Understanding Your Auto Insurance Policy

Written by Clive Bristol

You probably know that auto insurance is required but do you understand what you policy means? Are you aware of how your coverage will protect you if you experience an accident or damage to your vehicle? If not, you may find that you are not adequately covered, leaving you with unnecessary expenses. Understanding your auto insurance policy can help you to make the best financial decision for your situation.

State Requirements

As a driver, you are required to carry a specific amount of insurance. This is considered to be the state minimum requirements. State minimum requirements vary from state to state. Certain parts of your auto insurance cannot be removed from you auto insurance policy. This too varies from state to state.

All states require that you carry what is called at least liability insurance. Liability insurance has two components, medical liability and physical damage liability. Medical liability will allow your insurance to pay out if you are in an accident and injure someone. It does not pay for your medical bills in the event of an accident. Physical damage liability covers and property that you damage in the event of an accident, this includes a third party vehicle. It does not cover the damage that is done to your vehicle.

You are also required to carry a minimum amount of liability insurance. This is called your proof of financial responsibility. It proves that you are able to pay for any damages that occur should you be at fault in an accident. Your insurance provider will know your states minimum insurance coverage requirements.

Proof of coverage is also required in all states. Your proof of insurance is your policy card. Your insurance company issues you a new policy card every time you renew your policy and you must have the most up-to-date information available if an officer or court of law requests your proof of insurance. This must be with you at all times in your vehicle.

There are other types of insurance that may be required, depending on your state. These policies are not required in all states so it is important to check with your insurance provider to determine whether the coverage is optional or required, based on where you live.

PIP coverage

PIP or personal injury protection is required in some states. In others, this is an optional type of coverage. Personal injury protection is often a good choice for drivers that either have additional passengers in their vehicle or don’t have medical insurance. This type of insurance will pay for any medical bills, up to the amount purchased, if you are in an accident. Personal injury protection is not based on fault, so you are covered regardless of the situation.

No fault coverage

In some states, no fault coverage is required. This type of insurance requires each individual driver to file claim with their own insurance in the event of an accident. This helps to reduce and sometimes eliminate the possibility of you being sued by another driver if you are in an accident.

Uninsured or underinsured motorist

Some states may require you to carry uninsured motorist, underinsured motorist, or both. This type of insurance coverage protects you if you are involved in an accident with a driver that has no insurance or inadequate insurance. It does not pay for your vehicle but it will protect you from costly medical bills. This coverage can be especially helpful for metropolitan areas where you are more likely to experience and accident and encounter an uninsured or underinsured driver.

Full coverage insurance

Full coverage insurance includes two main parts, comprehensive and collision coverage. Full coverage protects you and your vehicle from all manner of events including accident, theft, fire, and storm damage. There is no determination of fault in full coverage insurance. You are protected, no matter what the situation. This is, of course, the most expensive types of insurance but it offers you the most protection. It is also required if your vehicle is financed.

Deductible

Deductibles apply when an insurance company must pay money out in a full coverage claim. The deductible is how much of the damage that you are responsible for if your vehicle is damaged. Higher deductibles require you to pay more out of pocket if your vehicle is damaged. However, it allows you to pay less on your monthly premiums. While it might be nice to have a low deductible, not many individuals can afford the cost.

Carefully considering where you live can help you to determine your deductible amount. If your risk of accident is lower because you live in smaller town, you may not need as much coverage. If, however, accidents happen frequently where you live, you might consider a lower deductible. This will better protect you if you are in an accident.