What is auto insurance?
Auto insurance is a contract between you, the policy holder, and the insurance company, where you agree to pay for your premium and the insurance company agrees to cover the financial losses in case of accident as defined in your policy.
Auto insurance provides liability, property and medical coverage if requested:
- Liability coverage will cover your financial responsibility to others for bodily injuries or property damage in case of an accident and is legally required for all drivers.
- Property coverage will pay for damages or theft of your vehicle and other perils listed in your policy terms.
- Medical coverage will pay for the cost of medical expenses, and sometimes for lost wages and funeral expenses as defined in you policy.
An auto insurance policy consists of six different kinds of coverage. Different states have different requirements of mandatory carrying certain coverages. In case of leasing or financing a car, your lender may also have some specific requirements.
Auto insurance policies can have three months to a year terms as stated in your policy. Your insurance company will notify you about your renewals and any changes to the rates in advance.
What is in a basic auto policy?
An auto insurance policy may include six coverages.
Bodily Injury Liability
Bodily injury liability coverage covers the bodily injuries that you, the designated driver, or any policyholder cause to someone else. This coverage can also transfer to other vehicles that you or any policyholder may operate at the owner’s permission. Liability coverage will only pay for bodily injures up to the highest limits stated in your policy, which is why it is very important to carry higher limits other than just state-required minimum. In case of bodily injuries sustained by other party exceeding the limits you carry in you insurance policy, you will be responsible for the remaining and uncovered charges.
Medical Payments or Personal Injury Protection (PIP)
Medical payments coverage covers medical expenses for injuries of the driver and the passengers of the policyholder’s car. The limits of the coverage are stated in the declaration page of your auto insurance policy.
Property Damage Liability
Property damage liability coverage pays for the damages you, any other policyholder, or any person driving your vehicle with your permission may cause to a property that does not belong to you. A damage to someone else’s vehicle, property, and even lamp posts, telephone poles, fences, buildings, or other structures will be covered under this coverage.
Collision
Collision coverage pays for the repairs or replacement of the policy owner’s vehicle, resulting from a collision with another vehicle, object, or as a result of flipping over, no matter whose fault it may be. It also will cover damages caused by potholes. Collision coverage requires a payment of a deductible at the amount stated in your insurance policy. Lower deductibles will increase your premium whereas higher deductibles will lower your premium. Regardless of who may be at fault at an accident, you will have to pay the stated deductibles when a claim is made. In case of the driver not being at fault, the insurance company will try to recover the amount paid from the other driver’s insurance and reimburse the insured for the deductible. Collision coverage may also be required to secure a new loan.
Comprehensive
Comprehensive coverage will reimburses you for damages caused by something other than collision. Theft, fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer are covered perils under comprehensive coverage. Comprehensive coverage requires a payment of a deductible at the amount stated in your insurance policy. Comprehensive insurance will also pay you when your windshield is cracked or shattered. Make sure to check with your insurance company if they offer glass coverage with or without a deductible.
Comprehensive and collision coverages are not required by law but may be required to secure a new loan.
Uninsured and Underinsured Motorist Coverage
Uninsured motorist coverage will pay for bodily injuries sustained by the insured or its passengers in case of an accident caused by an uninsured driver or a hit-an-run driver. The uninsured motorist bodily injury limits are listed in your insurance policy and can never exceed your liability coverage limits. Uninsured motorist coverage is not required by law in all the states but is highly recommended.
What if I lease a car?
Whether you lease a car, finance it, or purchase it, you need to have insurance at least at the minimum limits required by the state you live in. When leasing or financing a vehicle the financial institution that is leasing or financing it will require you to carry comprehensive and collision coverage. In some cases you may have to carry specified liability limits. You should always inquire with the financial institution that you are dealing with regarding any specific coverage they are requesting you to carry. To find more about liability coverage and its limits, and also comprehensive and collision coverage, please read the sections that cover those coverages.
Do I need insurance to rent a car?
Every time you operate a vehicle, you need to have insurance. Whether you own a car, borrow it, or rent it, you need to make sure to have adequate insurance. When renting a car, please check with you own insurance provider to make sure if they cover rental vehicles. You can also purchase insurance for a rental vehicle from the company you are renting a car.
Before you rent a car:
Contact your insurance company
You need to check with you insurance company to find if they cover rental vehicles for liability coverage and also comprehensive and collision coverage. If your insurance company does transfer your coverages to rental cars, make sure to find out which coverages exactly they would apply and at what limits. You also need to notify them whether you are renting a vehicle for please use or business use. You should also have the rental company know the type of coverages you carry at your current policy and check if you need to purchase additional coverage. If you have liability coverage only with the lowest limits required by law you might have to purchase additional comprehensive and collision coverage. Either way you will need to check with your insurance provider when renting a vehicle.
If you need to rent a car and do not have insurance check with the rental company. In most cases you can buy insurance for your rental vehicle from the company your are renting it.
What’s the difference between cancellation and non-renewal?
Cancelation and a nonrenewal of a policy are two different concepts. Cancelation of a policy happens in the midterm of a policy period. Nonrenewal of a policy happens when one term of your insurance ends and another one needs to start.
In case of cancelation of an insurance policy insurance companies cannot cancel a policy that has been in force for more than 60 days, except:
- If you fail to pay the premium.
- You have committed fraud.
- You have made serious misrepresentations on your application.
- Your driver’s license has been revoked or suspended.
If the insurance company decides to cancel a policy because of one of the above mentioned reasons the insured will be notified in advance. The primary insured of the policy can cancel the policy at any time of the policy term however cancelation fees may apply.
In case of nonrenewal you or your insurance company can decide not to renew it at the expiration of a policy. Your insurance company must send you a renewal offer or a nonrenewal notice certain amount of days before, depending on the state you live in, before you policy expiration. When insurance company decides to not renew you policy, they will also send you an explanation of nonrenewal. If you think the reason is unfair and need a further explanation, you can always call the insurance company’s consumer affairs division. If you do not get an explanation, call your state insurance department.