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What are the types of car insurance coverage?

Here's what you need to know...

When you buy auto insurance, you don’t just call a carrier and make a payment to activate your coverage. Since premiums are based on your personal profile and your risk classification, you need to answer questions before you can even get a quote of what your premiums will be.

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While you’re getting a rate quote, it’s your responsibility to select the limits and coverage options that you’d like to carry when you buy your insurance. At a minimum, you must purchase the coverage that’s required in your state. Anything above this is considered optional. Here’s what you need to know about the types of coverage that are mandatory and the types of coverage that are optional:

What type of auto insurance is required under state law?

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Auto insurance is a requirement that’s set by state officials. Since auto insurance isn’t regulated at a Federal level, the type of coverage and limit of liability that you must have will vary depending on where you live and what type of system the state operates under.

There are two types of auto insurance systems in the United States: tort systems and modified no-fault systems. In no-fault states, state officials require you to purchase your own medical coverage that pays for your hospital bills and treatment expenses. In tort states, drivers who are at fault must have third-party liability coverage that pays.

The Mandatory Types of Coverage That Must Be On Your Policy

You must buy mandatory coverage on your vehicle when it’s registered. If you don’t have a registration on a vehicle that’s sitting in storage, you won’t be penalized for failing to keep your coverage option. For your insurance to be recognized by the state, you must buy your policy from a carrier licensed to do business in the state.

All licensed carriers are required to offer their customers no less than the minimum coverage requirement. While there are exceptions to the rule, here are the most common types of insurance that you must keep active on your policy to avoid fees and other penalties:

  • Bodily Injury Liability:
    Coverage that will pay when the policyholder or a listed driver is at fault for an accident that leads to injury or death
  • Property Damage Liability:
    Coverage that will pay when the policyholder or a listed driver is at fault for an accident where someone else’s property is damaged
  • Personal Injury Protection:
    Coverage that will pay for the policyholder’s medical expenses, rehabilitation costs, and loss of income when they are injured in any type of loss involving a vehicle

Coverage Options the Insurer is Required to Offer You

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As long as you have the mandatory coverage options, you are complying with the insurance vehicle code. The auto insurance company is also required by law to comply with laws that have been passed by the state by offering certain coverage options to their personal auto consumers. The coverage options that you must be given the option to buy include:

  • Uninsured Motorist Protection – coverage that will pay for your hospital bills, doctor bills, and related medical care costs after you’re involved in an accident with a driver who doesn’t have insurance
  • Medical Payments Coverage – coverage that will pay for your immediate medical expenses, up to a specified limit, regardless of who’s deemed at fault for the car crash

How do you reject coverage options you don’t have to carry?

You may not have to carry Uninsured Motorist Protection or Medical Payments, but you do have to sign a rejection form if you don’t want to pay the extra premiums. The rejection form is required so that the carrier can show that they have offered you the coverage and you are still choosing not to carry it.

If you don’t sign the rejection form before the policy goes through underwriting, a minimum limit of the coverage will be added until the form is on file. You’ll notice that your premiums will go up. This is not necessarily a bad thing because you’ll have the extra protection that will help you pay for your own medical expenses.

When should you carry Uninsured Motorist Protection?

If you can afford to pay the premium for Uninsured Motorist Protection, it’s always a good idea to carry the coverage. It’s recommended for that anyone who lives in an area with high rates of uninsured drivers, but any driver in the United States can benefit from having the protection after an unexpected loss.

When should you carry Medical Payments Coverage?

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Medical Payments is a coverage that pays regardless of fault. If you don’t have medical insurance, your insurance policy excludes chiropractic care, or you have a high deductible plan, you should consider buying at least some medical payments coverage to fall back on if you’re ever injured as a driver, passenger, bicyclist, or even pedestrian.

What type of coverage pays for your vehicle to be repaired?

Property Damage Liability pays for repairs, but it pays for the repairs needed to repair someone else’s property. Since cars can cost an arm and a leg to repair, it is reasonable to look for a type of insurance coverage that will pay for damage to your vehicle. Here are your options when you buy a standard auto policy:

– Comprehensive

Comprehensive is known as “Other Than Collision” because it will pay up to the actual cash value of your vehicle to repair or replace it after it’s damaged by fire, theft, vandalism, flood, glass breakage, missiles, or other non-collision perils. All comprehensive claims except for some glass claims have a deductible required that must be fulfilled.

– Collision

Collision coverage comes into play when you collide with another car or any other type of object. In most cases, you’ll only have to file a collision claim when you’re at fault in the loss. There are some cases where your policy will pay because the other insurer is delaying the claims process. In this event, you must pay your collision deductible.

Are you required to buy damage coverage for your own vehicle?

You can’t be assessed a criminal or civil penalty if you choose not to carry comprehensive or collision on your policy. Even though it’s not required by the state, there are times when full coverage should be considered mandatory. This is especially true when the car is financed or leased.

What happens when you buy the wrong insurance on a financed car?

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You must be able to prove that you have full coverage insurance when you initially close an auto loan. Most lenders also want to see that they are listed as the loss payee on the policy so that they will get notifications when your policy cancels, doesn’t renew, or you remove physical damage. The clause is also important for ensuring the lender gets paid when there’s a loss.

If the insurer notifies your lender that you don’t have full coverage on your vehicle, it can create problems for you on your loan. The insurer has the right to add forced-placed insurance premiums to your loan balance. When they do this, you’re paying interest on your principal and these premiums all for coverage that protects only the lender.

It’s very important to build a policy that you can afford and a policy that offers enough coverage. Be sure to compare the cost of coverage for different limits and then you can start comparing rates from provider to provider. One way to get quick quotes to cover your vehicle is to use an online rate quote tool. Enter your information, select different coverage limits, and after you’ve done the comparison you can decide which limits you should buy.

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