Getting basic car insurance coverage is easy, but first, you have to know what basic coverage consists of. Most likely, you want a cheap car insurance policy and to get the pain of dealing with it over with as quickly as possible. Take my money, give me a proof of insurance and leave me alone mentality when it comes to car insurance is typical.
Not everyone knows all the car insurance terms and lingo.
As a matter of fact, probably a good chunk of people have no idea what coverage they have on their vehicle right now.
Basic car insurance coverage is often referred to as whatever the state forces you to purchase. Plan on buying a policy with Personal Liability and, depending on in which state you reside, PIP coverage and Uninsured Motorist.
Personal Liability Insurance
The foundation of all car insurance policies is the personal liability coverage. This is what protects you when you injure someone in a car accident and or damage their car or property. The minimum coverage required is determined by each state. But many insurance agents say the state minimum liability limits are really not enough. Preferred limits of liability are 100/300/100.
How Does It Work?
The coverage you select is the maximum allowed to pay out. What comes as a surprise to many people is liability coverage does not apply to you.
It is in place to protect other drivers on the road who are injured or have damage to their vehicles caused by your car.
Three coverage limits are listed on a typical personal liability car insurance policy. All three are often listed together as three numbers separated by slashes with no other pertinent information describing the coverage.
Example Liability Limits 100,000/300,000/100,000 or 100/300/100
Bodily Injury Liability Limit Per Person: The first limit listed in the example is $100,000. The dollar amount is the maximum your policy will pay out to a single person injured in an accident you caused.
Bodily Injury Liability Limit Per Accident: The second limit listed in the example is $300,000. This is the maximum amount of money which can be paid out per accident. So multiple people would have to be injured in order for more than the 100,000 to payout. Multiple serious injuries could max out a low limit fast. This is a key factor in why state minimum car insurance limits are too low.
Property Damage Liability: The third limit of $100,000 is for property damage. It includes coverage for any inanimate object belonging to someone other than you. Hit and damage a car, damage a guardrail, or drive into a house are all examples of property damage. As you can imagine, the cost of property damage can add up quickly. It is important to have enough coverage to provide proper protection.
Uninsured motorist is a mandatory requirement in some states. A minimum amount will be required depending on the state in which you live.
Many insurance agents will recommend matching personal liability limits and uninsured motorist limits. Uninsured motorist is the coverage you can draw from if an uninsured driver damages your vehicle or causes someone in your vehicle injury. Underinsured motorist applies if you have damages which exceed the other driver’s limits and you carry higher limits.
Example of Uninsured Motorist 100,000/300,000 or 100/300
It works similarly to personal liability, the $100,000 is the max allowed for a single person and the $300,000 is the max allowed for the accident. Uninsured motorist can seriously come in handy. The process to take someone to court and sue them personally for damages because they did not have car insurance can be lengthy. And remember, a lot of the people driving without car insurance often do not have the means to pay thousands of dollars in damages.
PIP and Medical Coverage
PIP is short for Personal Injury Protection. It is similar to medical coverage but provides a little more protection. The key factor that makes PIP different from medical coverage is that it pays out for expenses related to injuries such as loss of income and rehabilitation costs.
The state minimum requirement for medical coverage usually falls somewhere between $3,000 and $50,000. Medical coverage is an important part of car insurance and even if it is not a minimum requirement, you should think about selecting this coverage.
Not So Basic Coverage
Comprehensive Coverage: Windshield damage, fire, theft, vandalism, flood, and deer are the most common comprehensive claims. Any physical damage claim that does not involve a collision would be covered under comp.
Collision Coverage: Hit an inanimate object, also known as an object that does not move by its own will? Collision coverage is the coverage which provides compensation for these fender benders.
Roadside Assistance: Need a tow or help with a lockout? Roadside assistance is a handy coverage for many insured drivers.
Car Rental: It provides a defined dollar amount towards to cost of renting a car when your vehicle is being repaired due to a covered loss.
While different states mandate different types of insurance and there are several additional options (such as gap insurance) available, most basic auto policies consist of: bodily injury liability, personal injury protection, property damage liability, collision, comprehensive and uninsured/underinsured motorist.
Note that each type of coverage is priced separately, so there is variability in policy limits and pricing.
Bodily injury liability
Bodily injury liability coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.
It’s very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money. It’s recommended that policyholders buy more than the state-required minimum liability insurance, enough to protect assets such as your home and savings.
Medical payments or personal injury protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.
Property damage liability
This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
Collision coverage pays for damage to your car resulting from a collision with another car, an object, such as a tree or telephone pole, or as a result of flipping over (note that collisions with deer are covered under comprehensive). It also covers damage caused by potholes.
Collision coverage is generally sold with a separate deductible. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you’re not at fault, your insurance company may try to recover the amount they paid you from the other driver’s insurance company and, if they are successful, you’ll also be reimbursed for the deductible.
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object. Comprehensive covers events such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer. It will also pay to repair your windshield if it is cracked or shattered.
Comprehensive insurance is usually sold with a separate deductible, although some insurers may offer the glass portion of the coverage without a deductible.
Uninsured and underinsured motorist coverage
Underinsured motorist coverage reimburses you, a member of your family, or a designated driver if one of you is hit by an uninsured driver or a driver who doesn’t have sufficient insurance to pay for your total loss. This coverage also offers protection in the event a covered driver is the victim of a hit-and-run or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.