6 Types of Auto Insurance Explained

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Understanding your auto insurance policy is important if you ever need to access its benefits. Everyone in the US has to have insurance to drive, but most people just take whatever limited information they are told when they bind their policy at face value. Knowing more about the parts of your insurance policy and how they function is critical if you get into an accident.

When you have to submit a claim on your insurance policy, you will be given claims advice that lists information about the various segments of your policy benefits. This information is also available at the time that you bind your policy. Being an informed insured is always a good idea so that you know what kind of coverage you are working with if you need to access your policy benefits.

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Types of Auto Insurance

  • Liability Insurance

This part of your policy pays for other people's expenses after an accident. This is required in almost every state, and it is the portion of your policy that is not optional. Some other coverage types might be elective, depending on your state's rules, but this coverage goes with every single policy unless you are in a limited number of states.

This coverage will often have a set of limits that must be followed to be compliant with state rules and regulations. Your insurance agent will know what your policy coverage limits must be to be compliant, but it can be helpful to be informed about these requirements for your own understanding of what your policy can do for you in the event of an accident. You will also usually get the choice of a few different deductible amounts which can help make this portion of your coverage more affordable.

  • Collision

This is the portion of your policy that pays to replace or repair the vehicle or vehicles that other people are driving that are involved in an accident. This is not required in any state for owned cars, but cars with a lease or that were bought with a loan must have this kind of insurance in place.

Just like with liability insurance, you will have to meet state minimums with this coverage, and you will be offered a deductible option in most cases to try and make this part of your coverage more affordable. Your insurance agent can help you to make an informed decision about what to do as far as coverage and deductible amounts.

  • Comprehensive

Comprehensive coverage is used to cover damage to your vehicle in an accident. This is the coverage that will also be used to cover damages caused by running into a deer, hitting a curb, or backing into something when other cars are not involved. This coverage is again not required unless your car is leased or financed when it is purchased.

Just like the previous two kinds of insurance, you will also need to meet state minimum requirements for this coverage and choose a deductible amount.

  • Personal Injury Protection

Personal Injury Protection (PIP) is used to cover the policyholder's direct and indirect medical expenses that are related to an accident. This is required in 12 states and recommended in all the others. Those who are buying insurance should be aware that this is often the most expensive part of paying for the aftermath of an accident, and paying slightly more every six months in premiums is likely worth it when you consider the cost of medical care related to an accident.

Where this coverage is required, there will be parameters that must be followed to be within state guidelines. These coverage requirements are based on the average costs of medical care in your state, as well as some other guidelines that are used in the underwriting department to determine what the most practical amount of coverage is. In some states, the bare minimum coverage for PIP will not cover very much in the way of bills, which is why it might be wise to opt for increased coverage for this portion of your policy if you can afford it.

  • Uninsured or Underinsured Motorist

This coverage is used to help you repair or replace your car, and it also covers your medical expenses when you are in an accident with someone that is not insured or that does not have enough insurance coverage to pay for the damages related to the accident. This is required in 20 states, and it can be a big help in cases like hit and run, as well as multi-car collisions that involve one or more uninsured motorists.

  • Medical Payments

Medical payments insurance is used to pay the policyholder's own medical expenses after an accident. This is only required in 2 states. Many states use the PIP portion of their insurance policies to take care of all of the medical costs related to the accident.

Understanding the 6 Kinds of Auto Insurance is Important

If you have been buying auto insurance for a while without ever really understanding what the various kinds of insurance do, this is a great primer for your self-education. When you know which parts of your policy will cover which parts of your claim, you can make a more informed decision when you renew your policy or insure a new car. Knowing the policy requirements and set minimums for your state is also a really good idea so that you can be sure that you have the right amount of insurance in place on your car or motorcycle.

Insurance premiums can seem like a real nuisance until you see what your insurance policy can actually do for you when you need it most. Insurance can make the difference between losing everything related to a car accident and being able to pay for your bills and repairs or a replacement car. Having the right auto insurance in place on your vehicle at all times is a must. Knowing the difference between the different types of auto insurance can make it much easier to choose the right policy for your needs.