Auto Insurance 101: What You Need to Know

By Matthew P. Simmons, CIC

Georgetown Insurance Service, Inc.

Silver Spring, MD

“Do I really need auto insurance?”

Even if you think you’re the safest driver out there, the answer to this question is an unequivocal yes. Auto insurance is a critical purchase and it’s required in all states, except for New Hampshire. Whether you own or lease your vehicle it’s important to have adequate coverage to protect yourself, your business, your family and your passengers for liability, and to protect your vehicle against theft or damage.

AUTO INSURANCE LINGO

Let’s be honest – insurance can be confusing. There’s a lot of terminology involved with an auto policy that you might not understand. Here are some basic terms to become familiar with before speaking with your agent:

  • Coverage

When you buy an auto insurance policy, you’re essentially purchasing a series of “coverages.” Coverages are, in the simplest terms, what your insurer has agreed to pay for. We’ll talk more about the different types of coverage below.

  • Limits

These are the maximum amounts of protection based on the type of coverage you have. Limits are purchased by you—the insured—and clearly listed in your policy.

  • Premium

This is the actual cost you pay—either annually or monthly—for the specific coverages provided in your policy.

  • Deductible

This refers to the amount you’ll be responsible for paying out of pocket to the insurance company when you file a specific claim. Typically, the higher the deductible the lower your insurance premium cost is and vice versa.

TYPES OF AUTO COVERAGE

States have different mandates for essential insurance coverage. However, beyond the minimums, providers can offer you a variety of auto insurance types that provide you with varying levels of protection. Below are five types of coverage options available on most policies:

Liability

Liability is a requirement in most states of the U.S. It protects you, the driver, if you are involved in an accident that causes harm to someone else or their property. The most important thing to note about liability coverage is that is does not cover damages or injuries to you as the driver or your property—it only offers financial assistance to third parties (i.e. the other person(s) involved in an accident). To break it down even further, liability coverage is split into two types:

  • Bodily injury coverage

This helps to pay the medical expenses if you’re at fault for an accident that results in injury to another person(s).

  • Property damage coverage

If you cause an accident that results in damage to someone else’s property (such as their car) this type of coverage will help pay those repair fees.

Collision

This type of auto coverage will help pay to fix or replace your own vehicle after a car accident with another automobile or an object such as a tree, fence or sidewalk. For those individuals who have a loan or lease on their car or truck, this type of insurance is required by your bank or lender.

So what type of things are not included in collision coverage?

  • Damage to someone else’s vehicle (refer to the liability section above)
  • Damage to your vehicle not related to driving (such as theft) or by an Act of God (such as hail, wind or storms)
  • Medical expenses (either yours or someone else’s)

Comprehensive

Liability and collision both cover vehicle accidents. But what about the other scenarios that exist such as theft, vandalism, weather damage and animals who like to run into the middle of road? This is where comprehensive coverage can be beneficial. And if you have a loan or lease on your vehicle most lenders will also require comprehensive coverage, in addition to collision.

Personal Injury Protection (PIP)

This type of coverage can help cover medical and disability expenses for you and your passengers in the event of an accident, regardless of who’s at fault. In states with no-fault laws (you can see that list HERE), all drivers are required to purchase PIP coverage as part of their auto insurance policies. PIP coverage is rather complex and should discussed with your insurance agent before adding it to your insurance policy.

Uninsured/Underinsured Motorist Protection

What happens when you’re hit by a driver who doesn’t have enough insurance or any insurance at all? Or even worse, completely leaves the scene of an accident? While it’s the law that motorists must carry auto insurance, unfortunately that’s not always the case. Uninsured/underinsured motorist coverage helps protect you against those irresponsible drivers on the road. In today’s day and age more and more drivers are driving without insurance or not enough limits.  CLICK HERE to read an industry study on the stats. As compared with liability, collision and comprehensive coverage, uninsured/underinsured motorist coverage is relatively inexpensive to add to your insurance policy—especially for the kind of protection it provides.

Automobile insurance exists to protect you and your passengers, your vehicle and other drivers on the road. But it can be complicated to determine what coverage options fit your needs best. To help you work through the process, talk with your insurance agent about what’s right for you, your individual situation and your budget.

 


Disclaimer: All data, information, and opinions provided on this article, newsletter, or blog is for informational and educational purposes only. While every caution has been taken to provide readers with the most accurate information and honest analysis, please use individual discretion before making any decisions based on the information in this article, newsletter, or blog. Georgetown Insurance Service, Inc. is not responsible if its readers happen to experience loss, injury, or damage resulting from its display or use. All information is provided on an as-is basis. This article, newsletter, or blog does not represent the thoughts, intentions, plans, or strategies of any specific Insurance Carrier, Georgetown Insurance Service, Inc. partner or affiliate.

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