Auto Insurance Coverage

Auto insurance coverage is required in 45 states, but even if you live in one of the other five, it is a good idea to carry the coverage. Failing to have insurance may expose you to significant financial risk. There are varying levels of protection you can choose. You need to understand your risks and purchase the amount of coverage you need to protect yourself if you are in an accident.

Main Types of Coverage

Insurance works by pooling all of the premiums you and other policyholders pay to the company. Since only a small percentage of policyholders will be involved in an accident, this allows the company to pay a much larger amount than you actually are required to pay in your premiums. There are three main types of coverage: liability insurance, comprehensive insurance and collision insurance.

1. Liability insurance

Liability insurance is the minimum level required for drivers in a majority of states. With this level of coverage, the insurance company will pay for damages and injuries caused to others if you are in an accident, although it will not cover your own damages. This level of insurance may be sufficient for people who drive older cars. Before choosing a liability limit, you might want to do research to make certain the liability amounts are sufficient for your needs.

2. Collision insurance

Collision insurance is designed to pay for damages to your car, as well as that of another person in an accident. If you have a car loan, you have to have collision insurance so your lender or finance company doesn’t lose their financial interest in your vehicle.

3. Comprehensive insurance

Comprehensive insurance pays for other types of damage to your vehicle, beyond those paid by your collision insurance. This can include damages due to vandalism, fire, flooding, theft or natural disasters. If you have comprehensive and collision insurance, you’ll also still have the liability portion to protect you in case of an accident that causes damage to another car.

Additional Coverage Types

There are more types of coverage that can provide additional protections to you.

• Uninsured and underinsured motorist coverage protects you when you have an accident with a driver who does not have insurance or whose insurance isn’t sufficient to cover your losses
• Personal injury protection will pay your medical bills if you are injured in an accident
• Gap insurance will cover the difference in the amount you owe and the fair market value of your car if it is totaled in an accident, so you are not stuck paying the difference to your finance company
• Some people also purchase towing and rental car options through their insurance policies

Having automobile insurance is not only required in most states, it can provide you with financial security if you are involved in an automobile accident. Before you choose a policy, it is important to do research so you understand the level you really need, then save money by shopping around.