What benefit does car insurance provide?

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Joel Ohman
Founder, CFP®https://res.cloudinary.com/quotellc/image/upload/insurance-site-images/ciccom-live/41b5e36b-joel-ohman.jpg

UPDATED: Jun 20, 2017

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Here's what you need to know...
  • Each state has a required limit of insurance you must carry to drive
  • You should carry more insurance than legally required so you’re adequately protected
  • There are several optional coverage types to consider

Car insurance provides many benefits for both you as the insured and for third parties. There are different kinds of car insurance and most of them are optional.

Understanding what is required, and what is beneficial can protect you and save you money.

Although you can buy different kinds of insurance, the kind of car insurance you buy is dependent on several factors. You always need liability, but for the most part, everything else is optional.

Optional insurance does not mean you do not need it, it means it is available as protection if your personal circumstances benefit from it. The only reason it is optional is there are no state laws requiring it.

However, choosing to buy it is a personal decision based on the benefits it provides for you.

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What benefit is provided by required car insurance?


In every state, you are expected to carry liability insurance. Liability provides a financial benefit for you by providing a financial benefit to a third party.

This means that liability will not pay you a penny if you are at fault for an accident, but it will pay for a third party’s injuries and damages on your behalf.

The amount of the liability benefit depends on how much coverage you choose to purchase.

Each state has a minimum requirement, but it varies by state. Typically the amounts are lower than the cost of a truly severe accident and so it is strongly suggested to purchase more than the state’s requirements.

If you live in a no-fault state, then you are expected to carry Personal Injury Protection insurance. PIP, as it is known, is car insurance that provides a benefit to the insured person through direct payout.

It is used for medical expenses for the insured regardless of who is at fault since fault is not declared in these states.

Oftentimes uninsured and underinsured car insurance is also required by the state.

This car insurance benefit provides protection for you, the insured, in the event you are hit by a driver who does not have insurance or is carrying only the minimal amount of insurance required by the state.

The underinsured insurance covers the gap between the minimal amount of coverage and the actual damage up to the policy limits.

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What benefit is provided by optional car insurance?

The primary optional car insurance you can buy is comprehensive car insurance and collision car insurance. These can be purchased together or separately, depending on your insurance company.

  • Comprehensive car insurance covers everything that is not covered by collision car insurance. It is the most wide-ranging insurance you can get for your car because it provides a benefit for the insured for a whole realm of incidents, including fire, theft, and storm damage
  • Collision car insurance beneficial for the insured because this is the only insurance that covers damages to the insured’s car when the insured is at fault for the accident. If you hit someone else and damage your car in the process you will only be compensated for your property if you have collision coverage

If your car is damaged because someone else is at fault, then that person’s liability insurance will cover your property damage. If they do not have enough insurance to cover your costs in full, your underinsured car insurance would then go into effect.

Another optional car insurance you may want to consider is medical. This provides benefits to the insured person if they are injured in an accident that is his own fault. If someone else hits you and you are hurt then you are covered by liability.

Otherwise, if you don’t have sufficient health insurance coverage, you are responsible for your own medical expenses without medical insurance.

Is there other car insurance that provides benefits?


There are several additional types of car insurance you can buy in addition to liability, personal property protection, uninsured, underinsured, collision, comprehensive, and medical.

You can also buy GAP insurance, roadside assistance insurance, towing, and custom equipment insurance.

  • GAP insurance beneficial to anyone who is buying a new car and financing it. Due to depreciation, if your car is totaled before it is paid off there is a good chance you will have to make car payments on a car you no longer own. GAP insurance pays the difference between what is covered by your insurance policy and what you still owe on your car
  • Roadside assistance insurance and towing insurance beneficial if you do not already have some kind of roadside and towing package. If your car breaks down, this insurance will provide a benefit by sending out someone to help you whether you need gas, a flat tire changed, or your car towed. Expenses are covered per your policy limits
  • Custom equipment insurance chrome on motorcycles and special audio or electronic equipment may be expensive to replace if they are stolen so this insurance helps you recover some of your loss

Between required insurance and optional insurance, you can receive complete car insurance for your own financial protection, which is the biggest benefit car insurance provides.

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