Wednesday, May 22, 2013

Understanding the Different Types of Auto Insurance Coverages


A car crash on Jagtvej in Copenhagen, Denmark.
When purchasing an auto insurance policy, it's tempting to simply ask for "full coverage" and let the agent put your policy together. Doing this can leave you vulnerable, however, and it may also lead to higher insurance premiums. By understanding what each coverage does and why you need it, you can put together a policy that will fit your needs without emptying your wallet. 

Here are the most common types of insurance coverage: 


1.) Liability: Every state requires all drivers to have liability insurance. There are two types of liability coverage: bodily injury and property damage. They each have separate limits and cover different things. Bodily injury liability pays for any injuries you may cause in an accident, and property damage liability pays for the damages that occur as a result of an accident you cause. In any case, liability insurance only pays for another person's injury or damages; it will never cover your own injuries or damage. Your liability limits determine how much your policy will pay toward an accident. High limits will cost more on your policy, but low limits make you vulnerable to lawsuits if damages or injuries exceed your policy's scope. 

2.) Collision: Whenever your vehicle is damaged as a result of an accident, your collision coverage pays for its repair. You pay a predetermined deductible amount, often $500 or $250, and the insurance company pays for the rest. Higher deductibles result in lower premiums but require you to pay more out of pocket for your damages. 

3.) Comprehensive: Coupled with collision and liability, comprehensive rounds out a standard full coverage insurance policy. Comprehensive coverage pays for damages that occur to your vehicle outside of an accident. For example, theft and vandalism are covered by comprehensive coverage. This coverage tends to be cheaper than collision, and its price will depend on the deductible you choose. 

4.) Uninsured Motorist: This coverage is not available in every state, but it is a requirement in some areas. Uninsured motorist coverage replaces the missing liability insurance of another party when a person without insurance causes an accident. 

5.) Additional coverages: The coverages above are standard in most auto insurance policies. You can also choose to purchase medical payments coverage to pay for your own medical expenses. Rental reimbursement coverage will cover the cost of a rental car while your vehicle is in the shop, and towing or roadside assistance can help reimburse these expenses. Be sure to check with your insurance agent or compare rates on sites such as autoinsurancequotes.com to see what additional coverages are offered and whether you might need them. 

Not every vehicle will require every available coverage. For example, an older-model used vehicle may not require collision coverage as repairing it would not be financially sensible. By understanding what each coverage does, you can make an informed decision about your auto insurance.


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