Understanding Your Auto Policy Coverage

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When you’re shopping around for auto insurance, it can be hard to compare policies if you don’t understand the various categories of coverage. Basic coverage is required by law in many states and auto lenders often require a certain level of insurance on a financed car. In addition to coverage that’s mandated by law and lenders, there are optional types of coverage you can add to your policy for more protection.

According to the Auto Insurance Institute, most U.S. states require car owners to have liability insurance to cover bodily injury and property damage. Bodily injury coverage takes care of costs from injuries or death that you or any driver cause while operating your vehicle. Property damage coverage reimburses the owner of property that is damaged by your vehicle.

There are additional types of liability coverage that are optional in many states. Uninsured motorist coverage will pay you if you’re in an accident caused by a hit-and-run driver or a driver who has no insurance. Underinsured motorist coverage pays when the other driver in an accident doesn’t have enough insurance to cover your damages. Both uninsured and underinsured motorist coverage may pay for either injuries or property damages, or both. Medical payments coverage reimburses you for medical expenses for injuries that you or your passengers suffer in a car accident.

Personal injury protection pays medical expenses regardless of who causes an accident. It can also pay for lost wages due to injuries.

Liability insurance covers damages to other vehicles. If you want to protect your own car, there are a few types of optional coverage you can add to your policy. Collision coverage will pay you for damages to your vehicle caused by a collision with another vehicle or a stationary object like a tree or building. Comprehensive coverage will pay for damages to your car from other sources such as flood, fire, theft or vandalism. You can also add glass coverage to pay for damage to your vehicle’s windshield, windows and sun roof.

There are some other optional coverages that mainly provide convenience. For example, rental reimbursement coverage will pay for a rental car while your car is being repaired following a covered loss. Towing coverage will pay the cost of towing your car to a repair shop when it can’t be driven.

Although collision and comprehensive coverage are not required by law, if you lease or finance your car you may be required by contract to have this coverage. Claims paid with this coverage are based on the market value of your car rather than the amount you paid for it. Vehicles are known to depreciate quickly over time, so if you want to make sure your protection covers the amount you owe on your car loan in case it’s stolen or totaled, you can purchase optional gap insurance. This coverage will pay the difference between the value of your car and the amount left on your loan. Some lenders require car owners to have this coverage.

Before you start shopping for an insurance policy, it helps to have an idea about how much coverage you need. The amount of coverage you purchase directly affects the premium you’ll pay, so you will want to talk honestly with your insurance agent. Start by finding out how much your state or lender requires. Geico provides state-by-state auto insurance coverage information on their website, or you can visit the website for your state’s department of motor vehicles.

After you know your state’s minimum coverage requirements, find out the value of your vehicle. Owners of older vehicles with low resale values often decide to do without collision and comprehensive coverage. If you decide you want this coverage, pay attention to the policy’s deductible, which is a predetermined amount that you must pay before you can make a claim. For example, if your deductible is $500 and you make a claim for repairs costing $2,500, you will be reimbursed for $2,000. For repairs less than the deductible, you will not be able to make a claim. A policy with a high deductible may have a lower premium, but you may not be happy when it’s time to pay the bill for an expensive repair. Only collision and comprehensive coverage have a deductible, not liability coverage.

A personal auto insurance policy typically covers the car owner and drivers in the family who are listed on the policy. It will also cover other drivers who have the consent of the owner to drive the vehicle. It will not provide coverage when a vehicle is used for commercial purposes, such as delivering pizzas. In addition, many personal policies also don’t cover a vehicle that’s used for a ride-sharing service such as Lyft or Uber. ■

Sources: iii.org, naic.org, geico.com and allstate.com.