While the basic tenets of the term “insurance” can be explained in a few words, the underlying depth and intricacies of modern insurance policies take a bit of time and effort to unpack.
Almost every possession or aspect of daily life can be insured through a policy, may it be life, health, home, car, rental, dental, vision, or numerous other forms of insurance. However, the conditions and workings of the various types of coverage can be overwhelming to learn about, purchase, and track. Auto insurance, in particular, requires some research to understand fully.
Despite being one of the most common types of insurance, auto insurance policies can be confusing. Why? Because auto insurance policies typically consist of numerous parts that are calculated separately but rolled into one plan.
What Composes a Car Insurance Policy?
In general, six subcategories of car insurance make up a single plan. While some coverage types are required in every U.S. state, others vary by state jurisdiction. If you rent a vehicle, the renter may request coverage forms not mandated by law. The four out of six fundamental coverage types that are often required by law include:
- Bodily Injury Liability– Covers the costs associated with death or injuries caused by you or anyone else operating your vehicle.
- Property Damage Liability– Covers costs associated with damage to another person’s property caused by you or anyone operating your insured vehicle.
Sometimes Required Coverage–
- Personal Injury Protection (PIP)– Also known as medical payments insurance, PIP reimburses medical expenses (and sometimes lost wages) for you or anyone riding in your vehicle.
- Uninsured Motorist Coverage– Reimburses your expenses if you’re in an accident involving an uninsured or underinsured driver.
Optional Coverage: Collision and Comprehensive
The two remaining forms of coverage often bundled into auto insurance policies are collision and comprehensive coverage. In general, states do not require drivers to purchase these forms of coverage.
However, many car owners still opt to add one or both to their car insurance plans. While the required forms of car insurance cover expenses for the other party involved in an accident, these two optional forms of coverage apply to your vehicle and expenses.
- Collision Insurance– Collision coverage reimburses you for expenses paid to repair or replace your own vehicle. Whether the damage results from a collision with another car or an object (ex: a tree or telephone pole), collision insurance reimburses you even if you’re at fault.
- Comprehensive Insurance– Comprehensive insurance provides coverage in situations that are out of your control. For example, it covers theft, vandalism, and damage caused by storms and other natural disasters.
If you want a better understanding of comprehensive coverage, you can take a look at what prominent insurance providers include in their plans and how much they cost. For example, you can click here for a description of comprehensive insurance from The Hartford.
When shopping for auto insurance and deciding on a policy, you’ll have to decide whether or not you want to include the collision coverage and or comprehensive coverage. This choice ultimately comes down to risk analysis. You should base this decision on your financial circumstances and a few other variables, such as:
- Your accident record, and the records of anyone who will use your vehicle, such as spouses or children
- The value of your car
- Local crime rates (How likely is it that your car will be vandalized or broken into?)
- Local weather patterns (Are high-wind storms frequent? Does flooding occur often)
- Local traffic patterns (Higher traffic typically creates a greater risk for collisions)
Choosing an Auto Insurance Plan That’s Right for You
Once you’ve decided which types of coverage you want to be included in your auto insurance policy, you’ll have to hash out the details with your insurance provider. Remember, insurance companies consider a number of factors when calculating price and premiums. These factors include:
- How far and how often you drive
- Driving record
- Your credit score
- The type and value of the car your drive
Research and Risk Analysis
Auto insurance coverage can be a bit tricky to understand and navigate, but hopefully, this article has given you a clearer idea of how it works. If you’re looking for car insurance or are considering switching to a new provider or policy, always do your research first and focus on your unique risks and financial standing.