AUTO INSURANCE COVERAGE – UNDERSTANDING YOUR COVERAGE

According to Insurance Information Institute, the basic personal auto insurance mandated by most U.S. states provides some financial protection if you or another driver using your car causes an accident that results in injuries to you or to another party involved in the accident.

To make the best decision when purchasing auto insurance, you’ll want to understand what’s covered, what’s not covered, and what’s optional. In addition, to understanding types of coverages, you’ll also want to consider coverage amounts.

MANDATORY COVERAGES:

Nearly every state requires car owners to carry the following auto liability coverage:

  • Bodily Injury Liability – This covers costs associated with injuries and death that you or another driver causes while driving your car.
  • Property Damage Liability – This coverage will reimburse others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.

FREQUENTLY REQUIRED COVERAGES

Many states require that you carry the following coverage:

  • Medical Payments or Personal Injury Protection (PIP) – Provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
  • Uninsured / Underinsured Motorist Coverage (UM/UIM) – Reimburses you when an accident is caused by an uninsured motorist – or in the case of a hit-and-run. UM / UIM can also cover damages, pain, and suffering compensation when another driver lacks adequate coverage to pay for the damages after a serious accident. Even if Uninsured / Underinsured coverage is optional, consider adding them to your policy, preferably at higher limits for greater protection.

OPTIONAL COVERAGE

While basic, legally mandated auto insurance covers the cost of damages to other vehicles that you cause while driving, it does not cover damage to your own car. To cover this, you need to purchase the following optional auto insurance coverages:

  • Collision – This optional coverage reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object – e.g., a tree or guardrail – when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
  • Comprehensive – This provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards – even getting hit by an asteroid!
  • Glass Coverage – Windshield damage is common, and some auto policies include no- deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.
  • Rental Coverage – Rental reimbursement coverage helps you pay for transportation expenses, such as a rental car or public transportation fare, while your own vehicle is being repaired after a covered insurance claim.

GAP INSURANCE

If you lease or finance your vehicle, auto dealers or lenders will likely require you to purchase collision and comprehensive. But keep in mind that collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “gap” between what you owe on the vehicle and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference.

(Note: For leased vehicles, gap coverage is usually rolled into your lease payments.)