Understanding Auto Insurance: The Various Types Of Auto Insurance You Should Know About
While driving might not be the most dangerous activity in life, an accident or another traffic incident can change your life significantly. Such risks are why it's so important to have auto insurance.
But first, you need to understand the different types of auto insurance and how they work. You might not need all of them at once, but as your life changes and circumstances evolve, so should your auto insurance coverage.
Here's a look at various types of automobile insurance you should know about.
Liability insurance is the most basic type of auto insurance. In fact, most states require motorists to have it as a bare minimum. Liability insurance pays for any damage you cause to others in an accident — whether the damage is to another car or someone else's property — usually up to your policy limits.
In other words, liability insurance reimburses others for injuries you may cause in a car accident and pays your legal fees if you get sued after an accident.
Liability coverage has two parts:
- Bodily injury liability
- Property damage liability.
Bodily injury liability covers the medical bills if you injure someone else in an accident. On the other hand, property damage liability pays for damage to a vehicle or other property involved in an accident you've caused.
Collision insurance covers damage to your vehicle. It's quite helpful if you get into an accident with another driver who doesn't have insurance. It can also come in handy if you run into something like a building, tree, or animal.
If you have a lease on your car, collision coverage is typically a requirement by most lenders. If you complete your car payments, collision insurance becomes an optional coverage on your car insurance policy.
Collision policies typically have a deductible clause, which means that the insured has to pay some money upfront before the insurer repairs or replaces their vehicle. If you have this type of coverage, your insurance company will pay to repair or replace your car (up to its actual cash value).
This type of insurance protects against unforeseen circumstances like when your car is stolen, vandalized, or damaged in a hailstorm, fire, or flood.
If you have a loan or a lease on your vehicle, you may be required to purchase comprehensive coverage as part of your loan agreement. But, if you own your car outright, this is an optional coverage that would be well worth your investment if the worst happens.
Like collision coverage, comprehensive coverage comes with a deductible clause. Your insurer can inform you on how much you should set as a deductible, depending on your financial capabilities.