The primary purpose of auto insurance is to protect you and your car (and others involved in an accident). Coverage types vary widely from state to state, so it’s important to understand the different types so you can stack the outcomes in your favor.
In today’s article, we’re discussing some common types. We’ll also tell you when you can use each.
Liability Coverage
It’s the foundation of every car insurance policy. It basically transfers a portion of your legal and financial responsibility to your insurance company (in case of an accident). This is further divided into two types. Bodily injury and property damage liability.
Both are required in specific situations. When getting an auto insurance quote, you must ask your provider about all the details to get a clear picture.
In bodily injury liability (BI), the coverage pays for the other party’s medical bills if you’re at fault and have caused the accident.
Property damage liability coverage pays to repair the damage you’ve caused to others’ property (not your own) in an at-fault accident.
Physical Damage Coverage
Collisions and comprehensive coverage are the key components of a full-coverage car insurance policy. These are not required by state law, but lenders often require them (especially if you’re financing a vehicle).
In collision coverage (COLL), the insurance company pays for the damage to your vehicle, no matter who was at fault in the accident. You’ll also get the coverage of pothole damage and rollover accidents.
Comprehensive coverage is sometimes known as “other than collision” coverage. It covers damage to your car caused by natural events (such as wind, hail, and floods). It even covers the damage caused by vandalism or falling objects.
Medical Payment Coverage
This is not offered in every state in the US. It is an optional add-on that covers your medical bills, those of your listed drivers, and anyone in your vehicle (regardless of who was at fault in the accident). It is only required by law in New Hampshire and Maine, and it doesn’t cover lost wages.
The limit of this coverage ranges from $1,000 to $10,000 and is usually written on a per-person basis. This type of coverage also pays for expenses like ambulance fees, dental work, and surgery. It operates without any deductible.
Gap Insurance
Gap insurance is also an optional add-on that becomes effective when you finance or lease a new vehicle. As your vehicle ages, the value of this coverage decreases. This depreciation can, in some cases, make you owe more on your vehicle than its actual value. In that case, gap insurance could pay the difference (if your new vehicle is listed in the coverage).
You’ll only get this coverage if your vehicle is less than three years old.
Bottom Lines
Each type serves a specific purpose. Some act as add-ons that you can utilize in addition to your basic package. You need to find a balance between coverage needs and your insurance budget to get the best possible outcomes.