The personal auto insurance that is mandated in most states provides some financial protection if you or another driver using your car, causes an accident and/or damages someone else’s car or property; or injures someone.
To help you make the best decisions about purchasing the type of auto insurance coverage you might need, you’ll want to understand what’s covered, what’s not covered and what’s optional. In addition to understanding types of coverage, you should also consider the amount of coverage you may need.
Why? Because state-required minimums may not cover the costs of a serious accident. With medical cost soaring, it’s worth considering purchasing higher levels of coverage.
Here’s a summary of the types of coverage that are available—some are required; others are optional; all are priced individually (a la carte) so you can customize coverage amounts to suit your exact needs and budget.
Mandatory coverage
Nearly every state requires car owners to carry the following auto liability coverage:
- Bodily Injury Liability — This covers the costs associated with injuries and death, that you or another driver causes while driving your car.
- Property Damage Liability — This coverage will reimburse others for damage that you or another driver operating your car causes to another vehicle or other property.
Frequently required coverage
Many states require that you carry the following coverage:
- Medical Payments or Personal Injury Protection (PIP) — These coverage's provide reimbursement for medical expenses for injuries to you or your passengers. They could also cover lost wages and other related expenses. You would usually choose one or the other and not both for your policy.
- Uninsured and Under Insured Motorist Coverage — Reimburses You, when an accident is caused by an uninsured motorist—or in the case of a hit-and-run. You can also purchase under insured motorist coverage, which will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.
Even if these types of coverage are optional in your state, consider adding them to your policy for greater financial protection.
Optional coverage
While basic, legally mandated auto insurance covers the cost of damages to other vehicles that you cause while driving, it does not cover damage to your own car. To cover this, you need to purchase the following optional auto insurance coverage's:
- Collision — This optional coverage reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object—e.g., a tree or guardrail—when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
- Comprehensive — This provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards—even getting hit by an asteroid!
- Glass Coverage — Windshield damage is common, and some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.
- Rental Care Coverage — The coverage will pay for a rental car while your vehicle is being repaired from and accident. There are different limits of coverage that you may purchase, so you will need to decide if you want all or a portion of the rental expense covered.
- Roadside Assistance or Towing Coverage — As the name says, this coverage will pay to have your vehicle towed to the nearest repair facility. This coverage also has limits, basically the distance you can be towed. It also, depending on the company, will provide lock out service, tire change service and dead battery service. You do not have to be involved in and accident to use this coverage.
Mind the gap… insurance
If you lease or finance your vehicle, auto dealers or lenders will likely require you to purchase collision and comprehensive coverage. But keep in mind, collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “Gap” between what you owe on the vehicle, and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference. (Note: For leased vehicles, gap coverage is usually rolled into your lease payments.)
Who is covered—and when?
Your auto policy will cover you and other family members on your policy, whether driving your own insured car, or someone else’s car with permission. Your policy also provides coverage if someone not on your policy is driving your car with your consent.
Your personal auto policy only covers personal driving, whether you’re commuting to work, running errands or taking a trip. Your personal auto policy, however, will not provide coverage if you use your car for commercial purposes—for instance, if you deliver pizzas or operate a delivery service. Note, too, that personal auto insurance will generally not provide coverage if you use your car to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, are now offering supplemental insurance products (at additional cost) that extend coverage for vehicle owners providing ride-sharing services.
** Excerpts taken form the Insurance Information Institute's website.