Auto Insurance Basics
Auto Insurance Coverage
There are many kinds of coverage that you can purchase to protect yourself
and others. Below are descriptions of some of the more common types.
Keep in mind that, with Physical Damage
Coverage, you usually are responsible to pay a certain amount, called a
deductible before your insurance company will begin to pay. These are often
referred to as “1st Party” claims, but typically not true for
liability coverages unless your coverage specifically states otherwise as
with some business coverages. Also, deductibles do not apply if the claim is
a “3rd Party” claim. These claims are when another party’s
insurance company accepts liability and is paying you for your damages.
Also, insurance companies may define
these coverages slightly differently and with different exceptions and
limitations within and between States.. Therefore, before you purchase a
policy, make sure you know exactly what the policy will and won't cover.
Insurance is regulated by each State, so if you have moved from one State to
another, the requirements and policies will typically be different to some
In most states, auto owners are required by law to have liability insurance,
which pays for damages and injuries to others if you're at
fault in an auto accident. The minimum amount of coverage required
varies by state. You can choose to buy more than the minimum, and is often
suggested. The amount of your liability coverage is the maximum amount your
insurer will pay. So, for example, if you purchase a $50,000 limit liability
policy, and you cause an accident in which another individual is injured
and that person's medical bills and lost wages total $100,000. Your auto
insurance company will only pay the first $50,000. You may then be held
personally responsible for paying the remaining $50,000.
It is important to remember that liability insurance only covers other
people. It does not cover you, your vehicle, or your property.
However, as part of your liability coverage, your insurer is responsible for
providing your legal defense if you are sued because of an auto accident.
Physical Damage Coverage
Physical damage coverage includes collision and comprehensive coverage,
which you purchase separately. Collision coverage pays for damages to your
vehicle from an auto accident, regardless of who caused it. Comprehensive
coverage pays for damage to your vehicle caused by theft, vandalism, severe
weather, etc. Depending on your policy, these coverages may also pay for
certain items that were in your car at the time of the accident and were
damaged as a result of it.
Medical Payments Coverage (also
Med-pay coverage pays reasonable and necessary medical expenses for you and
your passengers if you're injured in an accident, whether the accident was
your fault or not. It may also pay medical expenses if you're hurt as a
passenger in someone else's vehicle and they don't have insurance that
covers your injuries or their insurance will not pay any medical bills until
your medical treatment is completed. Med-pay coverage also covers funeral
expenses where fatal injuries occur in an auto accident. These payments are
limited to the extent of your policy limits purchased.
Personal Injury Protection (PIP)
PIP pays for expenses related to injuries you and other individuals insured
by your policy suffer in a car accident, regardless of who was at fault. In
some states, you are required by law to carry this coverage.
This coverage pays for property damage and medical bills resulting from an
accident caused by an uninsured driver or a driver without enough coverage
to pay all of your damages. Some states require you to carry UM/UIM
coverage, or to turn it down in writing when you buy your policy.
Rental Car Coverage
This coverage will pay rental car expenses if your car is damaged or stolen
based on the limits of the policy purchased. This coverage is usually a very
inexpensive option that should be considered if you would need a vehicle if
your vehicle was involved in an accident and in for repairs. These coverages
usually have a dollar value per day for a set maximum days per claim.
Towing and Labor Coverage
Pays for towing expenses if your car is disabled.
Audio & Non-OEM (Original
Equipment Manufacturer) Coverage
Covers loss or damage to special items you may have installed on your
vehicle such as audio equipment, wheels, and hub caps. These items are not
usually covered by standard policies. This is very important to consider if
you have modified or purchased a modified vehicle. In most cases any items
modified from original equipment by the vehicle manufacturer will not be
covered under a standard policy unless the items are listed and coverage
accepted. This includes tires, wheels, paintwork, ground effects, stereo,
Pays the remainder of your car loan if your vehicle is totaled and the
insurance payout does not cover it. This insurance type is often offered
from the finance company since it is common that the actual cash value of
the vehicle will be less than the loan payoff in the early stages of the
loan. If your vehicle is totaled the standard insurance policy only pays for
the fair market value of the vehicle at the time of the loss, not
considering your loan balance.