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Most Common Types of Car Insurance Coverage

Understanding Different Types of Car Insurance Coverage

When you purchase your next automobile insurance policy, you should be aware that different coverage options are possible, although not all coverage options are offered in every state. Here is a good overview of what the typical auto insurance policy is likely to include in its terms of coverage:

Liability: This type of two-part coverage is required for operating a vehicle in most states. It covers bodily injury and property damage liability if you cause an accident, covering such things as vehicle repair and medical expenses for the other party. But it does not cover injuries sustained by you or your passengers.

Collision: This policy covers the expense of repairing or replacing your own vehicle after an accident. Damage caused by collision with an object or an accident in which no physical collision has occurred, are both covered under this type of policy. You are usually not required by law to carry collision insurance if you own your car outright, but most finance companies require it if you are leasing your vehicle or have a balance due on your car loan. Collision insurance must often be combined with comprehensive coverage.

Comprehensive: This type of policy covers damage sustained by your vehicle that has not been the result of a collision or accident. This includes natural disaster, a falling object, or theft and vandalism. Unless your finance company requires this type of policy, comprehensive insurance is optional, although it is often a good idea to purchase it combined with collision coverage.

Personal Injury Protection (PIP): This insurance type is also called "no-fault insurance.” When this coverage is in effect, medical expenses caused by an accident will be covered no matter who was at fault in causing the accident. This type of coverage can be extended to other drivers listed on the policy, as well as members of your household and your passengers. The types of expenses covered include medical bills not typically covered by health insurance, in addition to such expenses as lost income, the cost of child care, or funeral arrangements. Only 15 states require drivers to invest in PIP, but this coverage isn't offered by every state.

Auto Medical Payments (MedPay): Although MedPay is similar to PIP, it has a more limited range of coverage. It can pay for accident-related medical expenses for you, your passengers, your household members and other policyholders. It's a good way to supplement existing health insurance policies. If you don't currently have health insurance, it's smart to have a MedPay policy, which also covers copays and deductibles of other insurance plans, including health insurance and PIP policies.

Uninsured/Underinsured Motorist Coverage: Unfortunately, there are some people who insist on driving without having any type of auto insurance or they fail to carry adequate amounts of insurance coverage. If you sustain personal injuries or damage to your car when involved with an uninsured or underinsured motorist, this type of coverage is essential for covering your medical expenses and car repair bills. Half of US states require that you carry this type of insurance.

There are also other less common types of car insurance that are worth investigating as additions to your main auto insurance policy. They are inexpensive investments compared to the benefits they offer:

Guaranteed Auto Protection (Gap): Your auto insurance company only pays your car's actual cash value, even in case of catastrophic loss. Since your vehicle depreciates over time, you could face a situation where the insurance payment is less than what you owe on your vehicle. This type of insurance covers the dollar-amount “gap” between the cash value of your car and the balance of the financing you owe.

Personal Umbrella Policy (PUP): Although this type of insurance isn't considered auto insurance per se, it offers you an extra level of liability protection beyond that spelled out in other homeowner and auto policies you carry. PUP can protect your assets of $1 million or more in case an accident results in a lawsuit filed against you.

Rental Reimbursement: This type of coverage pays for you to rent another vehicle while your damaged vehicle is being repaired. Without this coverage, you must pay for a rental car out of your own pocket or go without transportation. Certain limits are spelled out as to how much your insurer will cover for a rental car on a daily basis until your car repairs are completed.

Emergency Roadside Assistance: This type of insurance means you won't be stranded on the roadside due to a dead battery, empty gas tank, flat tire or keys locked in the car because it provides towing and other assistance. Towing to a nearby garage for service is covered up to a specified distance.

Mechanical Breakdown Insurance: This type of insurance is an affordable way to cover the expense of having repairs done for mechanical parts and systems of your vehicle. Unlike a service contract or extended warranty, you can pay on a monthly basis for mechanical breakdown coverage rather than having to put down the whole amount upfront.

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