What is in a basic auto policy?
Your auto policy may include six coverages. Each coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries you, a designated driver or policyholder cause to someone else. You and family members listed on the policy are also covered when driving someone else's car with their permission, but usually on a secondary basis. The other persons policy will apply first in most states. Remember this: if you loan your car to someone, you are also loaning them your insurance coverage.
It's very important to have enough liability insurance. We live in a world where, if you are involved in a serious accident, you may be sued for a large sum of money. Definitely consider buying more than the state required minimum to protect your family and assets as well as your future earnings.
2. Property Damage Liability
This coverage pays for damage you or someone driving the car with your permission may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to light posts, telephone poles, fences, guard rails, buildings or other structures your car hit. Seriously consider buying more than the state minimum. Most state minimums won't even replace one sub-compact economy car.
3. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs. It may be optional in some states if you have personal health insurance but be aware that a passenger may demand that you pay their medical bills if you are responsible for an accident and they do not have their own personal health insurance.
This coverage pays for damage to your car resulting from a collision with another car or object or as a result of physcial damage due to loss of control. It also covers damage caused by potholes or grocery carts.
Collision coverage is generally sold with a deductible of $250 to $1,000, the higher your deductible, the lower your premium.
Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you're not at fault, your insurance company may try to recover the amount they paid you from the other driver's insurance company. If they are successful, you'll also be reimbursed for the deductible.
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object. Examples are fire, falling or flying objects, missiles, explosion, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.
Comprehensive insurance is typically sold with a $100 to $1000 deductible, opting for a higher deductible is a way of lowering your premium again.
Comprehensive insurance will also reimburse you if your windshield is cracked or shattered subject to your deductible. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage, but if you have a car loan, your lender will insist you carry it until your loan is paid off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a designated driver if one of you is injured by an uninsured or a hit-and-run driver. Most states require that you carry a state manadated minimum coverage for uninsured motorist coverage.
Underinsured motorist coverage is an optional coverage in most states. It provides coverage to reimburse you if a memeber of your family or a designated driver are injured by someone who does not carry high enough insurance limits to cover the costs of your injuries.
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|What if I lease a car?
If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.
If you've financed your car, your lender will require comprehensive and collision insurance as part of the loan agreement.
The leasing company may also require "gap" insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or "totaled," there's likely to be a difference between the amount that you still owe the auto dealer and the check you'll get from your insurance company. That's because the insurance company's check is based on the car's actual cash value which takes into account depreciation. The difference between the two amounts is known as the "gap."
- Collision covers damage to the car from an accident with another automobile or object.
- Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire, theft or collision with a deer.
On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don't actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a "gap waiver." This means that if your leased car is totaled, you won't have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you've finished paying for it. Ask your insurance agent about gap insurance or search the Internet. Gap insurance may not be available in some states.
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|Do I need insurance to rent a car?
When renting a car, you do need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough. Loss of use is an issue for the rental car companies though. Purchasing their additional coverage avoides this problem. Also, Always, Always, Always throughly inspect the car before you sign for the car and inspect it again before you turn it in and sign off.
Before you rent a car:
1. Contact your insurance company.
Call your agent, find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it's used for pleasure and not business. If you don't have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or damaged while in your possession and you will be required to purchase it through the rental car provider.
2. Call your credit card company.
Find out what insurance benefits your card may provide. Levels of coverage vary.
If you don't have auto insurance, you will need to buy coverage at the car rental counter. The following coverages are available to you at the rental car counter:
1. Collision Damage Waiver (CDW).
Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. If you have comprehensive and collision on your own car, you may not need to purchase this coverage.
2. Liability Insurance.
This provides liability coverage of up to $1 million for the time you rent a car. Rental companies are required by law to provide the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy in addition to your home and auto insurance, you may consider forgoing this additional insurance. If you don't own a car, and rent cars often, consider purchasing a non-owner liability policy. The cost can easily be lower than the overall rental agency insurance costs per year. Frequent car renters find this more cost-effective than constantly paying for the extra liability coverage.
3. Personal Accident Insurance.
This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance may be unnecessary if you are covered by health insurance or have adequate medical coverage under your own auto policy. Be aware that your passengers may demand that you to pay their medical bills if you are responsible for an accident if they do not have personal medical coverage.
4. Personal Effects Coverage.
This provides coverage for the theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car subject to your deductible. You need to have receipts or other proof of ownership. Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.
The cost of insurance at the rental car counter will vary depending on the rental car company, state, and location of the dealer and the type of car you rent.
Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
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