Find out about your auto insurance and what it covers
Basic personal auto insurance is required in most states and will give you some financial protection in the event of an accident. But is it enough? What are the options? Learn how car insurance works and what types of coverage are available.
Car Insurance Basics
Car insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for you paying a premium, the insurance company agrees to pay your losses as described in your policy.
Car insurance provides coverage for:
- Property, such as damage to or theft of your car
- Civil liability - your legal liability to others for bodily injury or damage to property
- Medical care - the cost of treating injuries, rehabilitation and sometimes loss of wages and funeral expenses
Most states in the US require basic personal auto insurance, and laws vary. Auto insurance coverage is calculated on an individual (à la carte) basis, allowing you to tailor coverage levels to your exact needs and budget. Policies are usually issued for six months or one year and are renewable. The insurance company sends a notification when it's time to renew the policy and pay the premium.
Who is covered by my car insurance and under what circumstances?
Your motor policy covers you and other family members on your policy, whether they drive your car or someone else's car (with your permission). Your policy also provides coverage if someone not covered by your policy drives your car with your permission. Your private car insurance only covers private driving, whether it's commuting to work, running errands, or traveling. It does not provide coverage if you use your car for business purposes, e.g. B. as a pizza delivery man.
Personal car insurance also doesn't offer coverage if you use your car to transport others via a ride-sharing service like Uber or Lyft. However, some auto insurers are now offering additional insurance products (at an additional cost) that extend coverage for owners of vehicles that offer ride sharing services.
Is car insurance compulsory?
Auto insurance requirements vary from state to state. If you're financing a car, your lender may have their own requirements as well. Almost every state requires car owners to carry:
- Personal Injury Liability - Covers costs related to injury or death caused to you or another driver while driving your car.
- Property Damage Liability – which reimburses others for damage you or another driver driving your car causes to another vehicle or property, such as a fence, building, or utility pole.
In addition, many states require that you carry:
- Medical Payments or Personal Injury Protection (PIP), which provides reimbursement for medical expenses for injuries sustained by you or your passengers. It also covers lost wages and other related costs.
- Uninsured Motorist Coverage reimburses you if an accident is caused by a driver who doesn't have auto insurance or in the event of a hit-and-run. You can also get covered motorist insurance, which will cover the cost if another driver doesn't have enough insurance to pay the cost of a serious accident.
Although PIP and uninsured motorists are optional in your state, consider adding them to your policy for additional financial protection.
What other types of auto insurance coverage are typical?
While the most basic and legally required car insurance will cover damage to your car, it will not cover damage to your own car. To protect your own car, consider these optional coverages:
- Collision reimburses you for damage to your car resulting from a collision with another vehicle or other object, such as a tree or railing, when you are at fault to have. While collision insurance won't compensate you for mechanical failures or normal wear and tear on your car, it does cover damage caused by potholes or your car rolling.
- Comprehensive provides coverage against theft and damage caused by events other than a collision, such as: B. Fire, flood, vandalism, hail, falling rocks or falling trees and other hazards, even from an asteroid impact!
- Glass Coverage provides protection from windshield damage, which is a common occurrence. Some auto policies include glass coverage with no excess, which also includes side windows, rear windows, and glass sunroofs. Or you can buy an additional glass cover.
What is gap insurance and do I need it?
Collision Damage Waiver and Collision Damage Waiver only cover the market value of your car, not what you paid for it, and new cars depreciate in value quickly. If your car is totaled or stolen, there may be a "gap" between what you owe for the vehicle and your insurance coverage. To cover this, you may want to take out gap insurance to pay the difference. Remember that with leased vehicles, gap coverage is usually included in your lease payments.