Car insurance is something most drivers do not want to pay for but are glad they have when an accident happens. The car accident rate is exceptionally high in the U.S. Therefore, 48 states have made car insurance mandatory. This ensures that medical costs and damages are covered should a driver cause an accident.
At the very least, you must have minimum-liability insurance if you live in any state other than New Hampshire and Virginia. Minimum-liability insurance will help pay accident-related bills. However, also consider add-ons like collision coverage and personal injury protection. Some states require additional coverage.
Also, understanding the fundamentals of car insurance is essential. If you do not understand the coverage you are buying, putting in an accident claim can quickly turn into a nightmare.
Types of Car Insurance
Required and recommended car insurance policies include the following:
Liability Insurance
Liability insurance will cover medical bills and property damage for the other driver and passengers if you cause a crash. All states require this insurance coverage, except for New Hampshire and Virginia. Keep in mind that liability limits differ between states.
Also, there are two components to liability insurance: BI and PD. BI refers to bodily injury, and PD refers to property damage. BI liability insurance covers the other driver’s injuries if you cause an accident, but it doesn’t cover yours. PD liability insurance works much the same way. It covers the damage to the other vehicle and property that doesn’t belong to you. If the other driver is to blame for the accident, the process is the same, except that the other driver’s policy will cover your injuries or damages.
Collision Insurance
Collision coverage is a straightforward policy that allows you to repair or replace your car after an accident. The policy will pay out if someone crashes into your car and drives away. Collision insurance also covers single-vehicle accidents. However, it does not pay for medical costs or non-crash-related events.
This type of insurance is not mandatory but is recommended for all drivers. It is valuable for drivers who cannot afford more than minimum coverage. It is worth noting that if you buy or lease a car via vehicle finance, you will likely be required to purchase collision insurance, too.
Comprehensive Coverage
Consider buying a comprehensive insurance policy if you live in a high-crime area or a state where natural disasters occur. Comprehensive insurance covers both natural disasters and theft. Some policies also include events like vandalism and hail. Comprehensive insurance is optional but required by vehicle finance lenders and leasing agencies.
Uninsured Motorist Insurance
Uninsured and underinsured motorist insurance pays for hospital costs and vehicle repairs should an uninsured driver hit you. Twenty-one states and the District of Columbia require uninsured motorist insurance for all drivers. A further 13 states require drivers to have underinsured motorist coverage. If you do not live in a state where uninsured and underinsured motorist insurance is mandatory, you should still consider buying it.
MedPay Insurance
MedPay (medical payments coverage) is insurance coverage that pays for medical costs. It also covers funeral expenses and health insurance deductibles. The best thing about MedPay is that you and your passengers are covered whether you are at fault for an accident or not. MedPay is optional in all but three states: Maine, New Hampshire, and Pennsylvania. If you do not have personal injury protection coverage, MedPay is a good alternative.
Personal Injury Protection
PIP, or personal injury protection, pays for medical and funeral expenses. This insurance also covers childcare services related to car accidents. Twelve states require PIP insurance. If you live in Pennsylvania, you must pick either PIP or MedPay. In general, PIP is a requirement in no-fault states.
PIP is another good option when it comes to additional insurance coverage. It is affordable and one of the best ways to deal with unexpected hospital bills. If PIP is not available in your state, you can choose MedPay in its place.
More Options for Drivers
For extra peace of mind, you can choose more coverage options above the common coverages. This includes gap insurance, which covers the difference between your car’s value and the money left on your vehicle loan. It also includes roadside assistance, an excellent choice for high-crime areas. Other options include total loss protection, mechanical breakdown insurance, and rental car reimbursement.
What Does a Car Insurance Policy Look Like?
Car insurance policies contain several components. You must understand each one before signing a contract. These components include your premium, deductible, cover amount, and claim filing process. The premium is the amount you will pay each month. Some policies require monthly payments, while others work on quarterly or semi-annual payments.
An insurance deductible refers to the money you need to pay when you claim. You must pay the deductible before your insurance will settle your claim. Your claim payment rate will be higher if you choose a low deductible, and you have to pay the deductible for each claim.
Your cover amount relates to what your insurance will and will not pay for. You must read, note, and understand all information about cover amounts. If you skim over the details, you may get an unpleasant surprise when you try to claim after an accident.
Be sure to familiarize yourself with your insurance provider’s claim filing process. Find out what documents you need for claim filing and whether you need to file in person or via an app.
Which Factors Influence Car Insurance Premiums?
If you drive an expensive car, you will pay more for insurance. If you drive long distances, you will likely pay more because you are at a higher risk of an accident. Other factors that influence your car premium are your age, gender, suburb, driving record, prior claims, and marital status.
Compare Before You Buy
Compare prices and benefits on different quotes before you buy any additional insurance. Choose an insurance product that gives you the value and coverage you need but also suits your budget. That said, do not automatically favor price over insurance coverage. If you have to cut down somewhere else to afford a proper policy, it will be a better decision in the long run.
