As we have a brief introduction to some of the basic questions about auto insurance. Now, we are going to describe the types of auto insurance and their details. In most parts of the world, you are not allowed to get your vehicle on the road without auto insurance, you will need minimal or basic auto insurance.
Therefore, it is important to understand auto insurance and its types before agreeing with an auto insurance company. Auto insurance companies offer you different types of insurance policies based on your need, demand, budget, and convenience. The minimum amount of auto insurance may vary in different countries and even in statistics, yet the types of auto insurance are almost the same in every part of the world. Auto insurance policies are usually for six months or one year.
During this period an auto insurance company covers all or most of the losses in the event of an accident or theft (based on your signed policy).
Just take a look at the different types of auto insurance policies and choose the one that suits you best.
- Liability Insurance (Body injured/Property damage)
- Medical payments or personal injury protection (PIP)
- Uninsured and underinsured motorist coverage
1. Liability Insurance (BI/PD)
This is the basic or minimum insurance you need before you get on the road with your vehicle. When you bring your vehicle on road, it’s your liability or responsibility to protect others. Therefore, you need at least Liability Insurance. In case of an accident, when it was your fault you need to pay the damage: cost of damaged property, and cost of injuries like medical bills. The minimum amount of liability insurance could be different in countries, but it covers almost the same two objectives. Two objectives of liability insurance are given below:
a. Body Injured (BI)
If unfortunately, an accident happened that you were involved in, your liability insurance will cover medical bills, lost wages, the suffering and pain of other parties or people. Medical bills: X-rays or tests, medicines, surgery, etc. Lost wages: In case of a serious injury an injured person may not be able to go to work, in such case, your liability insurance will pay the wages to that injured person unless he or she is not medically fit to go to work again. Suffering and pain: This legal term is used for any fear, inconvenience, emotional disorder, discomfort, even the time of enjoyment of life that has been lost in case of that accident, the suffered person legally recovers an amount small or sometimes large to compensate for suffering and pain.
b. Property damage (PD)
Along-with injuries liability insurance covers property damage when you are responsible for a collision. It covers damage to vehicles, buildings, lamp posts, mailboxes, fences, and other things. One interesting thing: liability auto insurance does not cover any damage to your property. This type of insurance is basically covering the loss of other parties. If you want to cover your damage you will have to add collision coverage in your auto insurance policy, which is another type of auto insurance.
2. Medical Payments or Personal Injury Protection (PIP)
This is not an essential part of auto insurance, but you can add it to your auto insurance policy to have extra protection. This type of insurance protects you or someone else who was driving your car and other passengers in the car at the time of the accident. It does not matter either it was you or the other driver who was responsible for the accident. Medical payment (MedPay) covers the medical-related bills only, while Personal Injury Protection (PIP) includes medical bills or treatment, funeral, lost wages for those days you were not able to go work because of an auto accident. There is also another condition when this type of auto insurance policy covers you: If you were walking at the roadside and hit by a car. In case of having health insurance you do not need MedPay or PIP otherwise, you are paying double for the same kind of insurance.
This type of auto insurance is not for everyone in the sense, if you got an old car and it does not worth much, you could skip collision auto insurance. This type of auto insurance covers your damage in case of direct collision of your car with another car or any object like any pole or booth. This also covers your car damage in case of a single accident like a fall/rollover. It does not cover theft, damage to other vehicles involved in accidents, and any medical-related payments.
Collision auto insurance includes deductible: It is an amount that you’ll have to pay in case of collision, and the rest will be covered by your auto insurance company to get fix your car. Deductibles have varying amounts if you sign a policy with a high deductible your premium will be low, on the contrary, you can choose a low deductible with a high premium. A smart thing to do, while determining the deductibles, you must keep the value of your car in mind.
Moreover, Collision auto insurance has a limit, which means there is a limit of the maximum amount the insurance company will pay you in case of collision. This maximum amount usually is the actual cash value of your car. If you get a leased or financed car collision coverage, or collision insurance is typically required by the lender.
Comprehensive auto insurance is not necessary, but you can add it with collision (auto insurance) to have an added protection, in case of a new and expensive car you would like to include comprehensive coverage into your auto insurance policy. Losses that are not included in the collision (auto insurance) come in comprehensive auto insurance: fire, theft, vandalism (civil disturbance), falling objects, hitting an animal, natural disaster flood, earth quick or storm, etc. It also has deductibles that you can choose according to the value of your car. Again, high deductibles come with a low premium and vise versa. The comprehensive policy is not necessary, but the lender may insist to include comprehensive coverage in your auto insurance policy unless the loan is paid off.
5. Uninsured and Underinsured Motorist Coverage
Liability insurance (Body injured/Property damage) is your auto insurance that pays to the other party you had an accident with. There could be a situation: if a car hits your car and does not have auto insurance (uninsured) which is outlawed but still possible, or have auto insurance that does not cover your loss (underinsured), in such case your uninsured/underinsured coverage will pay your damage. Again: It is you (not the car that hit you) who must have uninsured/underinsured auto policy to claim according to the above said situation. In case of hit and run, when there is no one to pay for you damage, your uninsured/underinsured auto policy helps you to fix your car or whatever. This hit and run case is still valid if you were a pedestrian, and you have un/underinsured coverage in your insurance policy.