Most states require car insurance, providing valuable protection for you and your passengers. In addition, some types of car insurance will cover property damage, roadside assistance, and rideshares.
When shopping for car insurance or reading through coverage documentation, it can be hard to decipher all the jargon. Study these terms to make your car insurance shopping experience more manageable.
In most states, this type of insurance is mandatory. It’s the minimum coverage you’ll need to drive. If you’re in an accident that’s your fault, this insurance pays for damage to the other driver’s car. It will pay the medical bills for any injuries that the other driver might have. The amount it will pay depends on the limits set by your insurance policy.
However, if you’re at fault, liability coverage doesn’t pay for your injuries or damage to your car.
The two types of liability insurance
You’re required to purchase two types of liability coverage.
- Bodily injury liability: Pays for lost wages, pain and suffering, and medical care for the other car’s occupants.
If a person in the other car dies, it will pay for funeral expenses. Depending on the severity of the accident and the limits of your policy, the insurance may not cover the entire cost. If it doesn’t, you’ll be responsible for the rest.
- Property damage liability: Pays for damage caused to other people’s property. It will cover damage to cars, homes, and any other property that might be involved in the accident.
Like bodily injury liability, it will only pay up to the limit specified in your policy, so you’ll need to pay any remaining expenses.
Although liability coverage mostly pays for other people’s expenses, it will protect you if you’re sued after an accident. It will pay for your legal defense and court costs in this situation. Usually, there are no limits on coverage for legal and court expenses.
Most states require you to purchase this coverage if you have a car loan. With collision coverage, you’re insured for damage to your vehicle in an accident. You’re covered for damages caused in cases where you’re at fault and in cases where the other driver is at fault.
If you’re making financing or lease payments on your car, most states require you to have comprehensive coverage. This form of coverage pays for motor vehicle damage that’s not caused by an auto collision.
For example, comprehensive coverage pays if your vehicle is damaged due to flooding or other natural disasters. You’ll also be covered for damage caused by people and animals, including theft, vandalism, and collisions with wildlife.
No-fault insurance is required for drivers in 12 states, including New York, Florida, North Dakota, and Michigan.
With no-fault insurance, injured parties in the accident are covered under your PIP (personal injury protection) policy regardless of who was at fault for the accident. The exact level of coverage you receive depends on your plan. Generally, your policy covers your medical expenses and lost wages due to time off work. In wrongful death cases, your no-fault insurance can also cover funeral costs.
No-fault policies won’t cover property damage, and they don’t pay for damage to your motor vehicle.
Uninsured and Underinsured Motorist Coverage
If you’re in a collision with an at-fault motorist who is uninsured or underinsured, that motorist might be unable to pay your medical expenses. When this occurs, having uninsured motorist (UM) coverage ensures you don’t pay for medical treatment out of pocket.
For property damage to your vehicle to be covered, you’ll likely need a separate policy called UMPD (uninsured motorist property damage) coverage.
The District of Columbia plus 21 states require drivers to carry uninsured motorist coverage, including North Carolina, New York, Oregon, and Vermont. Underinsured motorist coverage is required in Maryland, Maine, Connecticut, Nebraska, and 10 other states.
Guaranteed Asset Protection insurance is beneficial if you’re leasing your car or making payments on a car loan. You can get GAP insurance if you’re the original holder of the loan or lease on a brand-new vehicle. If you have a lease, your contract might include GAP insurance.
Your car’s value depreciates over time. If your vehicle is totaled while you’re still making loan payments or leasing, you may end up owing more on your auto loan than the car is worth. You’ll still be responsible for paying the lease balance if you’re leasing.
Standard auto insurance policies will only pay your car’s current value at the time of your insurance claim. GAP insurance will pay the difference between your ACV (actual cash value) and the amount you owe on your lease balance or loan.
Typically, your regular car insurance policy won’t cover you or your passengers while you’re driving for Uber or other ride-sharing services. Therefore, many ride-sharing companies must provide insurance for independent contractors in certain states.
However, purchasing separate ride-sharing coverage from your insurance company may provide better protection. This type of coverage is beneficial if you use the same car for personal and business use.
When you’re considering ride-sharing coverage, you may want to look at plans that include a ride-sharing endorsement. The endorsement covers you while you’re available and waiting for requests on the ride-sharing app. It can also reduce your out-of-pocket costs for accidents that happen while you’re transporting a ride-sharing passenger.
Roadside Assistance Coverage
Although this type of coverage is optional, it could give you peace of mind during emergencies. You can add roadside assistance coverage to most existing auto insurance plans.
Emergency towing, battery jump starts, and fuel deliveries are covered with roadside assistance. If you lock your keys in your car by mistake, locksmith services are available through most plans, and winching services are included if your vehicle becomes stuck in mud or slides off the road.
Your auto insurance premium is the amount you pay to receive coverage from your insurance provider. Depending on the policy you choose, you might be able to pay your premium in one annual payment. You can also pay your insurance premium twice a year, quarterly or monthly.
These insurance rates are impacted by your driving record, vehicle type, credit score, age, and city of residence. If you have a good driving record with no recent accidents, traffic infractions, or convictions, you’ll be considered for lower premiums.
Your premium may change when you renew your policy. For example, if you’re involved in a collision or a traffic violation this year, your premium may be higher after your next renewal date.
A deductible is the portion of an insurance claim that’s your financial responsibility. You’ll have to pay the deductible before your insurance gives you medical payments coverage or pays out lost wages. For most policies, you’ll need to pay your deductible for each insurance claim that you make or on the first claim each year.
Exclusions are situations, expenses, or losses that your car insurance plan doesn’t cover. For example, property damage isn’t covered by no-fault PIP insurance. Your policy documentation will have a list of these items, and your insurance agent can give you more information about specific exclusions.
Assistance With Choosing Car Insurance
At Finance is us, we’re here to help you understand your car insurance coverage options and choose the most effective plan for your needs. We can explain car insurance terms in more detail, and we’ll provide guidance so that you can make informed choices about your coverage. Contact us today to find out more about protection for your motor vehicle.
Disclaimer: All content on this site is information of a general nature and does not address the circumstances of any particular entity or individual, nor is the information a substitute for professional financial advice and services.