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Buying Auto Insurance Types of Coverage Within a Policy Add-ons Overview
Understanding the basics of auto insurance before you purchase insurance is important. Recent studies by the National Association of Insurance Commissioners (NAIC) show few Americans understand the details of their insurance policies to the extent they should, and some aren't even aware they are dealing with a false policy altogether.Auto Insurance OverviewCar ownership involves many different risks. The most common risk associated with car ownership is a car accident. In a car accident, people may be injured and vehicles (or other property) may be damaged. Damage can also occur through theft, vandalism, or natural disasters. How auto insurance works: Auto insurance can protect you against these risks associated with owning a car. Auto Insurance companies provide auto insurance through personal auto policies (known as PAPs). A PAP is a contract between you and your insurer, specifying each party's rights and obligations. Essentially, your insurer promises to provide specific coverage for you in return for your payment of a premium. There are a few important steps and terms that you should understand before you purchase your auto insurance policy. Read your insurance policy.First of all, you need to know how to read and understand an auto insurance policy. Your policy is broken into sections. It discusses types of coverage, rights, and obligations under the policy, and exclusions or limitations. Your policy will also include information about your deductible, which relates to the damage to your own auto, collision and comprehensive coverage that could occur in an accident. A deductible is basically a risk that is self-insured. It's an amount of money that you are required to pay before your insurance kicks in. Deductibles can come in any dollar amount, but are generally $100, $250, $500, or $1000. Balance cost vs. desired coverage. You need to balance coverage against cost. Choosing the appropriate level of coverage depends on a number of factors, including the value of your vehicle, the value of assets you must protect, the amount of money you can afford to pay out-of-pocket, and your tolerance for risk. If a claim against you exceeds your coverage limits, you
will be personally responsible for the amount that exceeds the coverage. Evaluate and compare. Before purchasing auto insurance, you should evaluate and compare the various products offered to ensure that you get the best deal possible. Compare policies in terms of price, coverage, exclusions, and reputation of insurer. Shop around for different quotes, but make sure you are comparing similar policies. Also, weigh the policy cost against both coverage and quality of service provided. Your auto insurance policy may include six different types
of coverage. Each coverage is priced separately. Bodily Injury Liability (Minimum Required in most states) This coverage does not protect you or your car directly.
Rather, it applies to injuries you, the designated driver or policy holder cause to
someone else. Property Damage Liability (Minimum Required in most states) This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit. TIP: State minimum limits average about $15,000. With the average cost of a new car at $22,000, however, buy at least $25,000 in coverage. Uninsured (UM) and Underinsured Motorist (UIM) Coverage (Minimum UM required in most states) Uninsured motorist coverage applies to
bodily injury you, your family, and other occupants of your vehicle incur when hit by an
uninsured motorist or hit-and-run driver. Uninsured motorist coverage is required by law in most states at a minimum of $25,000/$50,000 for bodily injury only. Underinsured motorist coverage increases the bodily injury
protection to you and the people in your car up to the amount of coverage you purchase. TIP:
Medical Payments or Personal Injury Protection (PIP) This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs. TIP: Collision (Optional) This coverage pays for damage to your car resulting from a
collision with another car, object or as a result of flipping over. It also covers damage
caused by potholes. Even if you are at fault for the accident, your collision
coverage will reimburse you for the costs of repairing your car, minus the deductible. Comprehensive (Optional) This coverage reimburses you for loss due to theft or
damage caused by something other than a collision with another car or object, such as
fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism,
riot, or contact with animals such as birds or deer. TIP:
TIP:
With most auto insurance policies, you can customize your policy to your needs by adding the following optional features: Towing and labor: Pays for towing and labor costs each time your car is
disabled. Pays for a rental car if your car is damaged by a situation
covered by comprehensive or collision coverage and if your car is out of commission for
more than 24 hours. Will reimburse you if your windshield is
cracked or shattered. About the National Association of Insurance CommissionersHeadquartered in Kansas City, Missouri, the National Association of
Insurance
Commissioners (NAIC) is a voluntary organization of the chief insurance
regulatory
officials of the 50 states, the District of Columbia and four U.S.
territories.
The
association’s overriding objective is to assist state insurance regulators
in protecting
consumers and helping maintain the financial stability of the insurance
industry by offering
financial, actuarial, legal, computer, research, market conduct and economic
expertise.
Formed in 1871, it is the oldest association of state officials.
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