Are you confused by the different types of car insurance? Not only you.
It can be difficult to choose the best coverage limits and insurance. If you choose the minimum amount of coverage that is required by your state, and you have the lowest possible deductibles available to you, you may be dangerously underinsured and overexposed.
Consider how much coverage you will need to cover all your liabilities and protect your assets.
This guide will help to remove the mystery surrounding auto insurance.
Tort vs. no fault
In the U.S., there are two types of car insurance: tort or at-fault. No-fault states allow drivers to use their insurance for themselves, not to compensate the other party. You don’t have to debate who was at fault for the accident. Instead, you can file a claim with your insurance.
The laws that prohibit you from being sued do not protect you, but rather limit the circumstances in which you can be sued. Injury or damage must meet a threshold in terms of monetary value or severity (e.g. medical bills exceeding a dollar amount or injuries that are severe enough). In all states except New Hampshire you’ll also need to have liability insurance in order to cover the damages you cause if it was your fault.
In tort states, the state assigns fault and the responsible party is held accountable for the medical expenses, damage awards and pain and suffering compensation (if applicable). Insurance will only pay the amount specified by your policy. You’ll have to pay the rest of the bill if the damage exceeds your policy limits.
Insurance coverage
The insured driver is responsible for bodily injuries (BI) or property damages (PD) caused to third parties. State-specific minimums range from $10,000 per person to $30,000 for an accident. The maximum limit per accident can reach $500,000 Limits can be combined or individual. The common structure of the policy offers $100,000 per person, $400,000 per accident, and $50,000 per incident.
Accidents caused by an under- or uninsured motorist are also covered. Your liability insurance covers the difference if you’re in an accident with a driver who is uninsured.
Take into account the assets of others, not only your own
Insuring your car with the other party in mind is important when you are deciding on a plan for liability. You should make sure that you have enough insurance to cover both your loss and the other party’s. You’ll want to ensure that your insurance limits will cover the repairs of a luxury car if you cause an accident.
What is the minimum amount of liability insurance you require? Emergency medical treatment and hospitalizations are expensive. While the property damage limit in some states is as low as $5, 000, it costs significantly more to fix cars. You could quickly exceed your coverage limit if you’re found responsible for an incident. Speak to an insurance expert about how you can set coverage limits.
Comprehensive and collision coverage
There are two types of car insurance: comprehensive and collision. The collision coverage will pay out in the event that your vehicle is totaled or damaged due to a collision (such as with another car or a tree). The deductible for collision coverage is usually a certain amount. This coverage is usually optional. However, some states may require this coverage if you have leased your car or had it financed or leased by a credit union or bank.
If your vehicle is damaged in an accident that was not caused by a collision, comprehensive insurance will pay out. It could be caused by a theft, vandalism or weather (such as a windstorm, hail or water flood), or if it is purely random (such an animal causing damage). The comprehensive insurance has a separate deductible. It is often packaged together with the collision insurance in order to cover all damage.
If your car has significant value, it’s worth the investment to have both types of insurance. You will receive only $5,000 if you do not have collision coverage and are hit by a driver who has a $5,000 limit on his insurance.
Protection against personal injury
No-fault or personal injury insurance (PIP) covers damages like medical costs, rehab expenses, wage loss (in certain cases), and funeral expenses. In no-fault state, it is mandatory and pays before the liability insurance. The level of protection required by each state and the covered damages vary widely. A PIP claim can be filed by an insured motorist, passenger, or injured pedestrian.
If you do not have health insurance or only have a limited amount, it is important to ensure that your PIP limit is adequate.
Medical Payments
The Medical Payments (MedPay), insurance will cover your medical expenses and the bills of any passengers you have, regardless of fault. You can be covered if you are hit while walking. MedPay is the limit for every driver and passenger. If the maximum is $2,500 then the medical expenses arising from an accident can be covered by the driver as well as each of the passengers.
MedPay can be an optional supplement to PIP, especially in states with no fault. MedPay, like PIP is an important medical insurance, but unlike PIP it does not cover wages lost and has a relatively low limit.
Additional coverage
Other coverage options are available. Other options include:
- The cost of renting a car during the repair of your vehicle is covered by Loss of Use.
- Gap or loan insurance helps pay for your car if it is totaled and you haven’t paid off the entire amount.
- Uninsured/underinsured motorist — covers damage and injuries caused by a driver lacking proper insurance
- umbrella insurance — increases the coverage of auto and home policies by extending it to both.
For a professional review, contact your agent
Remember that the state’s minimum insurance requirement is not a recommendation for coverage levels. It’s simply a legal requirement to operate a car. Accidental damages are usually much higher than the state’s minimum. You can discuss the different coverage options with your insurance agent and decide what is best for you.
