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Next to insuring your home and life, carrying auto insurance is one of the most important types of coverage you can have if you own a vehicle. Cars are a bit like fire: while they’re a fantastic invention that has changed the world, they can also be very dangerous and lead to life threatening or life changing situations.
Auto insurance may at first seem like a very simple thing to understand, but in fact, auto insurance has many components that work together to create personalized coverage for the insured. When buying auto insurance, many people simply ask for whatever the law requires and usually request what they’ve seen friends or family buy for coverage. However, understanding each component of auto insurance is essential, and knowing exactly what you’re paying for is not only a good idea financially, but also so you have peace of mind.
Bodily injury is one of the main pieces of coverage on an auto insurance policy. If you were to cause an accident, were at fault, and someone else was injured, bodily injury coverage would pay for the other person’s medical bills if they were injured. Typically an auto insurance policy provides coverage on a per person and per accident basis, and coverage amounts usually range anywhere from $10,000 to $500,000. On a typical policy, you would likely see this coverage listed in this format: $25,000/$50,000, which means there is bodily injury coverage for $25,000 per person, or $50,000 per accident. This coverage does NOT pay for your injuries.
Property damage coverage comes in a single limit amount, and pays if you caused an accident and damaged someone else’s property, such as their vehicle or home, and it will not pay for damage to your car or property.
Property damage and bodily injury coverage are the ‘liability’ portions of auto insurance, meaning they pay when you are liable for an accident.
Comprehensive and collision coverage provide coverage for your vehicle if you have an accident and are at fault. These are optional components and are not required by law, although if you finance a car, most lenders require that you carry these as they pay to fix your vehicle if there’s damage.
Comprehensive coverage pays for damages to your vehicle that result from things that are out of your control, from perils such as theft, vandalism, broken glass, or damages from an animal. Collision coverage pays for damages when your vehicle collides with another vehicle or object. It is important to remember that if you don’t purchase these and you have an at-fault accident, there is not any coverage for your vehicle. Often policies with this coverage are referred to as having “full coverage.”
These parts of an insurance policy are also generally required by most states, and they provide coverage for damage to your vehicle or property or medical bills if you were involved in an accident with someone who was at fault but who didn’t have either any auto insurance or not enough insurance to cover the damages they caused. It’s a good idea to carry the same amounts on uninsured/under-insured coverage as you do on your bodily injury and property damage coverage, as you don’t want to under-insure yourself.
Many insurance policies also offer other kinds of coverage that are optional, such as towing and labor coverage, roadside assistance, and medical payments. These are all typically optional, but it is a good idea to have them. Towing and labor coverage will pay up to a pre-set amount if your car has to be towed, and some policies offer roadside assistance. Medical payments is a coverage that is for the policy holder, and will pay for any medical expenses if the policy holder is injured, regardless of who is at fault in the accident. Medical payments coverage is usually available in amounts from $500 to $5,000.
Different states offer different types of coverage on auto policies, and also have different minimum amounts of coverage that are required by law. Talk to your insurance agent to go over each coverage in detail and to find out what the best coverage for you is.