Car insurance is not a “one size fits all” proposition. There are several different types of car insurance coverage and many different factors that go into each one of them.
By learning about the options available, you will be able to make an informed decision about how to best, and most economically, protect you and your family from the dangers of the road. The most basic types include liability, collision, comprehensive and uninsured motorist coverage.
Read on to learn all about the various types of auto insurance coverage available and then enter your zip in to start comparing free quotes for auto insurance!
Liability Insurance
The basic building block upon which car insurance is stacked goes by the name “liability insurance.” A driver who causes an accident uses liability insurance to pay for damage to any other persons or vehicles involved in the crash. With the exception of New Hampshire and Wisconsin, all states have minimum liability insurance requirements; as of June 1, 2010, Wisconsin will join the majority of the states with its new mandatory liability insurance law.
While states dictate a minimum level of coverage, drivers need to carefully evaluate the level of protection they need. The “liability limit” refers to the highest amount that an insurance company will cover in the case of an accident caused by the insured. If the damages are higher than the liability limit, the driver could be sued for the difference, depending on state guidelines.
The minimum level required by some states is as low as $15,000. If a driver who secures coverage at that minimum level causes an accident with damages that exceed $15,000, his or her financial future could be in jeopardy. All drivers should research their options thoroughly before deciding on a car insurance policy that is right for them.
Collision Insurance
“Collision” coverage is a component of physical damage insurance. Collision insurance covers damage to the vehicle of the insured if it becomes involved in a collision with another vehicle or an object.
An important factor in collision insurance is the deductible. The deductible is the portion of the claim that the driver must cough up with his own funds; the insurance company then pays the rest. Deciding on the desired deductible is a weighty decision because paying a higher deductible means paying less for the collision policy itself. A driver must decide whether it is preferable to pay a lower car insurance premium every year or to pay less out-of-pocket in the event of an accident.
If a driver owns an older or less valuable vehicle, collision insurance may not be necessary. One piece of advice given by financial planners regarding collision insurance is that a driver with a yearly collision insurance premium that is less than 10% of the payout he’d receive if his car was totaled should drop collision coverage completely. For example, a driver may have a car worth $3 thousand. If the driver has a policy with a $500 deductible, he will receive $2,500 if his car is totaled. But if his yearly collision premium is $250, it makes more financial sense to cancel the policy and put that amount of money in an interest bearing savings account instead.
If it is the bank, and not the driver, that owns any portion of the vehicle, however, collision insurance is almost always required. Collision is also highly recommended for drivers who own new or valuable vehicles. Without collision insurance, a driver will be forced to pay out-of-pocket for what is likely to be an expensive repair or, worse yet, for the replacement of the vehicle.
Comprehensive Insurance
Comprehensive insurance is another example of physical damage coverage. It protects the driver’s vehicle against non-collision-related damages caused by theft, fire or weather. An example of a frequently covered comprehensive insurance claim comes in the form of repairs to a cracked windshield that was hit by a rock while traveling down the highway.
Uninsured Motorist (UM) or Underinsured Motorist (UIM) Coverage
Uninsured Motorist (UM) or Underinsured Motorist (UIM) insurance covers bodily injuries to the driver or his passengers if he becomes involved in an accident with an un- or under-insured driver or if he is the victim of a hit-and-run. UM and UIM can pay for health care expenses and can also help recoup lost wages or fund service providers like visiting nurses, house cleaners, etc.
The current economy has resulted in heightened levels of uninsured and underinsured drivers. In certain locations, the situation is reaching epidemic proportions. Drivers should consider their own situation and the situation of those around them when deciding whether to purchase UM or UIM, and at what levels.
Compare Car Insurance Quotes
The Internet is your key to finding the best quotes on the different types of car insurance coverage detailed here. Compare quotes today to find out which liability, collision, comprehensive, and/or UM/UIM policy will work best for you. Use the third party rate quote tool above to act now!
