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 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.
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?"