as damage to or theft of your car
Liability: your legal responsibility to others for bodily injury or property damage
Medical: the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses

Basic personal auto insurance is mandated by most U.S. states, and laws vary. Auto insurance coverages are priced individually (a la carte) to let you customize coverage amounts to suit your exact needs and budget.

Policies are generally issued for six-month or one-year timeframes and are renewable. The insurance company sends a notice when it’s time to renew the policy and pay your premium.

Who is covered by my auto insurance: and under what circumstances?

Your auto policy will cover you and other family members on your policy, whether driving your car or someone else’s car (with their permission). Your policy also provides coverage if someone who is not on your policy is driving your car with your consent.

Your personal auto policy only covers personal driving, whether you’re commuting to work, running errands or taking a trip. It will not provide coverage if you use your car for commercial purposes—for instance, if you deliver pizzas.

Personal auto insurance will also not provide coverage if you use your car to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, are now offering supplemental insurance products (at additional cost) that extend coverage for vehicle owners providing ride-sharing services.

Is auto insurance coverage mandatory?

Auto insurance requirements vary from state to state. If you’re financing a car, your lender may also have its own requirements. Nearly every state requires car owners to carry:

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Bodily injury liability: which covers costs associated with injuries or death that you or another driver causes while driving your car.
Property damage liability: which reimburses others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.

In addition, many states require that you carry:

Medical payments or personal injury protection (PIP), which provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.

Uninsured motorist coverage reimburses you when an accident is caused by a driver who does not have auto insurance—or in the case of a hit-and-run. You can also purchase under insured motorist coverage, which will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.

What other types of auto insurance coverage are typical?

Collision reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object—e.g., a tree or guardrail—when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.

Comprehensive provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards—even getting hit by an asteroid!

Glass Coverage provides coverage from windshield damage, which is common. Some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.

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What is gap insurance and do I need it?

Collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “gap” between what you owe on the vehicle and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference. Note that for leased vehicles, gap coverage is usually rolled into your lease payments.

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Typical Components Of An Auto Insurance Policy in USA

Auto Insurance

If you’re buying a new car or shopping for auto insurance, you’ll likely need to understand the common types of coverage available on a car insurance policy. The various types of car insurance coverage are available to help protect you, your passengers, and your vehicle if you’re involved in a car accident.

Six common car insurance coverage options are auto liability coverage, uninsured and underinsured motorist coverage, comprehensive coverage, collision coverage, medical payments coverage, and personal injury protection. Depending on where you live, some of these coverages are mandatory and some are optional.

LIABILITY COVERAGE

*Bodily injury liability may help pay for costs related to another person’s injuries if you cause an accident.

*Property damage liability may help pay for damage you cause to another person’s property while driving.

UNINSURED AND UNDERINSURED MOTORIST COVERAGE

If you’re hit by a driver who doesn’t have insurance, uninsured motorist coverage may help pay for your medical bills or, in some states, repairs to your vehicle. If you’re hit by an underinsured driver, that means they have car insurance but their liability limits aren’t enough to cover your resulting medical bills. That’s where underinsured motorist coverage may help

COMPREHENSIVE COVERAGE

Comprehensive may help cover damage to your car from things like theft, fire, hail or vandalism. If your car is damaged by a covered peril, comprehensive coverage may help pay to repair or replace your vehicle (up to the vehicle’s actual cash value). This coverage has a deductible, which is the amount you’ll pay out of pocket before your insurer reimburses you for a covered claim.

COLLISION COVERAGE

If you’re involved in an accident with another vehicle, or if you hit an object such as a fence, collision coverage may help pay to repair or replace your car (up to its actual cash value and minus your deductible).

MEDICAL PAYMENTS COVERAGE

If you, your passengers, or family members who are driving the insured vehicle are injured in an accident, medical payments coverage may help pay for costs associated with the injuries. Covered costs may include hospital visits, surgery, X-rays, and more.

PERSONAL INJURY PROTECTION

Personal injury protection, or PIP, is only available in some states. Like medical payments coverage, PIP may help pay for your medical expenses after an accident. In addition, PIP may also help cover other expenses incurred because of your injuries — for example, child care expenses or lost income.

OTHER TYPES OF AUTO INSURANCE COVERAGE

You may be able to add the following optional coverages to your car insurance policy, depending on your situation. Your insurance agent can help you understand what each helps cover, so you can put together a policy that’s right for you.

  • Rental reimbursement coverage/transportation expense coverage
  • Gap coverage
  • New car replacement coverage
  • Towing and labor cost coverage
  • Ride-sharing coverage
  • Sound system coverage
  • Classic car insurance