car insurance

Understanding the Basic Types of Auto Insurance

by Darren on June 15, 2012

Are you shopping for auto insurance? Do you know the elements of a typical car insurance policy?  What about how car insurance works?

Understanding the basics types of car insurance will help you in choosing the right amounts of coverage so that you protect your financial well-being.

Here’s a brief introduction to auto insurance terms you should know before you make a buying decision.

Liability Coverage

There are two types of liability coverage – Bodily Injury and Property Damage.

Bodily Injury Liability

Bodily injury liability coverage applies when you cause injury to other people through the use of an insured auto. These people could include:

  • pedestrians
  • passengers in your car
  • people in other vehicles

If injury claims or lawsuits are brought against you, this coverage will provide for your legal defense. And if you’re found legally liable, this coverage will pay for the damages assessed against you – up to the dollar limits of your policy.

Property Damage Liability

If you cause an accident and damage someone else’s car, or a telephone pole, a light post, or a building, property damage liability coverage would pay for the damages. This coverage doesn’t cover the damage to your property, but instead covers the damaged property of others.

If claims or lawsuits are brought against you, this coverage will provide for your legal defense. And if you’re found legally liable, this coverage will pay for the damages assessed against you – up to the dollar limits of your policy.

Minimum Liability Coverage

It’s important to know that each state differs in the minimum level of coverage you must have. To check out the coverage needed in your state, check out this article here.

Coverage for Your Car

There are also two main types of coverage for your car – Comprehensive and Collision

Comprehensive

If your car is damaged by things such as fire, theft, vandalism, glass breakage, windstorm damage, or contact with an animal, this coverage will pay for the cost of your repairs (after you meet your deductible) or the actual cash value of your car, whichever is less.


This coverage, however, doesn’t pay for wear and tear, engine failure, or other mechanical issues.

Collision

If your car is damaged in a collision with another car or object, this coverage provides protection. Your insurance company will either pay for the cost of repairs (after you meet your deductible) or the actual cash value of your car, whichever is less, regardless of who is at fault.

Uninsured or Underinsured Motorist

Uninsured Motorist Coverage

If you’re injured in an accident caused by an uninsured motorist or a hit-and-run driver, this coverage will pay for bodily injury damages that you’d normally recover from an insured driver. This includes your medical expenses, loss of earnings, and damages for pain and suffering.

Your insurance company will provide coverage – up to your policy limits – for you, relatives who live with you, and the occupants in your insured car. And suppose you’re either riding in someone else’s car, or a pedestrian on the street. If you’re injured by an uninsured motorist, this coverage also will also cover bodily injury costs for you and relatives who live with you.

Underinsured Motorist

If you’re insured, but the coverage limits of the person at fault aren’t enough to pay for your medical bills, this coverage provides protection for your bodily injury or death. The underinsured motorist must be at fault for the accident.

In other words, if the bodily injury liability coverage limits of the person at fault aren’t enough to cover you, then this coverage will make up the difference – up to your policy limits.

Medical Payments

If you or any occupants in your car are injured, this coverage will pay for your medical expenses – no matter who’s at fault. This also protects you and relatives living in your household that are injured in someone else’s car, or by a car as pedestrians.

Shopping Around

Now that you know the typical elements of an auto insurance policy, you’re equipped to make an informed buying decision. If you want to shop around for different quotes, check out this site where you can compare auto insurance quotes from several top-rated companies.

{ 15 comments… read them below or add one }

James June 19, 2012

Great piece. You’ve written it in such a way that would be very easy for most people to understand. Well done. :)

Reply

Darren June 19, 2012

Thanks for the kind words James.

Reply

James June 21, 2012

You’re welcome. :)

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Wayne@credit card site June 22, 2012

It’s nice to learn the car liability coverage. I was too lazy to understand car insurances but because you’re post is pleasant and easy to understand I enjoyed reading. Thanks for sharing!

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