Have you ever wondered how many types of car insurance are out there? Probably not, seeing how, unlike me, most people don’t spend the vast majority of their time thinking about insurance. But that doesn’t mean you should overlook this topic, particularly if you’re considering changing your car insurance coverage or provider. This article will introduce you to the different types of automobile insurance and explain in which circumstances some may be better options than others.
Without further ado, let’s get right down to it!
Liability insurance is probably the most well-known type of auto coverage, as most states require drivers to prove their financial solvency before hitting the road. This is usually achieved through liability insurance. Simply put, liability coverage allows you to pay for the damages that resulted from an accident where you were the at-fault driver. It comes in two forms:
- Bodily injury liability, which kicks in when the other party suffers injuries that require medical attention, and can cover medical bills and lost wages.
- Property damage liability, which covers vehicle and other property damage up to the specified limit.
Most states mandate that each driver carry a minimum amount of liability insurance – in Tennessee, those limits are $25,000 bodily injury liability per person, $50,000 per accident, and $15,000 property damage liability. Opting for the minimum amount of insurance means that you’ll have to pay everything that exceeds the limit out of your own pocket. For this reason, I strongly recommend you thoroughly consider both your financial circumstances and your driving record before making your decision.
Uninsured Motorist Coverage
Uninsured motorist coverage protects you against uninsured drivers – because yes, there are people who disregard state requirements and drive without insurance – and, most importantly, against hit-and-run accidents. This kind of insurance offers protection even when you’re outside of your car, so if you happen to be injured by a vehicle while crossing the street, you should be able to rely on your own insurance if the at-fault driver leaves the scene of the accident.
Underinsured Motorist Coverage
Underinsured motorist coverage protects you if the driver responsible for the accident doesn’t have enough insurance to pay for damages. Just like liability insurance, underinsured motorist policies cover both property and bodily injury damages.
Medical Payments Coverage
While bodily injury liability pays for the damages caused to the other party involved in an accident where you were at fault, medical payments coverage will cover the damages suffered by you and your passengers. It may also include certain services that your health insurance doesn’t, such as dental work or specialized treatment. However, it’s important to mention that medical payments insurance does not cover loss of income, funeral costs, or specific rehabilitation services. This type of coverage is mandatory in the 12 no-fault accident states. (Tennessee is not one of them).
Comprehensive insurance helps protect your car against damages caused by unfortunate events and accidents with animals. To this end, you can count on your insurance to cover acts of vandalism, fire, theft, falling objects, explosions, hail, and other similar happenings.
Collision insurance pays for vehicle damages that may result from hitting another vehicle or object (such as a pothole, a fence, or a lamppost). In the event of an accident, collision insurance covers the damages to your vehicle if you are the at-fault driver. Otherwise, the other party’s liability insurance kicks in. This type of insurance doesn’t cover accidents with animals, and while collision insurance is usually optional, you may be required to have it if you took out a loan or lease your vehicle. Note that most policies won’t insure your vehicle for the replacement cost, but for its actual cash value, which takes into account depreciation. For this reason, it’s good to supplement your policy with new car replacement or gap insurance, particularly if your vehicle is brand-new.
Remember when I mentioned earlier that collision insurance usually covers a vehicle’s actual cash value and not its replacement cost? This is where gap insurance comes in handy, as it’s specifically designed to protect against depreciation by filling the “gap” between your collision or comprehensive coverage and the debt you still owe on your car. Some vendors include this policy in the cost of leased cars, so make sure to check your contract before opting for this add-on.
New Car Replacement Insurance
New car replacement coverage will save the day in the unfortunate event of totaling the newly-bought car. It’s similar to gap coverage in that it covers your car’s depreciated value and allows you to replace it without having to spend extra money.
Roadside assistance is an auto policy endorsement that can help cover towing and labor costs associated with your vehicle. Depending on the area you live in and the condition of your vehicle, it might make sense to invest in this coverage.
Rental reimbursement coverage helps pay for the costs of renting a vehicle after a car incident so that you can safely continue your travels while your vehicle is being inspected and serviced. It may make sense to buy such coverage if your job involves a lot of travel and time-sensitive meetings.
Classic Car Insurance
If you’re a collector, classic car insurance is definitely something you can look into. This coverage is designed with the unique needs of classic and vintage cars in mind and is meant to take into account the “agreed value” of the vehicle. Due to mileage and depreciation, classic cars may not amount to much in terms of standard insurance pay-out, but classic car policies factor in car condition, the improvements you’ve made to it, and the cost of replacement, all in an attempt to fairly value your vehicle.
As you can see, there’s a large amount of choice involved in customizing your ideal car insurance policy. If you’re looking for more in-depth thoughts on what auto insurance is right for you, drop me a line – I’d love to help. And if not, make sure to check out our articles about why auto insurance companies deny claims and on how auto insurance rates are calculated – they’ll help you make informed decisions when shopping for auto coverage.