Getting basic car insurance coverage is easy, but first you have to know what basic coverage consists of. Most likely, you want a cheap car insurance policy and to get the pain of dealing with it over with as quickly as possible. A “take my money, give me proof of insurance, and leave me alone,” mentality when it comes to car insurance is typical.
Not everyone knows all the car insurance terms and lingo. As a matter of fact, probably a good chunk of people have no idea what type of coverage they have on their vehicle right now.
Basic car insurance coverage is often whatever the state forces you to purchase. Plan on buying a policy with personal liability coverage and, depending on which state you reside in, PIP coverage and uninsured motorist.
Personal Liability Insurance
The foundation of all car insurance policies is personal liability coverage. That is what protects you if you injure someone in a car accident or damage their car or property. The minimum coverage required is determined by each state.1 Many insurance agents say that the state’s minimum liability limits are really not enough, though. Preferred limits of liability are 100/300/100.2
How Does It Work?
The coverage you select is the maximum allowed to pay out. What comes as a surprise to many people is that liability coverage does not apply to them. Liability coverage is primarily to protect the insured from potential costly lawsuits that can arise from an auto accident. A secondary benefit would be to protect other drivers for losses relating to their vehicle and health.
Three coverage limits are listed on a typical personal liability car insurance policy. They are often listed together as three numbers separated by slashes, with no other pertinent information describing the coverage.
Example Liability Limits 100,000/300,000/100,000 or 100/300/100
- Bodily Injury Liability Limit Per Person: The first limit listed in the example is $100,000. The dollar amount is the maximum your policy will pay out to a single person injured in an accident you caused.
- Bodily Injury Liability Limit Per Accident: The second limit listed in the example is $300,000. That is the maximum amount of money that can be paid out per accident. Multiple people would have to be injured in order for more than the $100,000 to pay out. Multiple serious injuries could max out a low limit quickly. That is a key factor in why state minimum car insurance limits are too low.
- Property Damage Liability: The third limit of $100,000 is for property damage. It includes coverage for any inanimate object belonging to someone other than you. Hitting and damaging a car, damaging a guardrail, or driving into a house are all examples of incidents that can cause property damage. As you can imagine, the cost of property damage can add up quickly. It is important to have enough coverage to provide proper protection.
Uninsured or Underinsured Motorist
Uninsured motorist insurance is a mandatory requirement in some states.1 A minimum amount will be required, depending on the state in which you live. Many insurance agents will recommend matching personal liability limits and uninsured motorist limits. Uninsured motorist is the coverage you can draw from if an uninsured driver damages your vehicle or causes someone in your vehicle injury. Underinsured motorist applies if you have damages that exceed the other driver’s limits, and you carry higher limits.
Example of Uninsured Motorist 100,000/300,000 or 100/300
Similar to personal liability, the $100,000 is the maximum allowed for a single person, and the $300,000 is the maximum allowed for the accident. Uninsured motorist coverage can come in quite handy. The process of taking someone to court and suing them personally for damages because they did not have car insurance can be lengthy. And remember, a lot of the people driving without car insurance often do not have the means to pay thousands of dollars in damages.
PIP and Medical Coverage
PIP is short for “personal injury protection.” It is similar to medical coverage but provides a little more protection. The key factor that makes PIP different from medical coverage is that it pays out for expenses related to injuries such as loss of income and rehabilitation costs.
Medical coverage is an important part of car insurance, and even if it is not a minimum requirement, you should think about selecting it.
Other Types of Coverage
- Comprehensive Coverage: Windshield damage, fire, theft, vandalism, flood, and deer are the most common comprehensive (or “comp”) claims. Any physical damage claim that does not involve a collision would be covered under comp.
- Collision Coverage: Collision coverage is the coverage that provides compensation for fender benders.
- Roadside Assistance: Need a tow or help with a lockout? Roadside assistance is a handy coverage for many insured drivers.
- Car Rental: It provides a defined dollar amount toward the cost of renting a car when your vehicle is being repaired due to a covered loss.