Car insurance exists not only to protect you from a tragedy but also to protect other people and property involved in the event of an accident, natural disaster, theft, or other major problem. Let’s look at the types of insurance and what they cover, so you can determine how much car insurance is enough for you when you’re on the road.
Basic Types of Coverage
Dave Ramsey points out that basic, core auto insurance coverage can essentially be divided up into three different types. These include:
- Liability coverage
- Comprehensive coverage
- Collision coverage
Let’s look at each in detail.
Basic Liability Coverage
When it comes to car insurance, each state has its own laws detailing minimum coverage— that is, the amount and type of insurance you’re required to carry. The vast majority of states require, at minimum, a certain level of liability insurance to be in place to cover injuries and damages in the event of a collision that you cause.
Liability insurance covers the basic costs related to a crash for which you’re at fault. It will protect the passengers and driver in another vehicle you impact, but it does not cover you or the passengers in your vehicle. Sometimes this insurance is further divided into separate bodily injury and property damage coverage amounts.
Collision coverage is an insurance policy that covers property damage not otherwise covered by liability. For example, if you are in an accident that results in major damage to your vehicle, your liability will not cover it, but your collision coverage will kick in to repair or replace your vehicle, up to the policy limit.
Comprehensive insurance covers you from damage caused by other issues, such as inclement weather, theft, fire, vandalism, and the like, according to Money Under 30. If, for example, your car is caught in a tornado or hailstorm or you slide on black ice, lose control, and crash, your comprehensive insurance can cover the damage. As with other coverage types, it will only pay out within the policy’s limits and stipulations.
PIP and Other Types of Coverage
While liability, collision, and comprehensive are the basic types of insurance, there are several other kinds of insurance you may want to carry when considering how much insurance is enough. These include:
- PIP coverage
- Medical expense coverage
- Uninsured and underinsured motorist coverage
- GAP coverage
- Accident forgiveness coverage
- Glass coverage
- Custom equipment coverage
- Pay-per-mile policies
- Roadside assistance
- Umbrella insurance
- Original equipment coverage
The first of these is personal injury protection, or PIP, which covers the medical costs that you and your passengers incur from an accident. It also covers income loss if you have to be out of work, funerary expenses, and self-employment costs for replacing your services if you are rendered unable to work. Not all states offer PIP, but some require it, according to U.S. News.
Medical Expense Coverage
Medical expense coverage is similar to PIP and can be used to cover any medical costs, regardless of who is at fault for a crash. Unlike PIP, it doesn’t cover lost wages, and it usually carries a very low payout threshold, but it can be used to cover your deductible for your regular healthcare costs.
Uninsured/Underinsured Motorist Coverage
According to National General Insurance, uninsured and underinsured motorist coverage protects you if you are in an accident with someone who has no insurance or not enough insurance or if you’re a hit-and-run victim. Some states actually require carrying this kind of insurance.
GAP coverage, or guaranteed auto protection coverage, protects you if the insurance company declares your car totaled but the payout doesn’t cover what you still owe on the car. It essentially enables you to pay off your auto loan in the event that the car is demolished in an accident.
Accident Forgiveness Coverage
Accident Forgiveness coverage kicks in if your rates go up after you’re in an accident for which you’re at fault, if you haven’t otherwise been at fault for an accident for at least a year. Not every insurance company offers this coverage.
A glass coverage policy covers your windows. If you have a cracked windshield, back window, side window, or other glass that gets damaged from an accident or any other cause, you’ll be able to replace it at no cost. In some states, this is included as part of your comprehensive plan, and in other states, you need it separately. In addition, some glass coverage policies carry no deductible.
Covering Aftermarket Parts
Those who like to customize their vehicles with third-party and aftermarket accessories and parts will want to carry a custom-equipment policy. In the event that these parts become damaged in an accident, some states require carrying this kind of policy to cover the cost to repair customizations.
If you don’t drive a lot, a pay-per-mile policy can save you some money. This allows you to set your insurance rates based on the mileage you drive every year. Most of these work off of a base rate plus a per-mile fee. Such policies usually (but not always) include collision and comprehensive and allow other coverage to be added on.
Many insurance companies offer free roadside assistance these days, while others still require it as a policy add-on. Roadside assistance covers you in the event of a breakdown or other issues. Everything from engine trouble to having a battery replaced on the go to tire changes can be covered by roadside assistance.
Umbrella coverage is extra liability insurance whose specific purpose is to cover you if you exceed your existing liability. Usually, umbrella coverage is only available for a minimum of $1 million and is best for those with lots of assets, but it can be inexpensive to carry, according to NerdWallet.
Original Equipment Coverage
Original equipment coverage is extra insurance that guarantees that when you’re in an accident, your replacement parts will be OEM (original equipment manufacturer) as opposed to after-market parts.
How Much Car Insurance Is Enough?
Insurance protects you and your assets, whether it pays for your vehicle, damages to other property, or harm to other people. How much car insurance is enough depends on how much protection you feel you need to save you from having to write a huge check in the event of an accident.
This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. You may be able to find more information about this and similar content at piano.io
This commenting section is created and maintained by a third party, and imported onto this page. You may be able to find more information on their web site.