Auto insurance is a type of insurance policy that provides financial protection for injuries and property damage in the event that you are in a car accident. It’s a contract between the insurance carrier and the policyholder but may include coverage for additional drivers named on the policy.
Every state has its own rules regarding the minimum limits of auto insurance to maintain legal coverage. Leasing companies may also impose their requirements of coverage that are often much higher than the state minimums.
Common Auto Insurance Coverages
Every insurance policy has coverage for liability. But this isn’t the only coverage a car insurance policy will maintain. Here are the seven common coverages and what they do for you.
Liability coverage is the protection that you provide to other drivers and third-parties. It pays for damages and injuries when you hit another car, person, or object such as a building. Liability coverage has three parts described: injury per person, injury per accident, and property damage.
You’ll often see liability coverage described with the three parts separated by a “/” to look something like this: $15,000/$30,000/$10,000. What that means is you are covering third-parties when you are at-fault of an accident for $15,000 per person for injuries, $30,000 for all persons in the car with injuries as a total, and $10,000 in property damage.
While a person can be perfectly legal maintaining state minimum coverage, it’s important to know that third-parties can sue and have wages garnished for years to come to recuperate losses incurred by an accident you caused but weren’t insured enough to cover.
Collision coverage pays to repair or replace your car when it is damaged in an accident that you caused. Remember that liability pays for claims of the third-party, not your own need to repair your car. Collision coverage is optional, though some financing companies will require coverage for newer cars.
When you request collision coverage, the insurance agent will go over what your deductible will be. The deductible is your portion of the claim. Deductibles often start at $250 and go as high as $2,000. There are some insurance carriers that offer a zero deductible. The lower your deductible, the higher your premium will be and vice versa.
Like collision coverage, comprehensive coverage is optional unless required by a lender. Comprehensive coverage pays for damages to your car that were not incurred in an accident with another vehicle or your fault. Covered incidents would include vandalism, theft, hail, a tree falling on the car, and flood damage.
These are incidents that you have no control over and are not counted against you as an at-fault chargeable incident for premium rating. In other words, comprehensive claims don’t count against you. There is usually a deductible for this that can match or differ from the collision deductible depending on your personal preference.
Medical payments are optional coverage in an auto insurance policy that pays if you or one of your passengers gets injured in an accident you are responsible for. This doesn’t cover medical bills if you are hit by another car – that’s their liability coverage.
Many people who have good health insurance opt out of getting medical payments but this can be a big financial mistake. If you are in an accident and go to the doctor and say you hurt your neck in an auto accident, your health insurance may require your auto insurance (or you) to pay a certain amount before the health insurance kicks in.
The cost of medical payments is usually just a few extra bucks per month for every $1,000 in medical payments you elect in coverage.
Uninsured/underinsured motorist is elective coverage that protects you in accidents that are not your fault but when the other party does not have any or enough liability coverage to pay for the damages or medical bills. Because this coverage is acting as the other party’s liability protection, there is no deductible to pay.
Rental Car Coverage
Rental car coverage is an optional coverage that pays for a rental car if your car is in the shop due to an at-fault accident. You can usually select different tiers of coverage that give you a daily budget for a rental car. This could be anywhere from $15 to $50 per day with a maximum cap.
It’s important to remember that if you are at-fault, you are responsible for all out-of-pocket expenses such as a rental car if you do not elect optional coverage for protection. Rental car coverage can be as little as a couple of dollars per month for basic coverage.
Emergency Roadside Assistance
For as little as two dollars per month, you can get assistance if your car breaks down. This is similar to what you might find with AAA where you can get things like a tow, tire changed, battery jumped, or locksmith to help you get into a locked car. Emergency roadside assistance is optional coverage and costs as little as $1.50 per month.
What Is Full Auto Insurance Coverage?
Having sold auto insurance for years, it’s common for people to say they have or request “full coverage.” But when asked what that coverage entails, the answers vary widely. To some, full coverage simply means you are fully insured as required by state law – this isn’t a lot of coverage but meets the bare minimum standard. Others will say that meeting the demand of a lease company’s $100,000/$300,000/$100,000 is full coverage. Again, this is better coverage but not necessarily complete coverage.
To an insurance agent, full coverage means you are adequately protected with high-enough liability coverage to protect your assets, comprehensive, and collision coverage. Many agents would also consider getting medical payments, rental car, and roadside assistance as having full coverage. This can lead to frustration and why you may hate your car insurance agent if they aren’t clear. Whatever your definition is, make sure you properly convey to your insurance agent what you mean by full coverage to make sure you get the policy you expect.