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Liability Insurance: Required in most
states, liability insurance is the foundation of any
auto insurance policy. If you are at fault in an
accident, your liability insurance will pay for the
bodily injury and property damage expenses caused to
others in an accident, including your legal bills. Your
minimum requirement of insurance varies from state to
state; however, Forty-five states require the purchase
of auto liability insurance. It is important to realize
that if you cause a serious accident, minimum insurance
may not cover you adequately. Ironically, to save
money, it is therefore a good idea to purchase more than
what your state requires. If you own a home and a
savings account, consider more liability insurance
because in most states, the victim of a car accident has
the right to sue other drivers who injure them. If
you’re sued and your insurance doesn’t pay for all the
damages, your personal finances are on the line, and it
is likely that you will become a target.
Collision and Comprehensive Coverages:
Collision coverage will pay to repair your vehicle in
the case you cause an accident. With the exception of a
few rare cases, you can not collect any more than the
actual cash value of your car, which is not the same as
the cost to replace your car. Collision is normally the
most expensive component of auto insurance coverage. If
you choose, a higher deductible can keep your premium
costs down. (Your deductible is the amount you must pay
before your insurance company kicks any money after the
accident.) Insurance companies often “total” your car if
repair costs exceed a certain percentage of the car’s
worth. This critical damage point varies but is usually
somewhere between 55% and 90%. Comprehensive coverage
will pay for a damages not caused by an auto accident.
(Theft, fire, vandalism, natural disasters, or hitting a
deer all qualify.) Comprehensive coverage also comes
with a deductible and your insurer will only pay as much
as the car was worth when it got wrecked. Because of
this, it is important to have an idea of the book value
of your car. If your car is worth less than what you’re
paying, you are better off not having it.
Medical payments, PIP, and no-fault coverages:
Medical payments (MedPay) coverage pays for your and
your passengers’ medical expenses after an accident. As
opposed to liability insurance, Medical payments cover
accidents that arise from driving your car as well as
someone else’s car (with their permission), and injuries
you or your family members incur when you’re
pedestrians. The coverage will pay regardless of who is
at fault; however if someone else is liable, your
insurer may seek to recoup the expenses from him or
her. Personal injury protection (PIP) and broader “no
fault” coverages are expanded forms of medical payments
protection. In some states it is required while others
it is optional regardless, it may be a good idea. If
you have a good health insurance plan, there might be
little need to buy more than the minimum required PIP or
MedPay coverages, if any. Also, if you already have
disability insurance, there is little reason to purchase
a higher-than-minimum amount of PIP.
Uninsured/Underinsured motorists coverages:
Required in most states, uninsured motorists (UM)
coverage pays for your injuries if you’re struck by a
hit-and-run driver or someone without insurance.
Underinsured motorists (UIM) coverage will pay in the
case that the person who hit you causes more damage than
their liability insurance covers. In some states, UM or
UIM coverage will also pay for property damages. You’ll
probably want to have at least the minimal amount of UM/UIM
because if the other driver is not found, you will at
least have some coverage for pain-and-suffering damages.
Add-on features: Either in separate premium
items or included in larger policies, several
supplemental auto coverages are available.
Rental
reimbursement: covers vehicle rentals in
the case that your car is damaged or stolen.
Towing
and labor coverage:
covers cost of towing and labor in the case
your car breaks down.
Gap
coverage:
covers the difference between the actual cash
value you receive for the car and the amount left on
your car loan if your vehicle is totaled in an accident.
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