What am I Paying for When I Buy Auto Insurance?
Ask
anyone you know the definition of automobile insurance, and chances are
they will give you a simple answer like, "Paying for coverage in case
you get in an accident." But if you ask the same person just what
that coverage includes, you might find their responses either
incomplete or inaccurate. Most understand a premium is what you pay
per month and a deductible is the amount you pay before your policy
kicks in, but what does your premium include? What, exactly, are you
paying for?
As the first in a series of articles on the fundamentals
and functions of auto insurance, our content partners, AutoExtra.com
begin with a breakdown of the major components to your policy. Auto
Insurance plans typically are for six months to a year and are divided
into six components - each of which are priced separately and together
comprise your total coverage. Basically, each component is an a la
carte item that you can choose to include to your policy (or not),
according to your needs. According to the Insurance Information
Institute, the national leader in educating policy-holders, here is a
breakdown of your coverage:
Collision
Collision
coverage in your policy will compensate you for damage to your vehicle
- whether you collide with another vehicle or an object. As with some
other components of your coverage, you can vary the deductible to
optimize your monthly premium.
Comprehensive
This
aspect of your insurance is essentially a catch-all for any damage to
your vehicle that was either not the result of a collision or involves
animals such as deer. Comprehensive insurance includes flood damage,
vandalism, and all manner of disasters - natural or otherwise.
Windshield protection is often included with this coverage.
Property Damage Liability
Property
Damage Liability protects you from paying out-of-pocket for any
collision damage you might have caused to another party's property -
whether it is a vehicle, street sign, landscape or building. You are
also covered if another person is driving your vehicle, provided you
had given them permission.
Bodily Injury Liability
Bodily
Injury Liability covers payments resulting from harm caused to another
party by yourself or anyone listed on your policy. Because of
potential litigation and soaring medical costs, you might consider
going beyond the state minimum coverage to protect yourself in case of
a serious accident.
Medical Payments/Personal Injury Protection
This
component covers hospital or other medical treatments to yourself and
anyone in your vehicle. Personal Injury Protection (PIP) can also
include lost wages, funeral costs, and other personal expenses
resulting from an accident.
Underinsured/Uninsured Motorist Coverage
The
last aspect of your insurance coverage would be necessary if you or a
family member is injured by another party that either has no coverage
or not enough to compensate the sum of your losses, provided that other
party was at fault. This insurance also serves as protection against
hit-and-run incidents, and for you as a pedestrian.
Please
remember that different states have different laws and you should start
with all minimum state insurance requirements before deciding what else
you may need. Your auto financing lender may also have minimum
coverage requirements when you are buying a new or used car - for
example, most states do not require the Comprehensive component of a
policy, but many finance companies do.
Please also remember
that although AutoExtra.com has attempted to provide comprehensive and
correct information to the best of our knowledge, we make no guarantee
regarding the accuracy of the information as the structure and content
of auto insurance policies periodically change. Consult your insurance
provider before deciding on a policy.
This first article is
intended to help you understand the fundamental components of your auto
insurance policy. Later we'll cover other aspects of auto insurance
including how to file a claim and offer a guide to what you should do
when involved in an accident. The next segment, though, answers the
question on everyone's mind: "How can I save money on my policy?"
