Understanding Auto Insurance

Understanding Auto Insurance

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Auto Insurance

Auto insurance is an agreement between you and the insurance company that protects you from financial loss in the event of an accident or theft.  Instead of you paying a premium, the insurance company agrees to pay your losses as stated in your insurance policy.

Auto insurance coverage is provided by:

Property – Like damaging or stealing your car

responsibility – Your legal liability to others for bodily injury or property damage

Medical – Injury treatment, rehabilitation and sometimes lost wages and funeral expense

Basic private car insurance is mandatory by most U.S. states and the rules vary.  Auto insurance coverage is priced individually (a la Carte) to allow you to customize coverage sizes to suit your specific needs and budget.

Policies are usually issued for a period of six months or a year and are renewable.  The insurance company sends a notification when it is time to renew the insurance and pay your premium.

Who is covered by my auto insurance – and under what conditions?

Your Vehicle Policy Driving your own car or someone else’s car (with their permission) covers you and other family members in your policy.  If someone who is not part of your policy drives your car at your discretion, your policy also provides coverage

Your personal vehicle policy only covers personal driving when you go to work, even if you are on the wrong drive or on a trip.  it will Note Provide coverage if you use your car for commercial purposes — for example, if you distribute pizza.

Personal car insurance also does not cover if you use your car to transport others through a ride-sharing service such as Uber or Lyft.  However, some auto insurers now offer supplementary insurance products (at an additional cost) that extend coverage for car owners who provide ride-sharing services.

Is Auto Insurance Cover Mandatory?

Auto insurance requirements vary from state to state.  If you are investing in a car, your lender may have the same requirements.  Almost every state wants to take car owners:

Liability for body injuries – Covers expenses related to injuries or death caused by you or another driver while driving your car.

Property damage liability – Compensates others for any damage caused to another vehicle or other property, such as a fence, building, or utility pole, by you or another driver of your car.

In addition, many states require you to take:

Medical Payments or Personal Injury Protection (PIP), Which reimburses medical expenses for injuries sustained by you or your passengers.  It will also cover lost wages and other related expenses.

Unsecured car cover A driver who does not have car insurance will reimburse you in the event of an accident — or an accident while driving.  You can also buy Under Insured car coverage that covers the cost when another driver does not have adequate coverage to cover the cost of a serious accident.

Although PIP and unsecured car coverage are optional in your state, consider adding them to your policy for greater financial security.

What are the other common auto insurance coverage

The most basic, legally mandatory vehicle insurance covers the damage to your car NoteCover damage to your own car.  To cover your own car, you should consider these alternative covers:

Collision When you make a mistake you will be compensated for the damage caused to your car by a collision with another vehicle or other object — e.g., a tree or a security fence.  Collision coverage does not compensate for mechanical damage to your car or normal wear and tear, but also covers potholes or damage caused by your car overturning.

Extensive Provides coverage against theft and damage from an event other than a fire, flood, disaster, hail, rock or tree crash, or other catastrophic collision!

Glass cover Provides cover from common wind damage.  Some automated policies include non-slip glass cover, which includes side windows, rear windows and glass sun visors.  Or you can buy an extra glass cover.

What is Gap Insurance and Do I Need It?

Collision and expansion only cover the market value of your car, not the amount you paid for it – and new cars depreciate quickly.  If your car has been completed or stolen, there may be a “gap” between what you pay for the vehicle and your insurance coverage.  To cover this, you may want to look into buying gap insurance to pay the difference.  For leased vehicles, note that gap coverage is usually included in your lease payments.

Next step: Check out this handy info on essential and alternative driver insurance coverage types.