Insurance 101 - The Basics
What is auto insurance?
Auto insurance protects you against financial loss
if you have an accident. It is a contract between
you and the insurance company. You agree to pay the
premium and the insurance company agrees to pay your
losses as defined in your policy.
Auto insurance provides property, liability and
Property coverage pays for damage to or theft of
Liability coverage pays for your legal
responsibility to others for bodily injury or
Medical coverage pays for the cost of treating
injuries, rehabilitation and sometimes lost wages
and funeral expenses.
An auto insurance policy is comprised of six
different kinds of coverage. Most states require you
to buy some, but not all, of these coverages. If
you're financing a car, your lender may also have
requirements. Most auto policies are for six months
to a year. Your insurance company should notify you
by mail when itís time to renew the policy and to
pay your premium.
What is covered by a basic auto policy?
Your auto policy may include six coverages. Each
coverage is priced separately.
1. Bodily Injury Liability
This 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 elseís car
with their permission.
Itís 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.
consider buying more than the state-required minimum
to protect assets such as your home and savings.
2. Medical Payments or Personal Injury
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.
3. 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 elseís car, but it also includes damage
to lamp posts, telephone poles, fences, buildings or
other structures your car hit.
This coverage pays for damage to your car resulting
from a collision with another car, object or as a
result of flipping over. It also covers damage
caused by potholes. Collision coverage is generally
sold with a deductible of $250 to $1,000óthe higher
the lower your premium. 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 driverís
insurance company. 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, such as fire, falling
objects, missiles, explosion, earthquake, windstorm,
hail, flood, vandalism, riot, or contact with
animals such as birds or deer.
Comprehensive insurance is usually sold with a $100
to $300 deductible, though you may want to opt for a
higher deductible as a way of lowering your premium.
Comprehensive insurance will also reimburse you if
your windshield is cracked or shattered. Some
companies offer glass coverage with or without a
deductible. States do not require that you purchase
collision or comprehensive coverage, but if you have
a car loan, your lender may insist you carry it
until your loan is paid off.
6. Uninsured and Underinsured Motorist
This coverage will reimburse you, a member of your
family, or a designated driver if one of you is hit
by an uninsured or hit-and-run driver.
Underinsured motorist coverage comes into play when
an at-fault driver has insufficient insurance to pay
for your total loss. This coverage will also protect
you if you are hit as a pedestrian.
7. Personal Injury
Personal injury protection (PIP) pays a per-person
benefit amount for injuries you (the insured), and
others specified in your policy, sustain in an auto
accident. Basic personal injury car insurance
coverage is for the insured's own injuries on a
first-party basis, without regard to fault.