Auto Insurance: Important Definitions

March 24, 2017 · Posted in General Articles on Car Insurance 
by Theodore Hoffstrader

According to the Department of Motor Vehicles (DMV), US law requires every car owner in the country to covered by a some type of auto insurance. This law exists for two reasons: first, to protect the car owner from damages he or his car suffer in an accident, and second, to protect other people from damages that he may cause and may be his fault.

Auto Insurance Coverage determines the obligations and the responsibilities of a person who insures a car (a policy holder). This defines what happens what happens in case there is damage to his car, his car is stolen, or he is involved in a car accident (which may or may not be his fault).

The following are important definitions:

Property Coverage: this describes the amount of coverage available to a policy holder whose car was damaged in an accident, or through other means, such as vandalism. It also includes the theft of his car. Obviously this is an option every car owner should want to obtain.

Liability Coverage: this term involves ones legal responsibility for bodily injuries and for property damage caused by him. This assures the policy holder that whatever happens, the insurance company will protect him – to some extent – from bodily or property damages he has caused.

Medical Coverage: this term applies to the amount of money paid for the hospitalization and treatment of injuries incurred during an accident, as well as the costs of rehabilitation, and wages lost by the injured person during this time of incapacitation.

Standard policies:

Auto insurance policies can be classified into multiple categories. Each exists to compensate for damage or loss sustained, and expenses incurred, in cases of property damage or injury. Several examples:

Third Party: this is the bare minimum policy a car owner must possess in order legally comply with US laws. Unsurprisingly, it is also the cheapest car insurance available. Put simply, this plan protects the policy owner in case he accidentally damages someone or their property.

Fire and Theft: this type of policy protects a car owner from situations where his car is either burnt or stolen, but it does not protect him from other situations, such as property damage or medical injuries.

Collision: this type of policy covers the cost of repairs of the insured car even if the policy holder is responsible for the accident that caused the damage.

Personal Injury Protection (PIP) or Medical Payments (MedPay): this type of policy reimburses medical bills of the driver and his passenger regardless of whos at fault for causing the accident. It also protects against lost wages while the injured person cannot work.

Comprehensive: this is the best type of auto insurance and the most expensive one as well. It offers virtually all protections to the policy holder ranging from accidents, medical bills (at least partially), fire damage, theft, and even natural disasters (“acts of god”). It even partially covers the cost of items stolen from a car!

The following are specialized policies:

There are also specialized policies that suitable to some scenarios.

Classic car insurance: this policy targets owners of antique cars (cars that are older than 25 years), and is equivalent to a comprehensive car insurance. There are usually extra conditions in the policy, such as a limit on the number of miles the car owner may drive in a year’s time.

Rental Reimbursement: in the event a policy holder’s car is unavailable (i.e. it is in repairs as a result of an accident), this policy ensures that the car owner gets a replacement rental car for this period.

Regardless of the policy a car owner has, it is important for him to be familiar with his policy. Some auto insurance providers do not reimburse 100% of the value of a stolen or damaged car, but rather return only 80%, with the rationale being that this prevents frauds – accidents or thefts initiated by the owner of a car who simply dont want them anymore.

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