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It pays to shop around for auto insurance.

Types of Car Insurance

Every day hundreds of thousands of people will drive their car to work, to school, to church, or even just to a friend's house. In today's society, the use of an automobile is almost inevitable. To protect citizens, basic liability insurance is required in every state. This means every driver should take the time necessary to become familiar with the different types of protection. The first step to getting quality protection at a reasonable rate is understanding what your options are. To make this process even easier for you, we have provided information about each common type of coverage, as well as add-ons.

Liability Coverage (Required)

This is mandatory for every driver in the United States, making it the most common (and often cheapest) type of coverage. A good liability definition is "protection that pays for judgments and claims brought against the policyholder." There are three main categories within this product: bodily injury per person, bodily injury per accident and property damage liability. Each state has established a minimum level of protection that a motorist must carry. This amount can vary dramatically, making it very important for you to know the requirement in your locality. Drivers caught on the road with insufficient or no insurance are ticketed. In addition to a temporary license suspension, this type of citation results in the requirement to carry a high-risk policy, often for two years or more.

One common misconception is that the state's minimum requirement is always sufficient. Some states' auto accident laws are based on a no-fault system, while others observe tort law. It is important to know which system an individual state of residence observes before choosing how much auto liability limits to purchase. In states that observe tort law, the injured party may take the policyholder to court and sue for damages. If the injuries or damages exceed the amounts allotted in the liability policy, the insured is responsible for the remaining balance. Many states require a minimum of $25,000 per injured person, which may only be enough to cover two or three days of hospital care. Always choose elements of your plan carefully.

Property Damage Liability

Drivers caught on the road with insufficient or no insurance are ticketed. In addition to a temporary license suspension, this type of citation results in the requirement to carry a high-risk plan, often for two years or more. High-risk policies are extremely expensive, making it even more important to carry sufficient coverage. One common misconception is that the state's minimum requirement is always sufficient. Some states' auto accident laws are based on a no-fault system, while others observe tort law. It is important to know which system an individual state of residence observes before choosing how much liability limits to purchase.

In states that observe tort law, the injured party may take the policyholder to court and sue for damages. If the injuries or damages exceed the amounts allotted in the liability policy, the insured is responsible for the remaining balance. Many states require a minimum of $25,000 per injured person, which may only be enough to cover two or three days of hospital care.

Comprehensive Coverage

The name "comprehensive" creates a good deal of confusion about this important product. Comprehensive is not blanket protection that handles any and all damage to your vehicle. Instead, comprehensive will pay for other claims for damage unrelated to collisions, such as vandalism and theft. So, if you have comprehensive or non-collision protection and a hailstorm pounds the area and leaves small craters all over your car, comprehensive protection will pay for that repair.

Another misconception is that comprehensive is required by law. In truth, this is chosen by the car owner and is optional. The cost of this element in your plan is affected by a deductible. A deductible is the amount of money a policyholder agrees to pay out of pocket before the provider handles the claim. A higher deductible results in a lower policy premium. Comprehensive provides valuable protection when your car is new. Imagine how you would feel if you walked out of the theater and could not find your car. Without comprehensive protection, you would have to pay out of pocket for a new vehicle. But comprehensive protection has its disadvantages, as well. As your vehicle gets older, it loses value. At some point, many industry experts recommend that drivers consider dropping comprehensive coverage.

Collision Coverage

As the name implies, this element comes into effect if you hit something with your car or someone runs into you. This form usually isn't mandated by law, but many auto loan companies will require that you carry it until the loan is paid off. Some forms of collision will pay for repairs to your car, but this isn't always the case. If you run into something, certain policies will only pay for your resulting liability. For example, if you run into a mailbox, the provider may pay for the box's replacement - but not to remove the dings from your bumper. If you choose one of these limited automobile collision policies, you'll need to add other coverage to make sure that your own vehicle's damage is paid for. The main goal is to protect you from liability to others.

The collision element won't protect you from sources of damage that don't arise from things hitting the car or vice versa. Vandalism, theft, road conditions and weather events are among the issues that collision doesn't address. Even collisions caused by hit-and-run drivers may not be protected under certain policies. There are benefits and drawbacks to the collision add-on. The benefit is that you don't have to worry about being financially wiped out if you somehow drive through a store window or skid into someone's rear end. If your policy includes damage to your own vehicle, you won't even have to worry about the cost of having it repaired. Perhaps most importantly, auto lenders often require borrowers to have adequate protection.

On the other hand, those who have paid off their car loans may find that the cost of collision is higher than the expected benefit. Motorists with a long history of safe driving may feel it's extremely unlikely for them to be in a major accident. For these people, it may be best to only carry what is mandated by their state of residence. It is, however, important to consider the fact that flukes can happen to even the best drivers. It might be a good idea to carry the collision add-on for your own peace of mind even if you have a flawless driving record.

Bodily Injury Insurance

Bodily injury is an add-on that covers injuries sustained to other individuals involved in a motor vehicle accident. This covers passengers in a vehicle driven by the policyholder or any other driver involved in an accident who are not at fault. Each state sets their own limits regarding amounts paid out by motor vehicle accident injury claims, with $15,000 being the average. It will likely include three different aspects that stem from a motor vehicle accident. Medical bills are the first thing this add-on will cover and includes any medical costs related to the accident. This type of plan might also take care of any wages lost due a motor vehicle accident, and any pain and suffering the motor vehicle accident has caused to the injured party. It should be noted that the exact coverage will depend on your specific provider.

There are several misconceptions about this product. For instance, a person injured in an accident will not have their medical bills paid for when receiving treatment. Until a settlement has been reached, an injured party must pay for their medical bills through different forms of insurance or out of pocket. In addition, reimbursement for lost wages must be documented by a doctor and an employer. Receiving this documentation immediately will ensure that an injured person will be fully reimbursed for lost wages. Finally, when a settlement is reached, there is no formula used to calculate payout. In order to reach a settlement, several different factors will be evaluated, such as amount of money paid on medical bills, age of injured party, amount of money lost due to inability to work and any pain and suffering considerations. Once all these factors are considered, a final sum is calculated. No person should ever assume that they will receive a certain amount of money from any settlement.

Personal Injury Insurance

Sometimes abbreviated as "PIP," this is an extension of a policy. Often called "no-fault insurance," it is available only in some states. The reason it is called this is because the terms allow the policyholder to collect funds regardless of who is responsible for causing an accident. Every state either observes tort law or no-fault law for accidents. States that require this usually only follow the no-fault system. It is important to know the state laws before purchasing an auto policy. If this add-on is required, it is essential to purchase at least the minimum requirement. Not every state has the same requirement amount. When moving from one no-fault state to another, be sure to research the new state's requirements for PIP.

Many people think their auto policy takes care of everything, so there is no need for PIP. This isn't true. The biggest misconception connected to this idea is coverage specifications. Personal injury coverage protects both the policyholder and any passengers in the policyholder's car during an accident. Since many people are quick to assume other forms of insurance cover the driver and passengers, PIP is sometimes omitted from a policy when it shouldn't be. In such a litigious society, drivers should assume that, if needed, injured passengers will sue to cover their medical expenses. It is much more beneficial to have a policy that covers their expenses, as medical bills from accidents are usually not affordable to pay for upfront.

Uninsured Motorist Protection

Close to 25% of the driving population ignore state laws and forgo required insurance. As a result, uninsured motorist coverage has become increasingly popular in the last couple years. Additionally, most states have caught on to the benefits of this protection and created laws requiring drivers to carry this. For anyone who has been involved in an auto accident where their vehicle or worse their body was injured the benefits of this add-on are apparent. For instance, if you are involved in an accident where your car is damaged and needs repair to be driven, the person who hit you might not be insured. In this situation, what do you do? Car repairs can be very costly and court cases take time and often do not get you the money you need. This is where the uninsured motorist add-on comes in, often for a few dollars extra each month, your plan will take care of the costs of your car repair and get you back on the road. This element takes care of punitive damages, injuries, and hit and run accidents with most providers. Though your exact plan configuration will vary based on your provider, most of these plans are very similar and in some states even required to operate a vehicle.

Underinsured Motorist Protection

Similar to uninsured motorist and equally important, underinsured motorist coverage protects you against other motorists who do not carry sufficient levels of protection. If you are involved in an accident that is not your fault and the other driver is underinsured, it may be impossible for you to recover the compensation you deserve. Fortunately, underinsured motorist coverage (UMC) exists to protect you from this risk. If an uninsured driver or underinsured driver damages you or your property, this will kick in to protect you from the financial pain. It will pay for medical costs, property repairs, lost work time and even pain and suffering.

There is no need for you to be in a car at the time of the accident to invoke your underinsured motorist limits. If you're walking in a parking lot and an underinsured driver plows into you with his vehicle, you can still use this sort of insurance to pay for the damages. This type of policy made to protect you from the other person's negligence. Another reason to get UMC added to your plan, comprehensive or collision add-ons is that even insured motorists may not be able to pay for the full costs of damages they cause. If they don't have enough protection or their carrier is financially insolvent, you can invoke your own coverage to take care of the shortfall.

Accidental Death Insurance

This is designed to help family or beneficiaries cope with the financial burden associated with the loss of a loved one as a result of trauma or injuries sustained by accident. Although each provider has a different set of underwriting requirements and guidelines, the majority of consumers will be able to qualify without answering a series of medical questions or submitting to a health exam. Age restrictions are commonly set in place, but most individuals with chronic illnesses and ailments will still be able to qualify for the same services available to everyone else.

Most consumers do not realize that the accidental death and dismemberment add-on does not require the death of a covered individual in order for it to pay out. Becoming severely injured in an accident is a viable concern, and losing one or more limbs is sure to change a person's lifestyle. Dismemberment can help provide money that can be used for medical procedures, renovations to make a home handicapped accessible, prostheses, or to assist in replacing lost or diminished income. Another common misconception is that an appropriate level of protection be rather expensive, but the simple fact of the matter is that the cost of accidental death is relatively low in most circumstances. Accidental death and dismemberment can provide a level of peace of mind to covered individuals and their loved ones, and adequate preparation is the only appropriate way to deal with the unexpected. Few people are properly prepared to cope with the financial burden arising from an accident, but accidental death coverage is a good place to start.

Loss of Use Insurance

This covers your rental car or transportation expenses in case your vehicle, for whatever reason is unavailable to you. The loss of use add-on is not limited to only collisions or accidents; it covers your transportation needs while your vehicle is unavailable during any claim. The benefits of loss of use are apparent to anyone who has ever been involved in an accident or had their vehicle in the shop for any amount of time. Not having a vehicle can significantly impact your lifestyle and your ability to provide for yourself and your family. Without a vehicle, how will you get to work? Buy groceries? Get to important appointments? It is possible get rides from a friend or a cab service, but these are not ideal long-term solutions. After weeks of carting you around even the best of friends will tire of having to run your errands and cab expenses can easily become overwhelming. This valuable add-on can give you the peace of mind in knowing you will not be stranded in the event that something happens to your vehicle.

Gap Insurance

This is designed to cover the disparity that exists between the value of a vehicle and the remaining car payments after a vehicle is declared a total loss. A gap often exists because providers pay claims based on the cash value of a vehicle, after subtracting the deductible. For example, a new $30,000 vehicle is stolen just months after it is purchased. The car is valued at $26,000 by the carrier, which then subtracts the $500 deductible and pays off $25,500 for the claim. Unless the car was financed with a significant down payment, the car owner owes about $29,000 or more to pay off the loan. The gap - in this case, approximately $3,500 - could be paid off with proceeds from an auto gap claim. Many people incorrectly believe that gap insurance is required when leasing or buying a new vehicle. Instead, this is simply an option that a car owner can choose or decline. It's also important to remember that your auto policy won't automatically pay off what you owe on a vehicle that's been declared a total loss. The insurer instead determines the actual value of your vehicle at the time of the accident and only pays out that amount - whether that's enough to pay off the loan or not. Additionally, most lenders that specialize in car finance give a limited amount of time for the total amount owed to be paid off. Another misconception about gap protection is that it is only available through an auto dealer. The gap add-on can be purchased elsewhere, generally within a year of the purchase of a new vehicle.

Gap protection is not very expensive, with policies often ranging between $300 and $800 per year. That means the extra monthly cost is usually not so great. There are many other good reasons to consider gap protection. If you are going to put little or no money down to purchase your vehicle, gap protection can be a lifesaver. In the car theft example above, the car owner would end up still owing $3,500 on a car loan for a vehicle he or she no longer has. That expense can make it more difficult for some people to then be able to afford another vehicle. If you have chosen to finance your new vehicle over a long period of time, it's more likely that the value of the vehicle will fall below the amount of money owed on the car loan. In that case, the gap add-on can be very beneficial. Gap protection also is helpful if you lease a vehicle. Even though the car is owned by the leasing company, it's the responsibility of your provider to pay off a claim in the event of a wreck that totals the vehicle. Most experts recommend lease gap insurance.