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What Does Car Insurance Cover?

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Maria Neira
April 13, 2021

Car insurance is there to protect and prevent you from paying full damage or medical bills in the event of a car accident. The most basic coverage is called liability insurance. 

Car insurance covers various things depending on what policies you purchase. You must meet the state minimum to stay out of legal trouble. From there, it is up to you to decide if you’d like more coverage. 

We are going to break down the different types of auto insurance coverage and what they mean. 

Coverage that most insurance companies offer 

  • Liability insurance (bodily and property damage)
  • Personal injury protection
  • Uninsured and underinsured motorist coverage (bodily injury and property damage)
  • Collision coverage
  • Comprehensive coverage
  • Personal injury protection 
  • Medical payments coverage
  • Gap insurance

Liability insurance 

Almost every state requires you to have liability insurance. It covers the damage that you cause in an accident. There are two types of liability insurance; bodily injury and property damage. 

Bodily injury liability covers the expenses from injuries or deaths you caused in an accident. Property damage liability takes care of the repairs for property you might have damaged in an automobile accident. This includes car damage, damage to fences, buildings, telephone poles, etc. 

Your liability insurance will cover up to a certain limit of expenses. If you exceed that limit, then you are responsible for coming up with the rest of the money. 

For example, if you crashed into the side of a Tesla and you live in a state that cares about who is at fault, you would be expected to pay for the car’s repairs. Unfortunately, your liability limit does not meet the expenses that go into repairing a Tesla. In this case, you’d have to pay the difference. 

Personal injury protection (PIP) 

This type of protection covers injuries no matter who is at fault in an accident. It covers the cost of medical expenses for injured passengers. PIP and medical payments coverage are synonyms for one another.  It’s also known as no-fault insurance

Medical payments coverage 

Medical payments coverage is another term for personal injury protection. The same coverage applies to both medical payments coverage and personal injury protection. 

Uninsured and underinsured motorist coverage 

This type of insurance protects you if you are involved in an accident with an uninsured or underinsured driver. It may surprise you, but about 1 in every 8 drivers does not have car insurance.

Uninsured/underinsured insurance is required in some states. There are four types associated with this type of protection. 

  1. Uninsured motorist bodily injury coverage: Pays for medical bills caused by an uninsured driver.
  2. Uninsured motorist property damage coverage: Covers repairs costs to damaged property caused by the uninsured driver.
  3. Underinsured motorist bodily injury coverage: Pays for the cost of injuries and expenses out of the underinsured driver’s limits.
  4. Underinsured motorist property damage coverage: Covers the repair costs for damaged property out of the underinsured driver’s limits. 

Collision and comprehensive coverage 

These two protections are not required in any state, but they offer valuable services. It may be worth considering investing in these coverages. 

What’s covered by collision insurance?

  • A collision with another vehicle
  • A collision with an object, such as a fence or tree
  • A single-car accident that involves rolling or falling over

What’s not covered by collision insurance? 

  • Damage to your vehicle not related to driving (examples: hail or theft)
  • Damage to another person's vehicle
  • Medical bills (yours or someone else’s)

What’s covered by comprehensive insurance? 

  • Theft
  • Vandalism
  • Fire
  • Natural disasters (like a hurricane or a tornado)
  • Falling objects
  • Damage done to your car by animals
  • A civil disturbance (like a riot that results in damage or destruction of your car)

What’s not covered by comprehensive insurance? 

  • Collision damage to your car
  • Collision damage to another person’s car
  • You or your passenger’s medical bills after an accident

Gap insurance 

No one wants to think about anything bad happening to your brand new car. But what if your new car gets damaged or totaled? 

Your new car depreciates in value the moment you drive it off the dealership lot. This means that if your new car is totaled, you could end up owing more on your loan or lease than its depreciated value. 

This is where gap insurance comes in. This coverage is meant to help pay the difference in the event of this scenario. 

Let’s say you bought a car for $25,000. A few weeks after you bought your car, it gets totaled in a covered accident. You still owe $20,000 on your loan or lease, but your car’s depreciated value is now $19,000. If you had comprehensive or collision damage coverage, it would only pay up to the depreciated value. If you invested in gap coverage, it would pay the $1,000 difference. 

Keep in mind that gap coverage helps pay off your loan or lease on a totaled car. It does not cover the cost of a new car. For that, you would need a different optional insurance policy called new car replacement coverage. 

If you own a new car, gap coverage is a good option to consider adding to your plan. 

How to choose the right car insurance 

When choosing a car insurance policy you need to determine a few things first. Ask yourself these questions: 

  • What kind of coverage do I need?
  • What are my state policy minimums?
  • What are my state policy limits?
  • Do I want more insurance than the required state minimum?
  • What personal factors will affect my premium?

Tips to help make the right decision 

Luckily, you don’t have to make this decision alone. Here are four tips to help make it easier. 

  • Choose the right car
  • Take advantage of discounts
  • Maintain good credit

Compare rates 

We’ve armed you with the knowledge you need to go out and find auto insurance that will give you the coverage you need without breaking the bank. But let’s face it — comparing rates on auto insurance is incredibly time-consuming. Few people can spend hours of their day or week looking at dozens of websites and calling agents. With so many different providers and each one trying to sell you their product, how do you know which is best for you? 

Squeeze can help you save on auto insurance by constantly comparing rates for you. It’s free. It’s easy. And it will make your life better. 

Choose the right car 

The type of car you own is a big factor for auto insurance rates. So before you go in on your car, make sure you do your research. 

The Insurance Institute for Highway Safety offers information about specific costs for repairs for different car models. The less expensive your car is to repair, the better your insurance rate will be. 

Your car dealer is also a great resource. They usually have a book of related collision insurance costs. Choosing the right car can save you money on insurance. 

Take advantage of discounts 

Different insurance providers offer different discounts for all types of people. Some companies give discounts for being older, married or have a long safe driving history. Others reward students with GPAs higher than a certain average. 

Look into what companies offer discounts that suit your lifestyle and demographic best. A penny saved is a penny earned. 

Bundling your car insurance with home and life insurance is also a way to save. Most insurers provide a discount if you buy multiple policies with them. 

Maintain good credit 

This tip is not necessarily a tool for choosing the right auto insurance, but it’s helpful in finding a plan that benefits you the most. A low credit score poorly impacts your premium. 

To keep good credit, make sure you pay off your credit card balances monthly, pay rent on time and try to invest in things that will build your credit. This will help you with car insurance and things like buying a home, getting a loan, and avoiding security deposits. 

To sum it up 

Car insurance coverage varies depending on what you pay for. Determining how much coverage you need is up to you. Well, only after you meet your state’s required insurance minimum. 

Getting car insurance is mandatory, so you might as well understand it as best as possible. It’s most important to know the minimum amount of insurance required in your state. From there, you can decide if you need extra coverage on top of it. 

Don’t waste your time comparing companies. Let Squeeze do it for you. Choosing the right car, looking out for discounts that pertain to you, and maintaining good credit will also help you choose the best coverage. We hope this brought you closer to finding the best car insurance!

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