Before you can select the level of auto insurance coverage that you need, it’s very important that you understand the basic components of an auto insurance policy. The bad news is that only a fraction of the population understand these basics. The good news is that there is not that much to learn. There are only five components to a basic auto insurance policy. Once you learn those, you will know the bulk of what you need to know in order to select the right coverage for yourself and your family.
1. Liability coverage. While some parts of an auto insurance policy are optional, liability coverage is required on any auto insurance policy. Liability coverage applies when you cause an accident resulting in injuries and/or property damage.
Example: let's say that you run a red light and crash into somebody. Liability coverage pays for damages to the person you hit whether it be medical injuries or property damage. Liability insurance pays the other guy up to the limit you're carrying on your policy.
Caution: Many drivers only select the minimal amount of liability coverage that their state requires. This level of coverage is usually only adequate if you cause a minor accident. If you cause a major accident, it’s usually far too inadquate to cover all the damages. You could be left on the hook for the rest…. So it’s very important to have higher levels of liability coverage than just the minimum your state requires.
2. Uninsured/Under-insured Motorist coverage. Uninsured Motorist (UM) coverage pays you if someone hit you and it's their fault, but they don't carry liability coverage like they're supposed to. Under-Insured Motorist (UIM) coverage works in the same way except that it applies when the at fault driver that hit you does have liability coverage, but that does not have high enough coverage to pay for all of your injuries or property damage. Both of these coverages are very important to have. Also remember that you're only allowed to carry as much level of coverage as what you're carrying in liability coverage. So if you go with skimpy state minimum liability coverage you will be limited to that amount on UM and UIM.
3. Medical payments coverage. The actual name of this coverage varies from state to state. Some states call it Medical Payments coverage, some states call it Personal Injury Protection (PIP), some call it Medical Benefits coverage. Regardless of what it's called in your state, it pretty much works the same way. Medical payments coverage applies to you and any of your passengers who are injured in an accident, regardless of who is at fault.
In Ohio, Indiana, Virginia and West Virginia medical coverage is optional. In Pennsylvania and Michigan it is required. Most states and auto insurance companies only offer low levels of this coverage except for Michigan which requires unlimited medical coverage.
4. Comprehensive coverage. #4 Comprehensive coverage and #5 Collision coverage in a sense sort of run together (I’ll explain more about that later). Comprehensive covers the vehicles you have insured for damages that result in anything other than an accident. Some states refer to comprehensive coverage as “Other than Collision (OTC)” coverage, but it means the same thing.
Examples of Comprehensive coverage include:
Damage from weather (hail, fallen tree, etc.)
Hitting an animal (deer, moose, cattle or any other animal large enough to cause damage to your vehicle)
5. Collision coverage. Collision coverage applies to damage done to your vehicle as a result of an accident, regardless of who is at fault. If you are deemed as at fault for an accident, collision coverage is what applies to repair/replace your vehicle. If the other guy is deemed as the at fault driver, their liability coverage usually pays for it… But if they don’t have auto insurance (or not enough to pay for your vehicle’s damage), collision coverage will kick in.
Important things to know about Comprehensive and Collision coverage:
Buying a brand new vehicle (or nearly brand new)
If you are buying a brand new car or a car nearly brand new, be sure to take either “GAP” or “Total Loss” coverage! ….. I’m sure you all have heard that once you drive a car off of the dealership lot, that it automatically depreciates….. That is true! This “GAP” or “Total Loss” coverage is a must have because it protects you from being upside-down on a car loan (owing more on your car than what it’s worth). If your vehicle is new enough to qualify, take it! It costs very little extra and is a lifesaver if you were to total a brand new or nearly new car.
Summary: I’ve tried to keep this short and simple, so you would know what you need to know about buying auto insurance. Not everything can be covered in one article. But you now know what you need to know in order to get an auto insurance quote…. If you have any questions that I haven’t answered, feel free to give me a call. I will be happy to explain it to you….. If you would like me to run you an auto insurance quote, click on the link below…. And as always, I handle all quotes personally and privately.
Click here to get an Auto Insurance Quote
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Dan Lyles is an Independent Insurance Agent serving Ohio, Indiana, Michigan, Pennsylvania, Virginia and West Virginia..