When shopping for car insurance, there are a lot of choices. How do you decide what coverage you need? In this article, we'll explain the different types of car insurance options in easy-to-understand terms.
What is Liability Coverage?
Liability coverage applies to injuries and property damage incurred by other people, in a car accident you caused. Most liability car insurance policies contain two main parts: liability insurance for bodily injury and liability insurance for property damage.
Liability insurance for bodily injury does not pay for your injuries if you’re in an automobile accident, but protects you against the claims of others for injuries when you cause an accident. For example, you turn around quickly because your kids are fighting in the back seat, and you rear-end the car in front of you. The driver of the other car is seriously injured. Your bodily injury liability insurance protects you against the injured driver’s claims for car accident damages such as medical expenses (the ambulance ride, hospital stay, doctor visits), lost wages (time off from work, missed work for doctor appointments, lost profits of a business owner), and pain and suffering.
Property damage liability insurance pays for damage you cause to other people’s property. In the example above, your property damage liability insurance would pay to repair the damage to the rear of the car you hit. It also pays for other property damage caused by your vehicle. For instance, you swerve to avoid hitting a cat crossing the road but run into your neighbor’s fence, knocking it to the ground. Your automobile property damage liability insurance would pay for repair or replacement of the damaged fence.
What is Uninsured Motorist Coverage?
Both "uninsured motorist" and "underinsured motorist" coverage options protect you directly.
Uninsured coverage pays, up to the policy limits, for property damage or damages arising from injuries if you are in an accident with a hit-and-run driver or a driver who does not have any automobile liability insurance of their own. This coverage takes the place of the liability insurance that the other driver should have bought, but didn’t.
Underinsured motorist coverage applies when the other driver is at fault and has liability insurance, but it does not cover all of the damages you sustained in the accident. For example, you are in an automobile accident and you suffer a substantial cut to your face requiring several surgeries. The cost of all of the surgeries is $100,000, but the driver who hit you only has $15,000 in automobile liability insurance. Your underinsured motorist coverage would pay the remaining amount of your damages up to your policy limits.
What is "No-Fault" or "PIP" Coverage?
There are two typical types of coverage provided under a no-fault system:
- Personal Injury Protection (PIP) coverage pays a certain amount for injuries to the policyholder (and anyone else covered under the policy), regardless of who caused the accident. The amount and what benefits are covered under a PIP policy vary from state to state but typically include medical expenses, lost wages, funeral expenses, and payment for survivors should there be a fatality.
- Residual Bodily Injury Liability Coverage protects you if you are sued because of injuries caused to others. Most no-fault states have certain thresholds that, if exceeded, open the possibility of a lawsuit. These depend upon state law but will usually be based on a certain severity of injury or a specific dollar amount of.
So I'm Protected; What About My Car?
You just bought a shiny new car and are really on a budget trying to make the monthly payment. What type of insurance do you need to protect that new ride?
There are two types coverage that you can choose to protect your car.
- Collision Coverage pays for physical damage to your car as a result of your auto colliding with an object, such as another car, a light post, a mailbox or a tree.
- Comprehensive Coverage pays for damage to your auto from almost causes other than collision. For instance, there is a hailstorm and your brand new car ends up with dings all over it. Comprehensive coverage would pay to repair the hail damage. Comprehensive coverage also often covers damage to your vehicle from fire, theft, flooding, falling objects, glass breakage and even damaged caused by an animal.
Watch the Deductible. When purchasing collision or comprehensive car insurance, you will need to determine what your deductible should be. A deductible is the amount of money you agree to pay for the damages before the insurance company has to pay anything. Typical deductible amounts are $250, $500 or $1000. Usually, the higher your deductible, the lower your premium.
Are There Other Types of Car Insurance?
Depending on what you want to protect against, and how much money you want to spend, there are several other types of automobile insurance coverage that you may want to consider. These include:
- Towing or Emergency Road Service coverage pays the cost of towing your car to a repair shop.
- Medical Payment Coverage (MPC) usually pays medical expenses for you and any passenger in your vehicle after a car accident, regardless of who was at-fault. Learn more about med pay coverage.
- Rental Car Coverage pays for a rental car if your vehicle is damaged. This coverage usually has a daily maximum and a total maximum. For example $25 a day up to $500 total.
Automobile accidents can cause emotional and economic stress, but purchasing car insurance doesn’t have to. It only takes a second for your life to change because of an automobile accident, make sure you take longer than that to get car insurance that is right for you.