Auto Insurance is a contract between you and your Insurance Company. Insurance protects you against financial loss if you have an accident, by agreeing to pay your losses as defined in your policy and you agree to pay the premium.
Auto Insurance provides property, liability and medical coverage:
- Property coverage pays for damage to or theft of your vehicle.
- Liability coverage pays for your legal responsibility to the injured party or property damage.
- Medical coverage pays for the cost of treating injuries, or rehabilitation and possible lost wages and funeral expenses .
An auto insurance policy consists of six different kinds of coverage. States require you to buy some but not all, of the above coverage. If you’re financing a car, your lender may have requirements as well.
Most auto policies are for six months to a year. Your insurance company should notify you by mail or email when it’s time to renew the policy and to pay your premium.
Your policy may consist of six separate coverage plans.
- Bodily Injury Liability
This coverage applies to injuries you, the designated driver or policyholder may cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.
It’s very important to have enough liability insurance in the event that you are involved in a serious accident, you may be sued for a large sum of money. It is recommended that you buy more than state-required minimum to protect assets such as your home and savings.
- Medical Payment or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s vehicle. In its broadest form PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.
- Property Damage Liability
This coverage pays for damage you (or someone driver the car with your permission) may cause to someone else’s property. This means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures you vehicle may damage.
- Collision
- Comprehensive
though you may want to opt for a higher deductable as a way of lowering your premium.
Comprehensive insurance will also reimburse you in your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage but if you have a car load, your lender may insist you carry comprehensive coverage until your load in paid off. States do not require that you purchase collision or comprehensive coverage.
- Uninsured and Underinsured Motorist Coverage
NO! Almost every state requires you to have auto liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance, you need to have sufficient assets in order to pay claims if you cause an accident. If you don't have enough assets, you are required to purchase at least the state minimum amount of insurance. But insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.
If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
If you lease a vehicle, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to buy these coverages in addition to any others that may be mandatory in your state, such as auto liability insurance.
If you've financed your vehicle, your lender may require comprehensive and collision insurance in the loan agreement.
- Collision Insurance covers the damage to the car from an accident with another automobile or object.
- Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire or theft or collision with a deer.
The leasing company may also require "gap" insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or "totaled," there's likely to be a difference between the amount that you still owe the auto dealer and the check you'll get from your insurance company. That's because the insurance company's check is based on the car's actual cash value which takes into account depreciation. The difference between the two amounts is known as the "gap."
On a leased car, the cost of gap insurance is usually rolled into the lease payments. You don't actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a "gap waiver." This means that if your leased car is totaled, you won't have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you've finished paying for it. Ask your insurance agent about gap insurance or search the Internet. Gap insurance may not be available in some states.
When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough.
Before you rent a car:
1. Contact your insurance agent.
Find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it's used for pleasure and not business. If you don't have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.
2. Call your credit card company.
Find out what insurance your card provides. Levels of coverage vary.
If you don't have auto insurance, you will need to buy coverage at the car rental counter. The following coverages are available to you at the rntal car counter:
- Collision Damage Waiver (CDW).
Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. This coverage generally costs between $9 and $19 a day. If you have comprehensive and collision on your own car, you may not need to purchase this coverage.
- Liability Insurance.
This provides excess liability coverage of up to $1 million for the time you rent a car. Rental companies are required by law to provide the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy on your home/auto, you may consider forgoing this additional insurance. It generally costs about $7 to $9 a day. If you don't own a car, and rent cars often, consider purchasing a non-owner liability policy. This costs approximately $200 - $300 per year. Frequent car renters sometimes find this more cost-effective than constantly paying for the extra liability coverage.
- Personal Accident Insurance.
This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance, usually costs about $3 per day, but may be unnecessary if you are covered by health insurance or have adequate medical coverage under your auto policy.
- Personal Effects Coverage.
This provides coverage for the theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car, minus your deductible. You need to have receipts or other proof of ownership. This type of insurance usually costs about $1.25 per day. Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.
The cost of insurance at the rental car counter will vary depending on the rental car company, state, and location of the dealer and the type of car you rent.
Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
There is a big difference between when an insurance company cancels a policy and when it chooses not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except:
- If you fail to pay the premium.
- You have committed fraud or made serious misrepresentations on your application.
- Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company's consumer affairs division. If you don't get an explanation, call your state insurance department.
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