Basic personal auto insurance is mandated by most states and
provides you with some financial protection in case of an accident. But is it
enough? What are the options? Learn how car insurance works and what types of
coverage are available.
Understanding auto insurance?the basics
Auto 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 your paying a premium, the insurance company agrees to
pay your losses as outlined in your policy.
Auto insurance provides coverage for:
Property ? such as damage to or theft of your car
Liability ? your legal responsibility to others for bodily
injury or property damage
Medical ? the cost of treating injuries, rehabilitation and
sometimes lost wages and funeral expenses
Basic personal auto insurance is mandated by most U.S.
states, and laws vary. Auto insurance coverages are priced individually (a la
carte) to let you customize coverage amounts to suit your exact needs and
budget.
Policies are generally issued for six-month or one-year
timeframes and are renewable. The insurance company sends a notice when it?s
time to renew the policy and pay your premium.
Who is covered by my auto insurance?and under what
circumstances?
Your auto policy will cover you and other family members on
your policy, whether driving your car or someone else?s car (with their
permission). Your policy also provides coverage if someone who is not on your
policy is driving your car with your consent.
Your personal auto policy only covers personal driving,
whether you?re commuting to work, running errands or taking a trip. It will not
provide coverage if you use your car for commercial purposes?for instance, if
you deliver pizzas.
Personal auto insurance will also not provide coverage if
you use your car to provide transportation to others through a ride-sharing
service such as Uber or Lyft. Some auto insurers, however, are now offering
supplemental insurance products (at additional cost) that extend coverage for
vehicle owners providing ride-sharing services.
Is auto insurance coverage mandatory?
Auto insurance requirements vary from state to state. If
you're financing a car, your lender may also have its own requirements. Nearly
every state requires car owners to carry:
Bodily injury liability ? which covers costs associated with
injuries or death that you or another driver causes while driving your car.
Property damage liability ? which reimburses others for
damage that you or another driver operating your car causes to another vehicle
or other 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 to you or your
passengers. It will also cover lost wages and other related expenses.
Uninsured motorist coverage reimburses you when an accident
is caused by a driver who does not have auto insurance?or in the case of a
hit-and-run. You can also purchase under insured motorist coverage, which will
cover costs when another driver lacks adequate coverage to pay the costs of a
serious accident.
Even if PIP and uninsured motorist coverage are optional in
your state, consider adding them to your policy for greater financial
protection.
What other types of auto insurance coverage are typical?
While most basic, legally mandated auto insurance covers the
damage your car causes, it does notcover damage to your own car. To cover your
own car, you should consider these optional coverages:
Collision reimburses you for damage to your car that occurs
as a result of a collision with another vehicle or other object?e.g., a tree or
guardrail?when you?re at fault. While collision coverage will not reimburse you
for mechanical failure or normal wear-and-tear on your car, it will cover
damage from potholes or from rolling your car.
Comprehensive provides coverage against theft and damage
caused by an incident other than a collision, such as fire, flood, vandalism,
hail, falling rocks or trees and other hazards?even getting hit by an asteroid!
Glass Coverage provides coverage from windshield damage,
which is common. Some auto policies include no-deductible glass coverage, which
also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental
glass coverage.
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