Car Insurance Articles
Why So Many Kinds of Car Insurance?
2008-09-11
When you go shopping for car insurance you are faced with the problem that there are many different parts to a policy. Each piece covers a different kind of problem. Some are mandatory and some are optional. So what does it all mean?
Let’s say you have a minor accident – a “fender bender”. Your car and your neighbor’s car come into physical contact and the shape, surface finish and paint finish on each vehicle is altered. Under standard liability law one of you will be deemed “responsible” for having caused the accident. If you were responsible you have caused damage to someone else’s property for which you are liable. Virtually every state requires some minimum amount of property damage liability coverage.
So your car insurance company pays your neighbor (or the body shop) for the repairs. But your car was also damaged. That damage is not covered by your property damage liability. For that you need to buy collision insurance, which covers you when you are responsible for causing the damage to your car. Now the concept of a “deductible” amount enters the discussion. This is an initial amount of any claim that you have to pay before the insurance company starts paying. You get to choose from several different levels, but the lower the deductible you choose (say $250 rather than $1000) the higher your insurance premium will be. If you are a very careful driver you might choose a high deductible to get a lower rate, but if you have a collision claim, the first $1000 comes right out of your pocket. Collision insurance is not mandatory under state law, but may be required by the loan company who financed your purchase of the car.
In a more severe accident people in one or both of the cars might have suffered physical injuries. If you were injured and the other driver was responsible he is liable for compensating you under his bodily injury liability. This is another mandatory kind of coverage. As with the property damage liability, each state sets a minimum level of coverage, although you can usually buy more.
Once again, if you were responsible for the accident, and were injured, your bodily injury policy doesn’t cover you, only someone else whom you injured. For that you need to have medical payment coverage. It gets complicated, doesn’t it? What happens if your injuries are relatively severe, the other driver is responsible, but your medical bills exceed his bodily injury coverage? He is liable, but you may have to sue him, incurring a lot of legal expense in the process. And what he if doesn’t have the assets to pay? We’re back to your pocket, unless you have purchased uninsured motorist and underinsured motorist coverage under your policy.
On a trip your car breaks down on the road and has to be towed to a repair shop – towing insurance. You are stuck in a motel for a couple of days while the car is repaired – you can get covered for that. Or you have to rent a car for a few days – insurance is available. Then there is a “catch all” coverage for certain unforeseeable factors called comprehensive: theft, vandalism, fire, flood, a stone which cracks you windshield, a tree that falls on top of your car. There are even more kinds available. And it all adds up.
Insurance is a highly compartmentalized field. Certain kinds of car insurance are mandatory – your state decides what. Others you may choose to buy or not. However, in the end someone is going to bear the costs of an accident. Take some time to study the subject so you can make an informed decision about what car insurance coverage you will buy.