Types of Insurance

Liability Insurance does not cover expenses for damage to an individual’s property, or injuries to the person involved in an automobile accident nor does it cover the policy holder when driving his/her own vehicle or another person’s vehicle with their permission.

Liability pays for the other party(ies) in an accident when you are the at-fault driver.  It covers the following:  medical expenses, funeral expenses, loss of income, pain and suffering, legal defense if a lawsuit is the result of the accident.  It pays for property damage to the other party’s vehicle when you are the at-fault drivers such as damage to another driver’s car or someone’s property (ex:  fencing).

All states require a minimum amount of this coverage in order to legally drive a vehicle.  A person can buy a limited policy or a larger policy; a policy pays out up to the amount of coverage.

Collision Insurance covers damage to your car if you hit another car or object, or are hit by a car or object and damage to your car if flips or rolls over.  Every insurance company has a different cost for collision insurance.  Rule of thumb for this type of coverage is recommended if your car is less than 10 years old, or if your car is more than 10 years old and worth more than $3,000 and lastly buy this coverage if you cannot afford to replace it or crash it.

In most states, collision coverage is optional and fairly affordable; if a car is leased or financed a person may be required to buy this coverage.  Collision coverage has a deductible that must be paid before insurance coverage is initiated and generally pays out up to the cash value of the person’s car.

Comprehensive Insurance covers the following on a vehicle and has an average cost of $172 per year:  a vehicle’s damage from hail, wind, fire and flooding; vandalism, stolen vehicle; if a vehicle hits an animal (i.e., a deer), and if a vehicle is hit from a falling object (i.e., a tree)

Most states recommend the comprehensive coverage for the following vehicles:  if a vehicle is less than 10 years old; if a vehicle is more than 10 years old, buy it if the vehicle is worth $3,000 or more; if a person cannot afford to repair a vehicle, buy comprehensive coverage; if a person resides in an area with flooding, hail, or animal strikes, buy comprehensive coverage.

Usually comprehensive insurance is an option on an automobile policy; however, it may be a required option if a person has a loan or lease on a car.  Comprehensive coverage has a deductible that must be paid before insurance coverage is initiated and usually pays out up to the cash value of a vehicle.

Uninsured/Underinsured Motorist Coverage (UM/UIM) covers the following on a vehicle:  property damage to a car if it has been hit by an uninsured driver or a driver with insufficient insurance coverage; bodily injury coverage pays medical bills for you, your passengers and members of your family if injured in an accident caused by an uninsured driver or driver with insufficient coverage; uninsured motorist bodily injury coverage pays your medical expenses if you are injured in an accident caused by a hit-and-run driver.

The cost for the insurance is as follows:  Uninsured coverage has an average cost of $83 a year; Underinsured coverage has an average cost of $52 a year.  In most states, if you have collision insurance (optional coverage), it offers better coverage than uninsured/underinsured coverage.  Without uninsured/underinsured coverage, a person may have to pay for their own injuries or suing someone with limited financial ability.  Each state has laws that may dictate what happens after an automobile collision.

If an accident occurs in a No Fault State, the following may occur:  a person’s own insurance company would pay for medical expenses under a personal injury protection (PIP); however, the limits may be very low, leaving the accident victim with expenses after any paid claim.  Lost wages and pain and suffering are typically not covered; no fault coverage does not cover any damage to an insured’s vehicle.

If an accident occurs in a Tort State; a state in which a suit for damages may be filed.  A tort state is a state that allows an accident victim to sue the uninsured/underinsured driver to receive any compensation, a complicated and costly process.  It is most likely the at-fault driver may have limited financial resources or assets even if the case goes to court.

If an accident victim has Med-Pay, it will cover the victim up to the policy limit; however, if the limits are too low to cover all the expenses, the victim will be liable for paying any expenses or going to court.

If an accident victim has PIP coverage and no collision, only the medical expenses will be covered and the physical damage to a vehicle will not be covered.  Uninsured/underinsured motorist coverage pays up to the limit of the policy, usually the same as the liability limit.

Personal Injury Protection Insurance (PIP) covers a policy holder, passengers, family members and anyone the owner of the policy allows to drive his/her vehicle, regardless of who is at fault for an accident.  It has an average cost of $198 per year.  This coverage may be optional and if it is available it may be good for someone who does not have reasonable financial resources if a person becomes injured or loses income for a while. Typically, the following is what may be covered:   medical expenses; lost wages; funeral expenses; house cleaning, child care and other tasks an injured party may not be able to perform; coverage for the policy holder and immediate family members if a vehicle hits them while walking.

PIP is not available in 28 states, is required in 12 no fault states and optional in 10 states.  PIP limits vary by state and usually has a range of $1,000-$10,000.  Some states allow the policy holder to choose his/her own limits.  Most states allow a policy holder to buy additional coverage above the state’s required amount; however, this coverage may be more expensive.

MedPay (medical payments) Insurance coverage is for a policy holder, passengers, family members and anyone the policy holder allows to drive the vehicle, regardless of who is at fault for the accident; the cost for coverage is an average $22 per year and is usually available up to $10,000 in coverage.  It covers the following:  reasonable and necessary medical expenses, such as hospital visits and stays, surgery, dental, nursing and X-rays etc.; funeral expenses; injuries if hit by a car or bike while walking (in some states); injuries while a passenger in another driver’s car

Coverage recommendations are as follows:  if a person has health insurance that covers car accidents, MedPay isn’t a must-have; if you have health insurance, MedPay can work with your health insurance to cover costs for an accident, and is very affordable, so is worthwhile to carry; you might be able to use MedPay to pay your health insurance deductible or co-pays; if you have a high health insurance deductible, Med Pay is advisable.

Gap Insurance, is also called loan-lease insurance and it pays the difference between the actual cash value of a vehicle and the amount owed to a lender.  In order to make a claim, a vehicle must be declared a total loss due to an incident covered under comprehensive and collision coverages; the insurance may be limited up to 25% of the actual cash value of the vehicle at the time of the incident.  It has an average cost of $20 per year.

Coverage recommendations are as follows:  buy this insurance from an insurance company and not a car dealer due to cost.  This insurance may be required if a person finances a vehicle and is required if a person leases a car.  This insurance is not for a person who owns his/her vehicle.  If a person decides to purchase this insurance the lender must be a financial institution.

Full Coverage Insurance – most people think full-coverage insurance means a person is insured for all damages and injuries in any accident. Full-coverage is an insurance policy that includes comprehensive and collision insurance, and liability insurance.  This type of insurance is recommended if you own a newer car, drive a lot, and have assets; however, the cost of the insurance is approximately $1800 or more per year.

How to choose a policy is a dilemma for many people and may depend on a few simple recommendations, such as:  a limited policy may be a good choice if you own an old car, don’t driver very much and have few assets; if you own a home and have some assets, buying a larger policy may be a good choice; if you financed or leased a car, a person will be required to get this type of insurance.

Alternative Insurance

SR-22 – this is a form a car insurance company files on your behalf with the state, usually after a person has been convicted of a major violation, such as:  a DUI, reckless driving and driving without insurance; it is not a type of insurance; but, it is a form advising the state a person is legally mandated to carry this coverage with higher liability limits for a minimum of three (3) years in order to drive a vehicle.

Non-owner car insurance – if a person does not own a vehicle, but would like to be able to drive, this is a liability policy in order to keep a driver’s license.  This is a policy for a person who rents a car, is a high risk driver and wants to maintain continuous insurance coverage. A person can buy this policy through an insurance company and the cost is about $300 a year, depending upon a person’s record and the state in which a person resides.

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