Accidents are bound to happen; are you prepared?
Most American drivers think they’re pretty awesome on the road, with 64% rating themselves as “excellent” drivers according to a recent study done by Allstate. Accidents, however, still happen regularly, regardless of how safe a driver you are (or claim to be). That’s why it’s important to understand the types of auto insurance coverage available to you.
Dealing with a car accident is difficult enough; if you don’t have auto insurance, you’ll also be adding financial strain and endless bills to the mix. An auto insurance policy can cover all the physical and property damages caused in an automobile accident or only cover the bare minimum.
Check out our complete guide to auto insurance, so you can choose the right coverage for your needs. Or, if you’re ready to start shopping for auto insurance, our partner Insurify can help you quickly compare quotes and save close to $500.
Types of auto insurance coverage
Liability insurance: The bare minimum
If you happen to cause an automobile accident, and are found to be at fault, liability insurance covers the other person’s auto repairs and medical expenses. But if YOU have medical or auto repair expenses after an automobile accident, liability insurance does NOT have you covered. Liability coverage is also called minimum coverage, because it is the least possible auto insurance you can have, and most states require that you have it.
Comprehensive insurance isn’t quite all-inclusive, like the name would suggest. This type of insurance covers repairs (or replacements) due to something other than an accident with another vehicle. Comprehensive insurance covers damages to your car from things like storms, vandalism, and collisions with animals (darn those deer!). Medical expenses are not covered under this type of insurance.
Personal injury protection
Personal injury protection (PIP), also known as no-fault insurance, covers the medical expenses of anyone in the vehicle at the time of an accident (including you). It doesn’t matter if you’re at fault or another driver is, PIP insurance will pay for medical expenses. This type of coverage can also protect you as a pedestrian, should you get hit by a car walking across the street (you don’t even have to be inside a vehicle).
Collision coverage protects you should you hit another car or a still object (like a light post), while driving your car or another vehicle you don’t own (e.g., a friend’s car). This type of insurance often complements liability and comprehensive insurances. If you get in an accident and the other person is deemed at fault but does not have liability insurance, collision coverage will pay for the repairs. This type of coverage often requires a deductible, which is the amount you pay out of pocket each time your vehicle needs repairs.
Medical payments coverage
Medical payments coverage protects you and any other passengers in your car at the time of an accident. It can also cover you and any family members named on an insurance policy if you’re involved in a crash as a passenger of another vehicle. This type of insurance is optional and kicks in after your health insurance is all used up. If your health insurance has a yearly limit of $100,000, and your medical expenses after an accident are $150,000, this type of insurance will cover the additional $50,000.
Uninsured motorist coverage
Although state law requires drivers to have insurance, not everyone complies with the law. If you’re in an accident with someone who doesn’t have insurance coverage (and they are at fault) or you are a victim of a hit-and-run accident, uninsured motorist coverage pays the cost of your medical and vehicle repairs. Many states require you to have this type of insurance.
Gap insurance is most often used when you buy or lease a brand new car. The second you drive off a dealer’s lot, the value of your brand new vehicle drops substantially; however, your loan or lease amount stays the same. In this situation, you owe more than your car’s value. If you get in an accident that totals your vehicle or if your car is stolen, gap insurance covers the financial “gap” between your car’s value and the amount you owe.
Insurance extras: The bells and whistles
- Roadside assistance: In case you don’t already have roadside assistance through your car’s warranty or a car club (like AAA), you can also add it to your insurance policy.
- Rental reimbursement coverage: This type of coverage is also something you can add on to your insurance policy for little extra money. While your car is in the shop, rental reimbursement coverage will pay the cost of a loaner vehicle.
How much coverage do you need?
According to most state laws, before you hit the road, you need a car (obvi), a driver’s license, and some type of insurance. Although requirements vary state by state, the most common form of protection you must have is liability insurance. Some states are considered no-fault states, which means liability does not need to be proven in an accident. In those states, PIP insurance is often required. It’s best to check which automobile insurance requirements your state has, as it can vary depending on where you live.
When you consider the month-to-month costs of getting the right coverage, it may make sense to splurge a little on auto insurance. Monthly payments can be much easier to manage than the sometimes devastating cost of medical and auto repair bills after a car accident. It may be in your best interest to pay a little more now to build up your financial shield.
Review your insurance policies, so you get the right coverage
Now that you know the different types of auto insurance available, review your current policy to be sure you have all the coverage you need. Auto insurance is just one piece of your overall financial health; do you also have the right health and disability coverage? Get informed by checking out your guide to health and disability insurance.