If you’re a licensed driver, you’re probably well aware of auto insurance. Most of us think of it as just another bill we have to pay, but it’s a very important aspect of owning a vehicle. Auto insurance isn’t just about getting a check if you total your car- there are many things to be aware of to be sure that you have the right policy for your needs. There are many types of coverage in play with a basic auto insurance policy, which are detailed below:
- Bodily Injury Liability Coverage: Also known as “liability,” this coverage is the minimum required in many states. What this means is that if anyone is injured or killed by you or someone covered under your policy, this coverage will pay for medical bills, lost wages, rehabilitation, and/or funeral costs. If the victim or victim’s family sues you for pain and suffering, this coverage will also cover those costs. All this can add up fast, so it’s important to choose a policy limit that is high enough to include all these costs. If your coverage limit isn’t high enough, you could end up paying some of these costs out of pocket-this could mean losing your home or other assets to pay for damages. One recommendation is to have coverage of $100,000 for each person injured or killed and $300,000 total to be paid out per accident, but if you have many assets, it isn’t a bad idea to increase those numbers to $250,000 per person and $500,000 per accident. Healthcare costs are constantly increasing, so if you can afford a policy with higher coverage limits, it is better to be safe than sorry! Note: If you are injured in an accident you caused, Bodily Injury Liability would NOT cover your medical bills. See Medical Payments Coverage and Personal Injury Protection below.
- Property Damage: This coverage pays for damages to another person’s vehicle or other property that is damaged by your vehicle. This could include a building, fence, or other structure.
- Uninsured/Underinsured Motorist Coverage: Just because the state requires minimum coverage doesn’t mean everyone will have it- or that they won’t have let their payment lapse. If someone hits you and they don’t have coverage or don’t have enough coverage, this will pay what their liability coverage should have paid. It’s a good idea to match these limits to your liability coverage limits.
- Collision/Comprehensive: While these go hand in hand, it’s important to know the difference between the two. Collision coverage pays to fix or replace your car regardless of who or what caused the accident. Comprehensive coverage pays to fix or replace your car if it is damaged by a storm or other natural causes, or is stolen. If your vehicle is financed, your bank may require comprehensive coverage.
- Rental Car Reimbursement: This would pay for a rental car while your vehicle is being repaired. While you may think this doesn’t seem necessary, think about how you would get back and forth to with if your car was being repaired. Do you have another reliable vehicle to drive? Could you borrow one from a family member? Even then, it may be more convenient to have a temporary replacement instead of trying to borrow a vehicle.
- Emergency Roadside Assistance: This coverage would pay for towing and labor- for example, if you need a tire change, run out of gas, lock your keys in your car, your battery dies, or you need towed.
- Medical Payments Coverage: This coverage would pay for some hospital costs, such as an ambulance ride, if you were injured in an accident. Family members who live in your household are also covered for medical payments if they are injured as pedestrians or if they are riding in a car with someone else. If you are injured in an accident that you caused, this is one of the types of coverages that will pay your medical costs.
- Gap Insurance: If you buy a new car, chances are that following a total loss, your insurance company would not reimburse you for the full amount you paid. That can be a large blow- especially if the vehicle is financed. Imagine buying a car for $20,000 and financing the whole cost. You owe the $20,000, but if you put little or no money down, you may have also financed the taxes and fees. If you total that car and are underwater, your insurance could pay a lot less than what you owe on the car. Then, you’re stuck- owing on a car that is totaled. GAP insurance is for this situation- paying the difference in what your insurance will cover and what you owe on the vehicle. This coverage is available along with your auto insurance or through your finance company. Check with both to see which is more cost effective- often dealerships will price this in with their financing and charge you an arm and a leg!
- New Car/Better Car Replacement: Going along with Gap Insurance, these types of policies would ensure enough coverage in a total loss to replace your car with a newer or better version. Check with your agent for details.
When pricing auto insurance policies, it’s important to know what types of coverage you have, what your policy limits are, and what your deductible is. While lower policy limits and higher deductibles are attractive (and cheap), you could easily be left hanging in the event of a claim. Auto insurance isn’t just about protecting your vehicle, it’s about protecting your finances as well.
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