Sometimes it feels like you need a PhD to understand insurance these days. To simplify things, here is a handy guide of some coverage types, descriptions, and things to consider when evaluating whether they would benefit you. Included in this discussion are the following auto coverages types: Bodily Injury Liability, Property Damage Liability, Medical Payments, Collision, Comprehensive, Gap insurance, Glass-Breakage, Rental Coverage, Towing Coverage, and Roadside Assistance.
Bodily Injury Liability (Usually Required)- This coverage kicks in when you are at fault. As the coverage name suggests, it covers the expenses incurred from the other person’s injuries as a result of the accident. This coverage will not cover any of your own medical expenses or those of your family members. A rule of thumb to remember is that you cannot be liable to yourself, so if it is liability insurance, it won’t pay for your damages.
Property Damage Liability (Usually Required)- This coverage is used to restore the other people’s property that was damaged as a result of your at-fault accident. This includes, but is not limited to vehicles, fences, signs, etc. This coverage will not cover damage to your own vehicle or property.
Each state has a minimum amount of coverage that must be purchased. However, with the rising costs of medical expenses, those minimums are not nearly enough to cover the costs of a serious accident. After those limits are reached, you are responsible for any additional expenses, so make sure you have enough coverage.
Medical Payments (Optional)- This will help pay medical expenses of each person in your vehicle regardless of who is at fault. There is a per person limit for this coverage, usually Between $1,000 and $10,000, which can be handy in helping to cover initial medical expenses or insurance deductibles for you and your family members. This coverage also kicks in if you are struck by a vehicle while walking, riding a bike, jogging, etc. Because this is an optional coverage, you will want to check with your insurance agent to see what medical payment limits are available for your policy and the best fit for your needs and budget.
Collision (Optional)- This optional coverage is used to protect your own car. This will pay for repairs to your car when you hit another vehicle, tree, fence, etc. It does not cover mechanical repairs due to normal wear and tear. However, it will cover damages caused by a collision with a moving or inanimate object.
Comprehensive (Optional)- This coverage applies when your vehicle is damaged by something other than a collision. Hail storms, theft, animal hits, and flooding all fall under the comprehensive coverage.
You will generally see Collision and Comprehensive coverages on newer vehicles or vehicles that have loans on them as required by the lender. If you have an older vehicle, the payout after the deductible might not be worth the monthly premiums. Be sure to discuss your situation with your agent to determine if these coverages are right for you.
Gap Insurance– Comprehensive and Collision cover the market value of your vehicle. This is usually adequate coverage, however there are some situations where additional coverage is needed. That is where gap coverage comes into play. If you purchase a new vehicle, with 0% down for $30,000, the moment you drive it off the lot, it is no longer new and loses around 15% of its value. The market value of your vehicle is now $25,500. If you were in an accident the week after you purchased your car and it was a total loss, the insurance company would pay you the market value of $25,500. The problem is, you still owe $30,000, so you are left with no vehicle and still owing $4500. Gap coverage will pay the difference between the market value and the loan amount. This coverage is not cheap, so you will want to discuss it with your insurance agent to make sure it is the right coverage for your situation.
Glass-breakage coverage– This coverage covers repairs to chips and cracks sustained by your windshield.
Rental coverage– This covers a rental car should your car break down or be damaged in an accident.
Towing coverage- This covers towing your vehicle due to breakdown or damage sustained in an accident.
Roadside Assistance- While not really an insurance coverage, roadside assistance can provide peace of mind for you or your loved ones. This service comes into play when you run out of gas, or experience an incident that leaves you stranded on the side of the road.
Some of these coverages are automatically included on certain policies but are add-ons to others. Be sure to check with your agent to see if you already have these coverages, or how much they would cost to add.
While this is a basic breakdown of the coverage types and their purposes, it is always a good idea to review your coverages with your insurance agent. Reviewing your policy every few years, or when you have a life-changing event, ensures that you retain the best coverage for your current situation and stage of life. Finding an independent agent that can shop different companies to find the one that best fits your needs is a great way to save time while ensuring you are getting a great value.
For more informative insurance articles, click here.