Some Elementary Concepts in Auto Insurance

April 2, 2017 · Posted in General Articles on Car Insurance 

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 defines the coverage for which the insurance company is responsible for when the policy owner’s car is damaged (through accidents or vandalism) or when it is stolen. Clearly, a very important option.

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 defines the amount of coverage the insurance provider is willing to provide for the treatment of injuries and hospitalization sustained during an accident, as well as the costs of rehabilitation. In some cases, it also covers the wages lost by the injured person while he cannot not work.

The next few items are standard policies:

There are numerous types of auto insurance policies that exist to compensate for damage or loss sustained, and expenses incurred, by the car owner in cases of loss, injury or property damage. Here are several types of such policies:

Third Party: this is the simplest and cheapest policy, and the bare minimum, a car owner must possess if he owns a car. It financially protects an insured individual when he causes damage to someone or their property.

Fire and Theft: this type of policy offers more protection to the policy holder, and will cover the cost of a car that is burnt or is stolen. Note that it does not cover any damages incurred if involved in a car accident.

Collision: if this option is included, the policy holder is not financially responsible for repairing his car when it is involved in a car accident, even in the even he caused it. Pretty good option to have.

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 most expensive car insurance, and unsurprisingly, the best one as well. It covers the policy holder from accidents, auto theft, medical bills resulting from bodily injures (at least partially), fire damage, and even “acts of god” (such natural disasters). On top of that, 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: covers a car that is older than 25 years. In principle it is equivalent to a standard comprehensive car insurance, however, it may have a limitation on the number of miles the owner can drive per year.

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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