Car Insurance: Types of Insurance You Need to Understand

There are so many different types of insurance out there, and it can be hard to know what you need to have for a complete policy. In this post, I'll go over the basics of car insurance--what types of coverage you should buy, where you buy them from, who they cover--as well as some must-have addons. Scroll down to learn more!

The bottom line is that car insurance is not one-size-fits-all: it depends on your lifestyle and your needs. You need to read up on your state's laws, talk to an insurance professional, and do some research online. The bare minimum you need is liability insurance, which protects you from damage you cause. However, there's more to it than that--the rest of this post will give you a greater understanding of your options.

What is car insurance?

Car insurance is a contract that covers the expenses incurred due to accidental bodily injury or damage to property caused by a car/vehicle. This usually includes medical costs associated with bodily injury, damage due to crashes and fires, as well as repair costs for property damaged in the accident. In simple words - "Car Insurance is financial protection for drivers".

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Who needs it?

All drivers must have at least liability coverage. Beyond that, insurance policies vary depending on the type of car you drive and how much of a risk you pose when driving it. There are several types of car insurance policies, and most drivers need them all: liability, collision and comprehensive. Liability covers damages if you cause an accident (with no fault on your part). Collision covers damages if your car is damaged in an accident that was your fault or by another's car. Comprehensive insurance covers damage to your car not caused by an accident (accidental damage).

How much is car insurance?

Most auto insurance policies are subsidized, which means the company will offer you a lower rate than you would pay if you didn't have the policy. The same goes for deductibles--your deductible is usually based on how much your insurance policy costs and what safety features your vehicle has. The higher the deductible, the less you'll pay each month in premiums. Car insurance companies usually require you to have your car inspected before you can start using the insurance.

What are the different types of car insurance?

The most common type of car insurance is liability, which protects you from damage you cause. Liability covers damages if you cause an accident (with no fault on your part). You also need to have property damage coverage, which covers your vehicle if it's damaged in an accident that was your fault or by another's car. Collision coverage is similar and protects against damage from accidents that were not your fault, but may be caused by other cars or objects (such as trees, rocks, etc...) Comprehensive covers damages to your car whether or not an accident was involved. This usually includes repairs for any damage not caused by an accident. In some states, you may also need car rental insurance.

Should I buy all forms of car insurance?

As you can see, the answer is yes to all of these questions! You really do need liability and property damage coverage, even if your car only has liability. Also, make sure you have additional coverage (such as car rental insurance) if your policy doesn't cover it. It's important to keep complete coverage in order to avoid paying a lot more than necessary! If you already have liability coverage with your vehicle's owner's or lessee's auto policy, you'll probably be able to go with the minimum required amount of liability (see below).

What is minimum coverage?

Minimum coverage is your state's minimum amount of liability coverage required by law. This varies by state, but in many places it's pretty low. In New York, this is only $25,000 per person for bodily injury to others and $50,000 for property damage. Many states require you to purchase the minimum amount of liability and property damage insurance in order to drive legally on the road (and many states have a higher minimum--check with your state for details). If you don't have any comprehensive or collision coverage, it's wise to buy at least this much liability coverage so that you can still drive safely under the law.

The other types of car insurance...

Finally, most states have "add-on" laws that require you to buy a certain amount of coverage before you can get your license. These are usually collision and comprehensive insurance. In California, for example, you must have liability and collision coverage before you can apply for a driver's license (and there's a $5,000 minimum for both)! Here are some add-ons to consider: fire or theft coverage: if one of your kids steals your car, it will be taken care of by its insurance (you don't want your policy cancelled because of this).

if one of your kids steals your car, it will be taken care of by its insurance (you don't want your policy cancelled because of this). medical payments : this will cover injuries to you or passengers in a car accident (such as your back injury).

this will cover injuries to you or passengers in a car accident (such as your back injury). comprehensive/collision with motorcycle coverage: if you have a motorcycle, this is important. Also check the liability, fire, theft and medical payments add-ons! These are all very common.

What is underinsured motorist coverage?

Many states require that drivers buy insurance policies that offer a minimum amount for liability. However, if you get hit by a drunk driver and the driver doesn't have any insurance, your insurance may not be enough to pay for all of your injuries. This is where under-insured motorist coverage (UIM) comes in. This type of coverage will help cover some of those costs if you were hurt by a driver with no or low insurance (or who was driving without a license). In other states, it may also provide coverage if you were involved in an accident while out-of-country (in most states that are not contiguous with the U.S.). In North Carolina, for example, you can purchase UM/UIM for up to $100,000 per person and $300,000 per accident.

What are the benefits of car insurance?

Cars can be major investments, and you may have to pay for them in cash. It's helpful to understand what car insurance covers and protect you from unforeseen consequences. Having certain kinds of coverage will provide you with peace of mind and protect you from financial loss. Since car insurance is mandatory in some states, it's worth looking into the laws to see exactly what kinds of coverage are required.

Conclusion

Car insurance is extremely important, especially if you want to drive legally on the road. Make sure that you have all of the right kinds (liability, comprehensive, collision) and amounts of coverage before you hit the road! It's definitely worth it to take the time to consider your car insurance options. Get a quote online today or contact your agent.

See also:

Related Insurance Guides: Auto Insurance Basics, How Do I Find The Best Auto Insurance?, Car Insurance Quotes And Agents, 10 Things You Should Know About Your Car Insurance Policy, How Much Is Car Insurance? Comparison Shopping Tips...