Auto insurance basics

What exactly is car insurance

Auto insurance is designed to protect you in the event you injure others, including property damage and bodily injury, as a result of an accident. In addition, depending on the coverage and plan you have, it will pay you for injuries and damage to your vehicle. In its most basic form, auto insurance is a contract between you and your carrier. You agree to pay a fixed price, called premiums, in exchange for selected coverages.

The type of policy you have is detailed on the declaration page, so make sure you always read it and understand the exact coverage you have. It’s always smart to read your policy carefully and make sure you don’t have any overlapping items, such as rental insurance. This is often covered by your credit card agreement, so you may just be wasting money on it. Remember, you can always upgrade your insurance and cancel at any time.

What does the car insurance cover?

This is a common question that new clients always ask agents. The answer is, it depends on the plan and the type of policy you buy.

There are four main categories of protection.

* Liability insurance

This covers injuries to the other party, damage to their vehicle and property damage as well. If you have a vehicle that isn’t worth much and you don’t drive it too often, liability insurance might make sense. It’s much cheaper than comprehensive, with prices in some states as low as $29 for good drivers.

* Collision insurance

This pays damages and medical expenses that concern you. It’s smart to buy it if your vehicle is newer and worth more than $12,000.

* Comprehensive insurance

This is the gold coverage standard. This type of policy costs more, but has comprehensive protection. It coincides with a collision and will repair or replace your car for events that cause damage or loss not related to a vehicle accident. This means that if your car is stolen, you are protected and can have it replaced for its current market value. Weather-related damage to your car is also covered. Typical examples are floods, fires and animal incidents.

* Uninsured motorist insurance

More people are driving uninsured than ever before. Purchasing uninsured motorist insurance protects you from these lawless drivers. If you are involved in an accident with someone who is not insured, you will be covered up to your policy limits.

It is important to know that each state has different mandatory insurance policies and laws. You should familiarize yourself with the mandatory limits in your state and keep abreast of changing laws.

The most common auto insurance policies

Each type of coverage you purchase includes a set of limits, policy terms, and multiple conditions. Physical injury is one of the most important.

It, as the name implies, will pay for bodily injury sustained from an incident that you yourself caused. A good liability policy will also cover legal costs, up to certain predefined limits, in case you are taken to court.

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Liability also pays for damage you’ve caused to other people’s property, almost always their car, following a faulty accident. Health insurance usually covers you and the passengers traveling in your vehicle who are injured in an accident. Another benefit of good medical coverage is that it will cover medical costs in the event that you are hit by a car that is running as a pedestrian.

There are several states that have PIP or personal injury protection laws as opposed to medical coverage. Some people call this flawless coverage. PIP insurance usually pays for medical expenses, funeral expenses, loss of income, and a variety of other expenses associated with bodily injuries sustained after a car accident.

What you need to know before buying car insurance

The most important thing to consider when buying auto insurance is coverage that meets your needs. What are your specific needs, including your budget and risk tolerance. Remember to think of a worst-case scenario, such as buying enough coverage to replace your car and protecting the assets you’ve built up.

In general, the higher your personal net worth, the more insurance protection you need. Lawyers also target people who have large sums of money with fierce lawsuits, claiming pain and suffering damages. Your insurance plan should follow the growth of your assets and provide you with optimal protection.