Automobile Insurance Basics

by Don Elliott on August 25, 2011

Every state in the United States requires some form of minimum auto insurance coverage to legally drive your car. Car insurance minimums vary by state, but understanding basic coverage is the first step to determining the type of coverage that is appropriate for auto insurance needs.

The Merriam- Webster’s dictionary defines insurance as, “coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.” This is part of the problem with understanding car insurance. By definition, the words fall outside of the everyday language we use.

Even though auto insurance policies are often multi-page documents, there are really only six categories of auto coverage. There are also a couple of additional items that make up most car insurance policies.

The compulsory car insurance laws in most states require varying amounts of auto coverage in at least these first two categories:

Bodily Injury Liability – Coverage for injuries that you might cause to someone else in a car accident that was your fault.

Property Damage Liability – Coverage for damage caused to someone else’s physical property. This auto coverage includes other cars, buildings, signs, and barriers.

Auto coverage amounts for bodily injury and property damage can be combined in one single limit for both categories or it can be defined as split limit liability. In split limit liability, the amount of auto coverage is different for bodily injury versus property damage. Bodily injury liability is further split to define payment per person and for all people in the accident. For example, state minimums in Missouri are $25,000 for injury/death to one person, $50,000 for injury/death to more than one person, and $10,000 for damage to property.

Optional additional auto insurance coverage includes:

Medical Payment – Coverage against injury to you and the people in your car. This typically lasts three years from the date of the accident.

Collision – Auto insurance coverage for damage to your car for an accident that is your fault. Insurance companies have deductible amounts in each policy that apply to the amount you pay out of pocket before they will pay on a claim.

Comprehensive – Auto insurance coverage for damage to your car that might occur for situations other than a collision. These situations include fires, vandalism, or stolen cars. Comprehensive and collision coverage are combined on some auto insurance policies.

Uninsured Motorist – Coverage includes car damage caused by another driver who is not insured or doesn’t have enough coverage to pay your expenses. Uninsured motorist coverage also includes coverage for damage done to your car by a hit-and-run driver.

Most car insurance companies include, for an extra charge, coverage for rental reimbursement, guaranteed asset protection (GAP), auto glass replacement, and roadside assistance.  If you are financing your car, your lending agency will probably require that you carry both collision and comprehensive auto coverage to protect their asset. If you are leasing your car, GAP insurance may also be required.

Many things can happen to car owners. Whether you have a broken key in your ignition or have a major accident, it is better to be covered than be required to finance the situation on your own.

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