Your auto insurance policy is probably one of the most important policies you have.  Not only does it protect you from trouble if you get pulled over or get in an accident, but it protects your asset: your car.  If something happens, insurance provides the money needed to fix or replace it.  In fact, many companies now have accident forgiveness, which means if you get in an accident and it is your first on their policy, they will forgive it and not raise your rates.  Insurance also covers damage to any property involved.


More importantly, however, insurance covers you and the loved ones in the car.  Should someone be injured, whether you or the other party involved, insurance can help cover medical costs, damage to property, and more.  All of this is great, but if you do not understand your policy, you will not know what you are covered for and how to use it. Below is a quick guide to understanding your insurance policy.



Auto Insurance has many different parts to consider.  Please note that deductibles, meaning how much you pay first before the policy kicks in, are up to you.  This guide to choosing the right deductible will help you figure out what is best for you.  Also, there may be a required amount of coverage needed for each coverage type, which varies by state. The types of coverage are broken out below.


Liability Coverage


Liability coverage refers to bodily injury and property damage for an accident in which you are at fault, and under or uninsured motorists when you are not at fault.


Bodily Injury – This covers other people who are injured due to your negligence.  It will cover lost wages, medical expenses, and pain and suffering if the injured party chooses to file a claim.


Property Damage Liability – This covers to any damage you cause to property such as trees, fences, and the like.


Uninsured or Underinsured Motorist – This protects you if you are injured by a driver with no insurance or if you are involved in a hit and run. Underinsured pays the difference if the other person’s insurance is below the actual cost of the damages sustained. This coverage will pay you an additional amount up to your policy limits.


According to the National Association of Insurance Commissioners, “When purchasing liability coverage, you will need to determine the amount of coverage needed to protect yourself if a loss occurs. Coverage is often sold with a per-person and total per-loss maximum amount. For example, 100/300/50 coverage means that you have coverage of $100,000 bodily injury liability insurance per person, $300,000 total bodily injury liability insurance per accident, and $50,000 property damage liability per accident.”  Choosing low coverage to save money will offer less protection and could leave you footing a big bill in a serious accident.  Plus, some states require certain minimums.


Coverage for Your Car


Collision Coverage – This pays for physical damage to your car if the damage was a result of sliding into an object such as a mailbox.


Comprehensive Coverage – This covers damage to your auto for almost all other losses other than collisions. This includes:


  • Theft
  • Fire
  • Falling Objects
  • Weather Related such as Hail or Flood
  • Vandalism
  • Damage by Glass Breakage or an Animal such as a Bird or Deer


With car coverage you have to pay a deductible, which is the amount you pay before the insurance company pays anything.  Deductibles usually are $250, $500, or $1000.  You want to choose according to your lifestyle and needs.


Other Optional Coverage


Medical Payment Coverage – This pays for medical and funeral expenses for you or others injured or killed in an accident.  This also covers those with insurance who are struck as pedestrians.


Rental Reimbursement – This covers the cost of a rental car if your car is totaled or needs repairs.  It usually has a daily and total dollar limit, for example, $20-a-day up to $600.


Towing and Emergency Roadside Service – This covers towing your car to a repair shop.  Know the specifics of this service as your car dealer or a third party service may offer more comprehensive coverage.


Key Points to Remember When Considering an Auto Policy:


  • Your auto insurance policy will financially protect you, giving you peace of mind.
  • Limits for auto damage or injuries resulting from an auto accident.
  • Be aware of the types of coverage offered and what is required in your state.
  • Review your auto policy and stay informed on what and whom your auto policy will cover.
  • Know your state’s minimum amount of liability coverage required and decide what amount is best for your situation.
  • Know how to file a claim with your insurance company. Usually, you can find this information on their website or by calling them.
  • When an accident occurs, know what to do to protect yourself and others around you.  This means trading insurance information and making a claim, no matter how small the accident, and having proper first aid in your car.  Get more tips here.

*Source: NAIC