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An auto insurance policy is a
package of different coverage for your car. Most states require you to purchase
a minimum amount of certain kinds of coverage. But if you're interested in
protecting yourself from a lawsuit or from hefty repair bills, then it makes
sense to buy more than what's required.
Liability Coverage
Liability coverage is the
foundation of any auto insurance policy, and is required in most states. When
you’re at fault in an accident, the liability insurance pays for the bodily
injury and property damage expenses caused to others in the accident including
your legal bills. Bodily injury coverage pays for medical bills and lost wages.
Property damage coverage pays for the repair or replacement of things you
wrecked other than your own car. Liability coverage is usually described in a
series of three numbers – like, 50/100/20. This means that you have coverage
for $50,000 in bodily injury per person, $100,000 in bodily injury coverage per
accident and $20,000 in property damage per accident.
The foundation of your auto
insurance is liability insurance. Forty-five states require that you purchase
auto liability insurance. State that don’t require this, like South Carolina
and Virginia require that you register as an uninsured motorist. Tennessee
requires proof of financial responsibility, and New Hampshire and Wisconsin
don't mandate liability coverage except in certain cases. The minimum amount of
insurance you must carry also depends on where you live.
Different states require different
minimums.
Just because a state has a
minimum is not a good reason to get just that minimum. Remember, if you cause a
serious accident your policy may not cover all the expenses. That's why it's a
good idea to buy more than what your state requires. And, what if you get
sued? Well, if you own a home and have nest egg and a savings account, you
should consider more liability insurance because drivers are allowed to sue
other drivers who injure them in car accidents. If you're sued and your
liability insurance doesn't pay for all of the damages, you have to pay the
rest!
Collision and Comprehensive
Coverage
If you cause an accident,
collision coverage pays to repair your vehicle. You usually can't collect any
more than the actual cash value of your car. Collision coverage is normally the
most expensive component of auto insurance. The insurance company pays for the
repairs AFTER you have shelled out for the deductible. Sometimes it’s okay to
not have a low deductible if your car isn’t worth a lot or not expensive to have
repaired. However, keep in mind that you must pay the amount of your deductible before the insurance company will pay for anything.
Insurance companies often "total"
a car if the repair costs exceed a certain percentage of the car's worth. The
critical damage point varies from company to company – 55% - 90%. Claim
adjusters usually figure the Actual Cash Value (ACV) of a car by taking the replacement cost and subtracting
the depreciation. The replacement cost is the amount of money it would take to
replace the car or repair the damage.
Comprehensive coverage will pay
for damages to your car that weren't caused by an auto accident: Damages from
theft, fire, vandalism, natural disasters, or hitting a deer all qualify.
Comprehensive coverage also comes with a deductible and your insurer will only
pay as much as the car was worth when it got wrecked. You can check the Kelley
Blue Book or the National Automobile Dealers Association (NADA) to find out the
value of your car.
Medical Payments
Medical payments (MedPay)
coverage pays for you and your passengers' medical expenses after an accident.
These expenses can arise from accidents while you're driving your car, someone
else's car and injuries you or your family members incur when you're
pedestrians. The coverage pays regardless of who is at fault.
Personal Injury Protection
(PIP) and No-Fault Coverage
Personal injury protection and
broader "no-fault" coverage are expanded forms of medical payments protection
that may be required in your state. In other states this is optional. Expanded
features include payments for lost wages and child care.
Uninsured/Underinsured Motorist
Coverage
Uninsured motorist (UM) coverage
pays for your injuries if you're struck by a hit-and-run driver or someone who
doesn't have auto insurance, and is required in many states. Underinsured
motorists (UIM) coverage pays out if the driver who hit you causes more damage
than his or her liability coverage can cover. In some states, UM or UIM coverage
also pays for property damages. Most people want the minimal amount of this
kind of coverage. This can compensate you for pain and suffering if you can't
find the other driver.
Add-on Coverage
You can purchase supplemental
auto coverage as separate premiums or included in augmented policies. Rental
reimbursement covers vehicle rentals required because your car is damaged or
stolen. Towing and labor charges can be covered
as an add-on item.
Gap coverage for your new car pays the difference between
the actual cash value you receive for the car and the amount left on your car
loan if your vehicle is totaled in an accident.
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