What exactly is auto insurance?
Auto insurance is designed to provide you with protection in the event that you injure others, including property damage and bodily injury, as a result of an accident. Also, depending on the coverage and plan you have, it will reimburse you for injuries and damage done to your vehicle. In its most basic form, auto insurance is a contract between you and your insurer. You agree to pay a fixed price, called premiums, in exchange for selected coverages.
The type of policy you have is written out in detail on the declaration page, so be sure to always read it and understand the exact coverage you have. It’s always smart to double-check your policy and make sure you don’t have any overlapping items, like rental insurance. This is usually covered in your credit card agreement, so you may be wasting money by having it. Remember, you can always update your insurance and cancel it at any time.
What does auto insurance cover?
This is a common question that new clients always ask agents. The answer is that it depends on the plan and the type of policy you buy.
There are four main categories of protection.
* Liability insurance
This covers injuries to the other party, damage to your vehicle, and also property damage. If you have a vehicle that isn’t worth much and you don’t drive it very often, liability-only insurance may make sense. It’s much cheaper than the integral, with prices in some states starting at $29 for good drivers.
* Collision insurance
This will pay for your damages and medical costs. It’s a smart buy if your vehicle is newer and worth more than $12,000.
* Comprehensive insurance
This is the gold standard of coverage. This type of policy costs more but has wide-ranging protection. Matches collision and will repair or replace your car for events causing damage or loss, not related to a motor vehicle accident. This means that if your car is stolen, you will be protected and can replace it for its current market value. In addition, weather related damage to your car will also be covered. Typical examples are floods, fires, and animal incidents.
* Insurance for uninsured drivers
There are more people than ever driving the roads without insurance. Buying uninsured motorist insurance will protect you from these lawless drivers. If you are involved in an accident with someone who does not have insurance, you will be insured up to your policy limits.
It is important to know that each state has different laws and mandatory insurance coverage. You should familiarize yourself with the limits mandated in your state and keep up to date with changing laws.
The most common car insurance coverages
Each type of coverage you purchase contains a set of limits, policy terms, and multiple conditions. Bodily injury is very important.
It will pay, as the name implies, for bodily injuries suffered from an incident you were at fault for. A good liability policy will also pay legal fees, up to certain predefined limits, in case you are sued in court.
Liability will also pay for damage you caused to someone else’s property, usually your car, after an at-fault accident occurred. Medical insurance will generally cover you and the passengers in your vehicle who are injured in an accident. Another benefit of having good health coverage is that it will cover your medical costs if you are hit by a car while you are walking.
There are several states that have PIP or Personal Injury Protection laws in lieu of medical coverage. Some people refer to this as no-fault coverage. PIP insurance will typically cover medical, funeral, lost income, and a variety of other costs related to bodily injuries sustained after a car accident.
What you need to know before buying auto insurance
The most important thing to think about when shopping for auto insurance is getting coverage that meets your needs. What are your specific needs, including your budget and risk tolerance? Remember, you have to think about the worst case scenario, like buying enough coverage to replace your car and protect the assets you’ve accumulated.
In general, the higher your personal net worth, the more insurance protection you’ll need. Lawyers also target people who have large amounts of money with vigorous lawsuits, seeking damages. Your insurance plan should keep up with the growth of your assets and protect you as much as possible.
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