It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage: Property coverage pays for damage to or theft of your car.
Types of Auto Insurance
A basic auto insurance policy usually includes six types of auto insurance coverage to make sure every driver has just what they need, at the very least. They provide the broadest protection for the most common events for which you would file a claim.
In addition to those six basic types, there are several others that apply to very specific events that may cause damage to your vehicle, or to specific needs you may have if you’re involved in an accident. With so many types of automobile insurance, how do you know what is right for you?
Read on to get all of the different types of auto insurance coverage explained.
Most of these coverages are optional, and adding them to your policy will increase your premium. Depending on the situations you encounter, having the right kind of coverage at the right time can save you a lot of stress and financial loss. When in doubt, ask your agent to clearly explain the car insurance coverage options. Here are some of the common coverage characteristics of auto insurance:
- Liability Coverage
- Property Damage Liability
- Bodily Injury Liability
- Comprehensive Coverage
- Collision Coverage
- Fire and Theft Coverage
- Physical Damage Coverage
- Personal Injury Protection
- Underinsured Driver Coverage
- Uninsured Driver Coverage
- Gap Insurance
- Rental Car Insurance
- Pay-Per-Mile Coverage
Liability insurance does not cover any expenses related to damage to your property, or any injuries you may suffer. It exists to pay for those things suffered by the other parties in an accident for which you are found to be at fault. All states require a minimum amount of liability coverage in order to legally drive a vehicle. In some states, you can avoid buying liability coverage if you can prove you have the personal financial resources to cover the minimum requirements levied by the state. Liability insurance covers you when driving any vehicle you own, or if you drive someone else’s car with their permission.
Property Damage Liability
Property damage liability does not cover damage to your own property. It kicks in when you are found at fault in an accident, and your vehicle has damaged someone else’s property. There are varying degrees of this type of coverage that will determine exactly what damages are covered. You will choose the amount of coverage when you buy the policy, and there may also be state-imposed minimums, especially if your vehicle is financed.
The amount of coverage selected will determine the premium you pay for it and whether or not it is cheap auto insurance. Property damage liability is one of the types of car insurance coverage that may include a deductible. Having this type of coverage protects you from paying out of pocket if you are found at fault for damage to anyone else’s property, and it is important in determining your costs.
Bodily Injury Liability
If you are found at fault in an accident that resulted in injury to another party, bodily injury liability coverage comes into play. It does not cover your own injuries, or those of any other driver included on your insurance policy. This coverage usually pays for: medical bills; physical therapy or rehabilitation; work time lost due to injury; legal representation for the other party; funeral costs; and possibly “pain and suffering,” which is determined by a court in the event of emotional or physical stress resulting from the accident. This is an important coverage to add to your policy. Medical expenses can skyrocket and cause tremendous financial hardship if you have to pay for them out of pocket.
True to its name, comprehensive coverage applies to almost any type of loss that may occur, but not as a result of an auto accident. This is the insurance coverage that pays for damage to your car caused by something other than another vehicle. It could be anything: damage from severe weather such as tornadoes, hurricanes, or hail storms, or natural disasters such as earthquake, flood, or fire.
It also applies if you hit an animal, or if your vehicle is vandalized or stolen. Even in the unlikely event that something falls on your car and damages it, comprehensive coverage will pay for the repairs. It’s a good idea to pair comprehensive coverage with another type of coverage like collision to cover damage that does result from an accident.
Collision coverage is exactly what the name implies. It applies when your vehicle is involved in any kind of collision, whether it’s with another vehicle, a building, a guardrail, or any other stationary object. In some cases, it also covers damage caused by the vehicle flipping over, or running over potholes. Collision coverage will pay for the repairs your vehicle needs after any of these incidents, or to replace your car altogether if the collision causes a total loss, also known as “totaling” the car. The most important thing to remember in this case is, you will be reimbursed for the current value of the vehicle, not the purchase price.
Fire and Theft Coverage
As the name states, this type of auto insurance coverage applies when your vehicle is damaged or totaled as a result of fire, or if your car is stolen. Auto insurance theft coverage is something that most drivers do not consider until it’s too late.
If your car catches fire due to lightning or an explosion, this coverage will pay to repair or replace your vehicle. It also offers very specific coverage to include damaged resulting from the sinking, collision, derailment, burning, or stranding of a trailer that is transporting your car. It also offers some redundancies in coverage for things like floods, earthquakes, hail or wind damage, vandalism, or accidents caused by hitting an animal. It may also pay for damages resulting from an accident involving an uninsured driver, provided you are not at fault.
Physical Damage Coverage
Physical damage coverage is an umbrella under which three other types of coverage fall—fire and theft, comprehensive, and collision. If you’re still making payments on your car, chances are either your lienholder and/or the state law will require you to carry at least the minimum amount of physical damage coverage. Once your car is paid off, this coverage may become optional, but it’s still a good thing to have to protect you against almost any sort of potential damage to your vehicle. It’s especially important to have physical damage coverage if you own your car outright, and it’s a luxury vehicle, or retains a high resale value.
Personal Injury Protection
Personal Injury Protection, or PIP, is sometimes called “no-fault coverage.” In many states, it’s known as medical payment insurance. PIP is a complement to bodily injury liability coverage in that it covers approximately 80% of medical expenses including rehabilitation, funeral costs, and lost wages. Where it differs from bodily injury liability is that it covers you, your passengers, or anyone authorized to drive your vehicle. It also covers you and anyone else named on your policy when driving someone else’s vehicle. This type of coverage is mandatory in 16 states. Your state’s Department of Insurance, or your insurance agent, will be able to tell you if you are required to have it. If you live in a state where it’s optional, you may want to consider adding it to your policy for extra protection.
Underinsured Driver Coverage
Also known as underinsured motorist coverage, or UIM, this type of coverage protects you if you’re involved in an accident with a driver who carries the legal minimum amount of liability insurance, but no extra insurance to cover all your losses. It only applies when the other, underinsured driver is at fault. UIM will cover your medical expenses, property damage (in some states), and lost wages. It may also cover the expense of a rental car until your own vehicle is repaired. UIM is mandatory in some states, and optional in others. Check with your state’s Department of Insurance, Department of Motor Vehicles, or your insurance agent for your state’s requirements.
Uninsured Driver Coverage
Also called uninsured motorist coverage, or UM, it kicks in if you’re involved in an accident with a driver who: carries no auto insurance whatsoever; carries insurance coverage that falls below the state’s required minimums; is insured by a company that is financially unable to cover your losses; or hits you and flees the scene. Like UIM, it covers your medical expenses and those of your passengers. In some states, it also covers damage to your vehicle, and may cover reimbursement for a rental car. It is not mandatory in all states, so check the laws where you live.
Within the first three months of buying a new car, it loses as much as 30% of its value. If you were to be involved in an accident and your brand new car was totaled, or your new car was stolen, your regular auto insurance would not reimburse you for the entire amount you just financed. It would only cover the current value of the vehicle, but you would still be responsible for the remainder of the loan, or the “gap” between the value of the car and what you owe your lienholder. Because of this, gap insurance is also known as loan/lease insurance, or loan/lease payoff insurance. Some lenders may even require it when you finance a vehicle, so be prepared for this added expense when you buy a new car.
Rental Car Insurance
Many auto insurance policies will still cover you when you drive a rental car, but not all. If your policy doesn’t include coverage for rental cars, this type of supplemental policy can be invaluable, especially if you travel frequently. It offers some of the same basic coverages as your standard auto policy, such as comprehensive and collision coverage, but in this instance, it’s called a loss damage waiver (LDW), or a collision damage waiver (CDW). It also includes liability coverage for damage to property belonging to others, and personal accident coverage for injuries. Unique to rental car insurance is personal effects coverage (PEC), which reimburses you if your belongings are stolen from the car you’re renting. Rental car insurance is not the same coverage that provides you with a rental car if your vehicle is damaged in an accident.
This is a relatively new type of coverage that has been brought about by a few factors: interest in protecting the environment; consumers trying to cut costs; and the advent of telecommuting. Insurance companies have taken note of how consumers’ driving habits have changed, and are adapting.
Pay-per-mile coverage, also called pay-as-you-drive or usage-based insurance, basically means what the name suggests—you pay for insurance based on the number of miles you actually drive rather than an annual estimate. Of all the auto insurance coverage types, this appeals most to those who may work at home, or even want to insure a second vehicle that is not frequently driven.
The auto insurance company may also take into account when, where, and possibly how you drive to determine your rates. A small GPS device is installed on your vehicle that provides the insurance company with this information, allowing them to accurately bill you on actual use rather than estimates. This is ideal for those who don’t drive very often, don’t drive during rush hours, drive in less densely populated areas, and demonstrate safe driving practices.
Once you understand all of the different coverage characteristics and functions of an auto insurance policy then it’s time to get started comparing some rate quotes. Different types of car insurance coverage will cost different amounts to different people living in different states? Confused yet? You don’t have to be! Not all types of vehicle insurance are the same.
Cheap Auto Insurance
Finding a cheap auto insurance policy that offers great coverage can be a challenging task if you don’t know some of the cheap auto insurance “tricks” of the trade. In order to get the best value for your money, you need to search for an auto insurance plan that suits both your needs and your budget. Rates vary from one auto insurance provider to another, so taking the time to compare car insurance quotes is very important. Finding the cheapest auto insurance quotes online is a snap with our free cheap auto insurance rate finder! Find the cheapest auto insurance companies – just enter your zip code in above to compare quotes from competing auto insurance companies now!
Factors That Affect Your Car Insurance Rates
Before you go shopping for cheap car insurance, you should be aware that there are several factors that may affect your premiums. Insurance companies calculate auto insurance rates based on your age, gender, marital status, location, driving experience and credit score. The number of miles driven each year, as well as the type of car you own may influence your rates.
- Age – The youngest and the oldest drivers are more likely to get involved in car accidents. That is why they usually pay more on auto insurance. After the age of 25, drivers can see a decrease in their rates.
- Gender – Women are safer drivers, so they get lower premiums than male drivers.
- Marital Status – Insurance companies believe that a married person is more responsible. In addition, married couples usually buy insurance for more than one car, which helps them receive a discount.
- Location – People who live in rural area spend less money on car insurance than those living in big cities or suburbs.
- Type of Car – Sports cars and luxury vehicles cost more to insurance than traditional cars. Insurance providers look at the likelihood your vehicle will be involved in an accident or stolen and how much it will cost to replace or repair.
- Mileage – The more you drive, the more likely you are to get involved in a car accident. If you only drive occasionally, you will qualify for a low mileage discount and save money on auto insurance.
The rates you will pay on car insurance also depend on your occupation, years of driving experience, driving record, accident claims and history of bankruptcy. Although you have no control over some of these factors, there are a couple of things you can do in order to get the best rates on your car insurance policy.
Types of Auto Insurance
When shopping for cheap car insurance, it is important that you do a little research to learn more about the different types of coverage out there. Each state has minimum coverage requirements, but you need to evaluate your options and buy a policy that serves your interests. Here are the main types of auto insurance:
Most states require drivers to carry liability insurance. In the event of a car accident for which you are responsible, this type of insurance covers the medical bills, as well as the cost of repairing a house or any other property damaged in that accident. You may opt for bodily injury liability or property damage liability insurance. In case you decide to buy liability insurance, opt for a large amount of coverage. If you select limits that are too low, you will be required to pay out of the pocket for the amount above your limits. It is recommended that you purchase higher levels of coverage if you have a lot of assets to protect.
This type of auto insurance coverage pays for damage to your car as the result of a collision. The policy covers repairs, towing and other expenses less the deductible you choose. Insurance companies will only pay the value of your car.
Fully Comprehensive Car Insurance
As its name suggests, fully comprehensive car insurance offers extensive coverage in the event of an accident. This policy insures you against damage to your car, but it also covers medical bills, accidental damage, theft and fire. Since most insurance providers refuse to insure 100% of the value of a car, make sure you read the small print on your policy in order to find out what is included.
Uninsured/Underinsured Motorist Bodily Injury
These two types of auto insurance pay for injuries to you and your passengers, as well as medical expenses and other damages caused by a driver who has little or no insurance. In some states, the number of uninsured drivers can reach 25%. Therefore, you should do some research and decode whether you need to buy this type of coverage or you can go without it. The amount of coverage you will receive when buying this type of insurance depends on the limits you choose. Keep in mind that the limits required in some states usually provide insufficient coverage.
Personal Injury Protection Coverage (PIP)
If you buy Personal Injury Protection coverage, the insurance company will pay for medical bills, funeral expenses, child-care expenses, lost wages and other damages. Consider buying both Personal Injury Protection and health insurance in order to be fully protected. Personal Injury Protection coverage is mandatory in some states, including Delaware, Florida, Kansas and New York.
This type of coverage pays for medical expenses resulting from a car accident, regardless of who is at fault. If you already have health insurance, medical payments coverage may not be necessary. Make sure you know your state’s requirements before buying this policy.
Pay As You Drive
Pay-As-You-Drive is one of the newest types of car insurance. Also known as Usage-based, Mileage-Based, Pay-As-You-Go, and Distance-Based auto insurance, this type of coverage gives you the possibility to pay your auto insurance rates based on the number of miles you drive during the policy term. This type of coverage is suitable for lower-income households, because it has more affordable rates than other policies. Pay-As-You-Drive car insurance can help you reduce costs by driving less. In addition to the types of auto coverage presented above, there are many other options to choose from. Drivers can also opt for Rental Car Reimbursement insurance, Emergency Roadside Service, Accidental Death Indemnity and Gap insurance.
Ways to Save on Car Insurance
Regardless of what type of car insurance you choose, there are many ways to cut costs and save money on your policy. Drivers can save hundreds of dollars on auto coverage simply by comparing three to five quotes from different companies. Most insurance carriers are willing to offer massive discount for buying a policy through their websites, adding safety features to your vehicle or raising your deductibles.
Shop Around to Find Cheap Auto Insurance Rates
The best way to find cheap car insurance is to compare multiple quotes from reputable providers. Whether you prefer to use quote comparison websites or you want to talk with an insurance broker, shopping around is a great choice. Before you contact an insurance agent, go online and search for information about this type of insurance. Reading customer reviews and tips on buying cheap car insurance will help you make an informed decision.
Compare Car Insurance Quotes
With a few mouse clicks, anyone can compare dozens of car insurance quotes from leading companies. The best part is that you can get as many quotes as you want without paying a dime. Evaluate your budget, comparison shop rates from at least 5 different car insurance companies, and then complete a short application form. Be sure to provide honest answers in order to get cheap car insurance quotes that fit your budget.
Research Your Options
Based on the answers provided, you will receive a number of quotes. Compare them side-by-side, choose at least five offers, and then make a list of insurance providers. Contact your state insurance department to research the company you are interested in. Some websites feature insurance company comparison charts that can help you compare multiple providers and give you an idea of what the normal price should be.
Increase Your Deductibles
Once you find a cheap car insurance policy that works for you, start looking for ways to cut costs. It is recommended that you raise your deductibles to get lower rates. The deductible represents the amount of money you have to pay before the insurance provider will cover the damages resulting from a car accident. Increasing your voluntary excess can help you save up to 50% on auto insurance every month.
Maintain a Good Credit Record
Make sure you pay your bills on time and get rid of debt before purchasing car insurance. Having a bad credit history often results in higher auto insurance rates. An outstanding credit rating will help you get a good deal and find a policy that fits your budget.
Take Advantage of Discounts
Increasingly more insurance companies are offering discounts and incentives. They provide club membership discounts, defensive driver discounts, good student discounts and low mileage discounts. Drivers are encouraged to apply for more discounts at once. Make sure you ask insurance providers about the discounts that are being offered.
- Bundling Discounts – If you get your car insurance, life insurance and health insurance from the same provider, you will receive substantial discounts.
- Low Mileage Discounts – Some insurance carriers offer reductions to those who drive a lower than average number of miles a year.
- Defensive Driver Discounts – No mater how old you are, taking defensive driving classes can help improve your driving skills and get cheap car insurance. This discount can represent as much as ten percent off on your rates.
- Good Driver Discounts – Safe drivers with no traffic offenses within a specified time period get lower premiums.
- Safety/Anti-Theft Equipment Discounts – One of the best ways to get cheap car insurance is to install approved alarms and anti-theft devices to your vehicle. You can save even more money on your policy by adding air bags and automatic seat belts.
- Multiple Car Discounts – If you have two or more vehicles, it would be better to insure them with the same company.
- Military Discounts – Most companies offer lower rates to current members of the military.
- Good Student Discounts – Having good grades at school can help you get auto insurance for less. This discount is available to students and graduates under the age of25.
- Club Membership Discounts – Being a member of certain organizations and clubs can result in lower car insurance rates.
- Retirement Age Discounts – Senior citizens are less likely to get involved in a car accident. If are over 50, you might qualify for a Retirement Age Discount. Make sure you compare several insurance providers to find out which of them offers the best deal.
Finding Not Just Cheap but EXTRA Cheap Car Insurance!
The competition is tight between different insurance carriers. Most companies will provide you with offers that seem to good to be true. If you do your homework and learn about how car insurance works, you will find an affordable policy offering extensive coverage.
Opt for a company that you can trust, check its ratings and get as much information as you can find. Ask what types of coverage are offered, what is the company’s cancellation policy and how does the company handle claims.