Auto Insurance Basics All Individuals Should Know
Automobile insurance is required in most states and is a contract that “protects your financial security in case of an accident.” Purchasing an automobile insurance policy to protect yourself and your assets in the event of an accident is a practical matter for those wishing to avoid lawsuits or are faced with insurmountable repair bills.
- Bodily injury liability
- Property damage liability
- Medical payments/Personal injury protection (PIP)
- Comprehensive coverage
- Uninsured/Underinsured coverage (UM/UIM)
- Bodily injury liability: This coverage is the foundation on which the policy is built and is required in most states. If the policy owner is in an at-fault accident, liability insurance pays expenses for bodily injury and property damage caused to others by the driver. Liability coverage will also pay the policy owner’s legal bills, medical bills, and lost wages.
- Property damage coverage: This pays for repairs or replacement of items damaged as a result of the car accident; excluding the vehicle which is covered under collision. This part of the policy will also pay for items such as damaged buildings, fences, lamp poles, or other property damaged because of the accident.
- Medical payments/PIP/No-fault coverage: Medical payments coverage pays the medical expenses of the driver and the passenger, regardless of fault. Your insurer pays medical expenses but will likely seek recompense from the other insurer if you are not at fault. Personal Injury Protection (PIP) pays expenses related to the injury, which may not be medical in nature; these include childcare costs, lost wages, or funeral costs.
- Underinsured (UIM)/Uninsured Motorist (UM): This coverage in your policy pays expenses for injuries if you are involved in an accident with someone who doesn’t have auto insurance or if it is a hit and run accident. UIM insurance covers expenses in the event a driver hits you and causes more damage than his liability coverage provides.
- Collision coverage: Collision pays for repairs to, or replacement of, your vehicle if you are the cause of an accident. An insurance policy will not pay more than the actual cash value of your car. A higher deductible on collision will save you money, as this is typically the most expensive part of an insurance policy.
- Comprehensive coverage: This part of an automobile insurance policy pays for damage to the vehicle that was not the cause of an auto accident. These damages include: fire, theft, vandalism, natural disasters, or collision with a deer. Comprehensive coverage also has a deductible component.