Types of Auto Insurance
- Oct 31, 2016
Insurance is a must if you own a vehicle, but the policies often include terms that are hard to understand. Luckily, choosing the right auto insurance policy doesn’t need to be difficult with a little research. Although your insurance broker may offer you a long list of features and add-ons, knowing a few definitions will go a long way in helping you decide exactly what you need so you can have peace of mind in the case of an auto collision.
Common Types: Tricky Terms Simplified
Liability insurance is the most important type of coverage and is required by law for anyone that owns a vehicle. Since injury and property damage liability are included in this policy, it covers all damages (e.g. medical bills and vehicle repairs) incurred by another motorist in the event of a collision. As this is minimal one-sided coverage, this policy will not pay for your own medical or auto expenses.
Personal injury protection (PIP) and MedPay are the second most important features to add to your liability insurance. PIP offers personal injury protection even if you are at fault. This is important since this covers family members and passengers as well. Like PIP, Auto Medical Payments (MedPay) cover medical expenses for policyholders in the event of an accident, but in a more limited capacity. MedPay can also be used to supplement health insurance (e.g. to pay deductibles).
Collision and comprehensive coverage are third on the list of must-haves. Adding collision coverage takes care of damages to you and your car. Your insurer will provide funds to either repair or replace your vehicle in the event of an accident, regardless of whether it was a one-party (e.g. your car flipped) or two-party collision. As an add-on to collision coverage, is ‘comprehensive’ coverage, which compensates for damages to your car by other means such as theft, falling objects and natural disasters.
Uninsured/underinsured motorist coverage is next on the list because people don’t always obey the law. Insurance may be mandatory, but not all drivers have coverage or sufficient coverage. Having this coverage will lend a hand with medical bills and necessary car repairs if you are involved in a collision with an uninsured or under-insured driver.
Guaranteed Auto Protection or GAP insurance is important if you have taken out a loan or have leased your vehicle. As your car depreciates over time, your insurance company will reimburse the present value of the vehicle, not the price at purchase. GAP insurance accounts for the balance owed on your loan or lease and your car’s value. As soon as the debt owed is less than your car’s value, you can cancel your GAP coverage.
Advice, Car Insurance