Car Accident and Insurance

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How Car Insurance Works-What You’re Getting with Your Coverage

06.03.14 Basement Nerd Compare Car Insurance

Car insurance is one of those things virtually every American buys but does not fully understand. This lack of understanding is one of the reasons many of us pay more than we need to just to insure our vehicles. It stands to reason that taking the time to know what each type of coverage actually pays for can go a long way toward keeping your bill as low as possible.

There are five primary types of auto coverage in the US:

  • liability
  • collision
  • comprehensive
  • uninsured/under insured motorist
  • personal injury protection.

Liability Insurance

Every car insurance policy begins with liability coverage. That said, liability has nothing to do with your vehicle per se. Rather, it is insurance that you take out to protect others in the event you cause an accident that results in injury or property damage. In other words, liability insurance pays someone else for the damage you cause.

When you look up liability amounts for your particular state, you will likely see them expressed in three numbers – for example: 25/50/15. The first number represents, in thousands of dollars, the amount of money to pay for injuries or death relating to one victim. The second number is also for injuries or death, but this time for multiple victims. The third number is the amount of money to pay for property damage.

Car Accident and Insurance

Collision and Comprehensive

Collision and comprehensive coverage are usually sold together as a single package. Collision insurance is paid to repair or replace your vehicle in the event of an accident on the public roads. Comprehensive insurance takes care of everything else, including weather related damage, vandalism, accidents involving the vehicle while it is parked, and so one.

Neither collision nor comprehensive are required by law in any state. However, banks and other lending institutions require consumers to purchase this coverage as long as a loan is outstanding. They have the legal right to purchase insurance on behalf of the consumer if the consumer fails to do so on his own.

PIP and UM

The last two categories of insurance, personal injury protection (PIP) and uninsured/underinsured motorist (UM) coverage have to do with personal injuries you or your passengers sustain. PIP is insurance that will pay a portion of your medical costs after any accident, while UM covers your injuries if someone else who does not have sufficient liability coverage hits you.

States operating under a no-fault model require both PIP and UM. It is optional, but recommended, in most others.

Other Coverage

Other kinds of coverage are available that you can get to provide added protection for yourself and your vehicle. You can also increase the amounts of coverage you receive under any of the primary five listed above. That’s not a bad idea, by the way. Some experts suggest, for example, that you double or triple the amount of liability coverage you carry. Why? Because of the potential of a lawsuit.

Because Americans tend to be so litigious, even a minor accident could see you in court defending yourself against a multimillion dollar lawsuit. Your $50,000 of liability coverage will not go very far should you lose your case. What’s more, if you own a valuable personal property that could be seized in the event of a lawsuit, it is a wise idea to invest in an umbrella policy to protect that property.

Next time you are shopping for car insurance, do not forget to look at each line item to see how much you are covered for and what it is costing you. Make sure you have enough coverage to protect yourself in the event of an accident.

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