Your car is likely one of the most expensive things you own. Insurance protects your investment and guarantees you a way of coping with the expense of accidents, vandalism or theft. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. It also secures your financial responsibility to the institution lending you money to buy your vehicle.
Auto insurance can be confusing for most consumers; there are so many different types of insurance and it can be difficult to determine the type of coverage you’re required to carry versus the types of coverage that you really should carry in order to protect yourself but that are not required.
Auto insurance provides property, liability and medical coverage:
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
- Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
You should also understand what is covered by the different types of insurance in order to understand whether you need insurance coverage above and beyond the minimum required by your state of residence. Auto insurance is divided into several types of coverage:
- Bodily Injury Liability: Covers damage you cause to other people’s property and injuries to the people themselves.
- Medical Payments: Covers medical expenses for injuries. This “good-faith” coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault.
- Property Damage Liability: This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
- Comprehensive: Covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.–unless the vehicle is overturned, then it is considered a collision).
- Uninsured motorist and underinsured motorist coverage: This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.
- Collision:Â This pays for repairs of damage to your car caused by a collision with another vehicle or any other object, regardless of who was responsible. Before purchasing a car, whether it be new or used, you should understand that sticker price, cost of repair and incidence of theft all factor into your premium amount.
Before deciding on an insurance company, you should comparison shop. Often prices for the same coverages may vary greatly. Gather recommendations from friends and neighbors, contact the state insurance department about any company complaints and always solicit at least three price quote comparisons.
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