Auto Insurance Types and You

Auto Insurance Types and You

As you search for car insurance, the likely first question will be: What is my insurance covering exactly? There are a number of factors that play into the cost of your insurance, along with its terms. The websites and agents for each company will make them all sound required, as if there's danger around every corner and it's shocking that you have yet to be involved in a serious collision. Do not despair as that's just part of their somewhat-misguided sales pitch. Here are a few things you should know about coverage types to aid in your decision:

  • Property Damage Liability Insurance: Unless you live in Wisconsin or New Hampshire, you are required by law to have this type of insurance. It covers the damage you deal to the other party, or parties if you're unlucky, in the event of an accident.
  • Collision Insurance: Another very common type of insurance designed to cover one thing: your vehicle. It covers up to the blue book value of your vehicle and most times comes with a deductible, which is the amount you have to pay per claim before the insurance helps out. The cost of Collision Insurance varies, but generally if the deductible is low, the premium you pay per month is higher. Additionally, while you are not required to have this type of insurance, banks, lending institutions and leasing companies commonly require Collision Insurance.
  • Comprehensive Insurance: Fires, floods, thefts, rampant vandalism and other non-motoring accidents are covered under Comprehensive Insurance. You should consider Comprehensive if you live in an area of extreme weather, such as a coastline or along a major waterway. Expect to pay a deductible.
  • Bodily Injury Liability Insurance: This insurance is very important to those who view the world as a master class in Grand Theft Auto. It covers all injuries and deaths caused by your vehicle.
  • Medical Payments Insurance: Basically the opposite of Bodily Injury Liability Insurance, this type covers the injuries sustained by those in your vehicle.
  • Underinsured and Uninsured Motorist Insurance: Studies have shown that up to 30% of the population is uninsured and therefore won't be of much help if you hit them. This type of insurance kicks into effect when the at-fault party (not you) does not have enough insurance or none at all. Your insurance company will then cover your medical payments and attempt to get the money themselves from the at-fault party.
  • Loan-lease Payoff Insurance: Also known as GAP insurance, it is designed mostly to aid the drivers of new vehicles. The value of a car drops off dramatically once it has left the lot, sometimes exceeding 25% lost. If you get into an accident before you have paid off the difference between your purchase price and the blue book value, you could potentially be out thousands and thousands of dollars. Loan-lease Payoff Insurance is commonly offered at the dealership and covers the "gap" between your purchase price and the blue book value. Not the most cleverly named insurance, but can be quite useful.
  • Towing Insurance: Pretty straightforward, Towing Insurance covers the cost associated with getting your car towed in the event of an emergency. This is specifically for the tows not related to accidents, which is usually covered under Collision Insurance.
  • Loss of Use Insurance: Finally, this type of insurance covers the expenses associated with the transition between busted-up vehicles and restored vehicles. If you are in an accident and need to rent a car while yours is being repaired, Lost of Use Insurance takes care of the expenses incurred.

Hopefully this list provides a small road map to the extremely complicated world of insurance. It's hard to say which you "need' and which you "want," so I recommend reviewing each type individually and deciding personally if you feel a particular type is good for you. Insurance premiums can run up in cost fairly quickly, so be sure to do some comparative shopping before you decide. The benevolent internet is always a good place to start as most companies now operate through online purchases more than face-to-face sales. Good luck and try not to hit me!