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Understanding the Different Types of Car Insurance Coverage 

Understanding the Different Types of Car Insurance Coverage

Most states require drivers to carry liability insurance. Financial lenders also often demand this for car leases and loans. Understanding what coverage you need and when to use it can help you tailor your policy.

Liability insurance pays for the medical costs and damage to other people’s property if you are at fault in an accident. You can purchase collision and comprehensive insurance, which are important for protecting your car.

Liability coverage

Liability coverage is required in almost all states. This pays out if you are responsible for an accident where other people or property is damaged. Most states have minimum dollar limits on bodily injury coverage and property damage. However, you can buy higher limits if the accident is serious.

Personal injury protection (PIP) is an additional insurance that can help cover medical expenses, lost wages and other costs incurred due to an accident. In most states, PIP coverage is mandatory and includes you and your family regardless of the cause of the accident.

Collision insurance, optional but a good idea for older vehicles, pays out to repair your car after it collides with another vehicle or an object, such as a tree or fence. It’s usually less expensive than comprehensive coverage. You can pay a lower deductible to reduce your premium, but it’s important to understand the difference between split and single limits.

Some policies include roadside assistance, which helps if your car breaks down and offers services like jump starts, fuel delivery and towing. Some insurers also offer usage-based insurance (UBI), which calculates your car insurance costs based on your driving habits, such as how much you drive and when you go.

Collision Coverage

Depending on your policy details, collision coverage may pay to repair your car when damaged in a traffic accident with another vehicle or static object like a fence or a tree. It generally covers your entire car’s value during the accident minus your deductible. Most people think of This type of coverage when they say “full coverage,” it is usually sold alongside comprehensive coverage on one policy.

On the other hand, comprehensive pays for damage to your car that does not result from a collision. This is a common companion to liability insurance on a policy, and you can think of them as peanut butter and chocolate: they are good on their own but better together.

Typically, this type of coverage is optional, but you might need it if you are leasing or financing your vehicle. It is also required by some lenders to prevent them from taking on too much risk when loaning you money for a new or used car.

Most independent agents also recommend it to help their customers protect their investments. If you need clarification on whether you need this protection on your policy, talk to an agent near you to discuss your needs.

Comprehensive Coverage

Unlike collision insurance, comprehensive car coverage protects your vehicle against non-collision-related damage such as theft, fire and natural disasters like hail or fallen trees. It also covers your windshield and other glass, as well as vandalism.

You must choose a deductible amount before your insurer pays for any concealed damage. Generally, comprehensive coverage pays out up to your car’s actual cash value minus your selected deductible.

Sometimes, your lender or leasing company may require you to carry comprehensive collision coverage on your car if you finance or lease it. However, it’s usually a good idea to purchase both comprehensive and collision insurance regardless of whether you are financing or leasing your car.

It’s especially important to consider comprehensive auto insurance if you live in an area where natural disasters or other factors beyond your control can damage your car. It’s also smart for anyone who wants to protect their vehicle from theft and other incidents they can’t anticipate, such as an animal colliding with your parked vehicle.

Your policy’s cost will be determined by the types of coverage you choose, your deductibles, and any other optional or state-mandated policies. Personal Injury Protection (PIP), for example, is mandatory in states with no-fault insurance systems. The policy covers medical expenses and lost income up to the limits of your insurance policy.

Uninsured Motorist Coverage

Many states require that drivers carry auto insurance. However, many people need it to drive around. Uninsured motorist insurance, or UM, pays for repair and medical costs in the event of an accident caused by an uninsured or hit-and-run driver.

UM or UIM usually has two limits: a per-person limit and a per-accident limit. You can choose to combine these limits or keep them separate. This type of coverage typically costs less than liability insurance.

You can stack UM or UIM coverage with collision and comprehensive coverage, which can help reduce your deductible. This is a common feature of higher-end car insurance policies offering discounts for the UM or UIM range.

Uninsured motorist coverage is a great option to consider adding to your policy. It’s often less than half the price of your liability coverage and can make a big difference in your financial situation should you ever get into an accident with a negligent driver who doesn’t have any insurance or enough to cover your losses.

Make sure you talk to your agent about this important coverage. It’s worth having behind the wheel.

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