Auto insurance is a product that you must buy when you own a car. While the state mandates how much insurance you’re required to purchase by law, you as a consumer have the right to purchase extra protection at a cost.
All consumers should take the time to learn about auto insurance coverage options before their build their own policies.
If you currently have an insurance policy and you’re not familiar with the type of coverage you carry, it’s time to do a thorough insurance checkup.
When you do a checkup, you should pull out your paperwork and see what you’re currently paying for and what other options are available to you. Here’s a guide that will help you before you do your review.
How much insurance are you required to buy?
Auto insurance laws are set by state legislatures. Since it’s the state’s job to set the law and modify it, how much insurance you’re actually required to carry depends on where you live and the type of system the state operates under.
In most states, payments for claims are made by the at-fault party’s carrier. This is called a tort system. In tort states, you must carry third-party liability insurance to pay for damages sustained by others.
How does the state-mandated coverage protect you?
If you decide to buy nothing more than a basic policy, your car insurance policy will offer you a minimum amount of protection. Buying the coverage helps you comply with the law, but that doesn’t mean that you know how the coverage pays when you need to file a claim. Here’s a breakdown of how core coverage options work:
- Bodily Injury Liability – pays for third-party medical bills, lost wages, and rehabilitation costs when you’re at-fault in an auto accident that ends in injury or death (required in tort states)
- Property Damage Liability – pays to repair property owned by someone else when you damage the property while you’re operating a motor vehicle that you own or you’re borrowing (usually required in tort and no-fault states)
- Personal Injury Protection – pays for your medical bills, disability income, rehabilitation costs, and funeral expenses when you’re injured in any incident that involves a vehicle (required in no-fault states only)
What type of coverage can you buy in addition to the requirements?
When you want to comply with the law while keeping your premiums as low as possible, choosing bare minimum limits is the answer. Unfortunately, when you buy a basic insurance policy, you are vulnerable to losses. If you want first-party benefits that help you recover from a loss, here are other forms of coverage that you can add to your policy:
- Uninsured Motorist Protection – pays for your medical expenses when you need treatment after being hit by someone who has no insurance or very small limits of liability (some states are starting to require this coverage)
- Medical Payments Coverage – pays for reasonable medical expenses that are incurred immediately after an accident involving a car regardless of who caused the accident
- Comprehensive – pays to repair or replace a specific car on your policy after it’s damaged because of a fire, theft, vandalism, falling object, flood, or hailstorm (required by a lender or lessor)
- Collision – pays to repair or replace a covered car on your policy if you collide with another vehicle or any other type of property (required by a lender or lessor)
- GAP – pays the difference between the value of your car and how much is due on your loan after a total loss (required by a lessor)
- Rental Car – pays for a replacement vehicle for a limited period of time after a loss
- Roadside Assistance – pays for towing, gas delivery, flat tires, and lockout services when your car is disabled
Where can you find information on your current coverage?
Now that you know what each type of coverage does, it’s time to find out if you are adequately protected or vulnerable to financial loss.
If you’re not sure where to look for a breakdown of the coverage that’s included under your policy, it’s best to pull out your documents and look for your declarations page.
What is a declarations page?
A declarations page includes all of the pertinent information that you need to know. The document includes information on how the policy is being rated and what type of protection the policy offers. Here’s a list of what you can find on your declaration page:
- Name and address of named insured
- Vehicle information and description
- Policy number, insurer contact information, and policy term
- Driving habits
- Rated drivers on the policy with vehicle assignments
- Coverage options and limits
- Citations and accidents
- Policy discounts
After you have thoroughly reviewed your existing coverage, you should determine whether or not you should add protection to your policy. If you feel like you’re paying too much for your coverage, you should comparison shop to find lower rates elsewhere.
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