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UPDATED: Oct 26, 2016
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There are many different types of car insurance policies. Looking for auto insurance coverage can be confusing, and educating yourself about the main types of car insurance policies will make the process much easier.
Many states require drivers to have a certain type and level of car insurance coverage in place.
Consumers need to understand what they are buying so that they can make good decisions about the coverage they have in place. The main types of coverage include liability, collision, comprehensive and uninsured motorist.
Read on to learn all about the main types of auto insurance coverage.
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Liability Insurance Coverage
In most states, a driver must have liability insurance in place. Once in place, this coverage protects the occupants of the other vehicle when an accident occurs. Liability insurance also pays for the cost of repairing the other vehicle and property damaged as the result of the collision.
Bodily injury liability insurance coverage pays for medical bills and expenses.
An injured person may also make a claim for reimbursement for loss of income as the result of the accident. They may also be interested in being compensated for pain and suffering.
Bodily injury liability coverage also pays for funeral expenses if the accident results in one or more fatalities.
Property damage liability insurance is another one of the main types of car insurance coverage.
After an accident, the other driver’s vehicle may need to be repaired, and the property damage liability coverage pays for these costs. It also pays for repair costs to other objects that are damaged in an accident, including sign posts, mailboxes, fences and sheds.
When choosing liability insurance coverage, you may be required to have at least a certain level of coverage in place by the state. A consumer is always free to buy a higher level of liability insurance coverage if he or she wishes, and it’s often recommended.
Keeping the policy limits low may mean the individual doesn’t have enough protection in place to cover the medical bills and other costs following an accident.
While the liability policy will pay out up to the policy limit (less the amount of the deductible), any outstanding amount owing is the responsibility of the driver personally.
Collision and Comprehensive Coverage
Car insurance and collision damage waiver concepts.Collision insurance coverage protects your vehicle from damage caused when it hits or is hit by another vehicle.
It pays for the costs of repairing the vehicle and bringing it back to the state it was in before the collision occurred.
In a situation where the vehicle is being financed, the lender will likely insist that this type of protection be put in place as a condition of advancing the loan.
Car buyers who have a newer vehicle and have paid for it in full may also wish to have this type of protection in place to cover the cost of repairing or replacing it. An older model vehicle with little cash value may not need to have collision coverage in place, since the policy only pays out up to this level, not the cost of getting a new car.
Comprehensive coverage pays for damage to the car caused by other events. For example, if the vehicle is stolen, this part of the policy compensates the owner.
Comprehensive car insurance coverage also pays out when the vehicle is damaged by fire, a flood or hits an animal. Acts of vandalism are also covered under this type of insurance protection.
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Uninsured or Underinsured Motorist Coverage
Adding uninsured motorist coverage to your policy is a good idea. Although having car insurance coverage is mandatory in most parts of the United States, there are some drivers who get behind the wheel without it.
Uninsured motorist coverage pays for your injuries and damage to your vehicle if the other driver involved in an accident doesn’t have insurance.
Underinsured motorist coverage kicks in where the other driver has car insurance coverage in place, but it is not sufficient to pay for the costs of injuries and other damages following an accident.
The other driver’s policy pays out up to his or her policy limits, and your underinsured motorist coverage will top up the coverage to make up the difference, up to the policy limit you choose.
If you happen to live in a state where the state minimum for insurance coverage is relatively low, you may want to consider adding underinsured motorist coverage to your policy.
Now that you know what the main types of car insurance policies are, the next step is to start exploring your options. Getting quotes from multiple insurance companies means that you can be sure that you are getting the best combination of coverage and affordable car insurance rates.
Is it true that third-party insurance is required by law?
It is a fact that every state requires a minimal amount of liability protection on any car that is registered. How drivers provide that liability coverage is another matter.
The vast majority of states require drivers to purchase a policy from a company licensed to do business in that state. However, a small number of states do allow drivers to insure themselves if they can prove they have the financial ability to do so.
We’ll use the state of Florida as an example to illustrate this.
According to the Florida Department of Highway Safety and Motor Vehicles’ Instructions for Motor Vehicle Self-Insurance there are several methods by which an individual or company can self-insure.
The most common method for individuals is simply to demonstrate they have the financial resources to cover themselves. They do so by filing an affidavit certificate demonstrating their net worth.
That net worth cannot include a home used as a primary residence since the law prohibits a primary residence from being seized in a lawsuit.
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