Car insurance is a legal requirement and an important safety measure in many states. It protects drivers, passengers, and other road users in case of an accident.
There are many different policies available that offer basic to comprehensive coverage and understanding the car insurance policies can be confusing. Keep reading to learn more about the different types of car insurance policies and what they deal with.
Liability Insurance
A liability insurance policy is compulsory in most states. It protects you if you are found at fault for an accident that causes injury or property damage to another person. Liability coverage can be divided into two:
- Bodily injury liability, which pays for medical expenses, lost wages, and legal expenses. It may also cover funeral expenses in case of fatalities.
- Property damage liability covers the costs of repairing or replacing another person’s property or vehicle after an accident if you are responsible for the damage.
However, liability insurance does not cover your vehicle damages or injuries.
Collision Insurance
This covers the costs of repairing your vehicle if it’s damaged in a collision with another vehicle or an object such as a tree, guardrail, or fence. Collision insurance can also cover damages from potholes or when the car rolls over.
Even though this policy is not required by law, it is recommended, especially for drivers in busy areas or those with expensive and newer models.
Comprehensive Insurance
Comprehensive insurance is commonly known as “other-than-collision” insurance, which covers damages to your vehicle that are not related to collusion. This includes theft, vandalism, natural disasters, fire, or falling objects.
Comprehensive insurance comes in handy if you live in an area prone to natural disasters or theft to protect you from costly repairs and loss.
Uninsured/Underinsured Motorist Coverage
You will be surprised to know how many drivers on US roads lack insurance or carry the minimum insurance coverage. Uninsured/Underinsured motorist coverage (UM/UIM) are two bundled policies that protect you if you are in an accident caused by an uninsured driver.
UM pays for you and your passenger’s medical bills, wages, and damages. It also covers hit-and-run accidents. UIM is used when the at-fault driver’s insurance is not enough to fully cover the damages.
Personal Injury Protection (PIP)
PIP, also called “no-fault” insurance, covers medical expenses and other related costs for you and your passengers regardless of who is at fault. Here is a breakdown of what is included in PIP:
- Hospital bills, including doctor visits, surgery, and rehabilitation
- Lost income because of injuries
- Funeral costs in case of death
- Additional costs, such as child care or other services, because you are unable to care for your family
This cover is compulsory for states that follow no-fault laws like Kansas, Utah, and Michigan.
Medical Payments Coverage (MedPay)
MedPay is similar to PIP but has a few differences. The main difference is it doesn’t cover lost wages. MedPay is more of a supplement to health insurance.
For people without PIP, MedPay can cover basic medical coverage. This policy is optional in all states except New Hampshire and Maine.
Gap Insurance
Gap cover or Guaranteed Asset Protection, covers drivers who own more on their car loan or lease than the actual value of the vehicle.
If your car is completely ruined or stolen, insurance will cover the ACV (actual cash value) of the vehicle, including depreciation. Gap insurance will cover the difference between the ACV payout and the balance on your loan.
Conclusion
Choosing the right car insurance policy is important for protecting yourself and your passengers in case of an accident. Understanding what is included in each cover will help make an informed decision in selecting a cover. Note that some policies are compulsory depending on the state you are living in.
