Making Sense of Auto Insurance

February 21, 2010

no titleYour car insurance policy is a custom package of several coverage options.  When you purchase insurance, you choose the coverage that best suits your needs.  Typically, the more you have to lose, the more coverage (protection) you need to purchase.

Today, anywhere you drive in the United States you are required to have liability coverage.  For most of us, it makes sense to carry more insurance than required by state law.  Unfortunately, insurance products are often oversold or undersold.

If you cause an accident, it is your liability insurance coverage that pays for the personal injury and property damage.  Your liability coverage does not cover injury to you or damage to your car.  It only pays for the damages, medical bills, lost wages and suffering of those you harm.  It's very important to understand liability insurance coverage and what it means to you if you cause a serious accident.  The minimum liability coverage required by most states will not protect you in the event of a serious accident.

Just think if you have a head-on collision with a family of five at an intersection, where you thought the road was clear to turn left, and their small Toyota eco-mobile T-bones your 1979 Chevy Suburban at 50 MPH?   The driver will have a crushed chest, broken nose and two broken legs, the middle rear seat passenger is dead because they went through the windshield, the front seat passenger has severe facial lacerations and a broken collar bone, and the other two rear seat passengers have severe neck injuries.  There you are with a measly $40,000 or $50,000 to cover the carnage you created.

If you cause an accident like the one described, and you don't have enough liability coverage, the victim's insurance company will be coming after your personal assets until you have nothing left to give.  You stand to lose anything and everything that can be attached as an asset until the bills are settled.  Make sure you have enough coverage to protect your assets.

Automotive collision insurance pays to repair your vehicle when you cause an accident.  Because it is more likely that you will have a small fender-bender in a parking lot or pulling into the garage, collision coverage is almost always the most expensive insurance coverage you will buy.  Most auto collision insurance policies carry a coverage deductible as a means to limit insurance company liability and to reduce the cost of collision insurance (e.g., the higher the deductible, the lower the cost).  The deductible is the amount you pay before your insurance policy kicks in.

Comprehensive insurance coverage pays for incidental damage to your vehicle or its contents, including theft, vandalism, broken windshield, fire, natural disasters (flood, mud slide, etc) and hitting an animal.  Like collision insurance, you buy comprehensive coverage with a specified deductible level.

Uninsured motorists insurance coverage pays for your injuries if you're hit by a driver who doesn't have auto insurance, or if you are involved in a hit-and-run accident.  Uninsured motorists coverage is required in many states.  Even if the coverage is not required in your state, it is a wise investment to take the coverage.

Most uninsured motorist policies also cover underinsured motorists.  This component of your auto insurance pays out to you if the driver who hit you causes more damage than the limit of their liability coverage.

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