Understanding Your Auto Insurance Coverage

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Most of us value our vehicles, and we purchase auto insurance to protect them against damage or loss. States also mandate the minimum amounts of insurance coverage drivers must carry to use their roads. But let's face it, the wording found in the average policy can be confusing. Knowing what your auto insurance policy covers is important, and most notably when you've been involved in an accident and your car is at the body shop. Understanding your policy can help you ask the right questions as the collision repairs move forward, too. To assist your efforts, here's some coverage terminology you might find in your policy, along with what it means.

Collision

Collision insurance covers any accident-related structural or mechanical damage that your vehicle sustains while you're driving it. That damage could be from other vehicles, or objects like a fence, telephone pole or tree. Collision insurance does not cover damage from hitting animals or when another person is driving your car. Your policy carries a collision deductible, typically from $250 to $1,000, which will be your out-of-pocket cost to have it repaired when the accident was your fault.

Comprehensive

This type of insurance protects your vehicle when you aren't driving it, like when it's parked, or another driver is using it. For example, hail damage would fall under comprehensive coverage. This insurance also covers glass repairs, and damage from hitting animal. Fire, theft and vandalism are other examples where a comprehensive claim would be filed, and your policy had a deductible that you'll have to pay first when the repairs are completed.

Liability

Liability insurance covers claims for people and property when your negligence inflicted the damage. Those damages could be to another person's car, fence, house, or to them or their passengers. Most states set minimums for liability coverage, and your policy has a maximum amount your insurer will pay out if you were at fault. It's very important to carry enough liability insurance in case you cause an accident involving several vehicles and occupants. If not, you could be sued by the victim(s) for any damages exceeding your policy's payout limits.

Medical Payments

Also known as "PIP" in several states, this insurance pays for injuries and medical payments for you or your passengers resulting from an accident involving your vehicle. In some states this coverage will pay medical expenses regardless of who was at-fault, so ask your agent for details. If someone in another vehicle is injured during an accident you caused, their injuries would be covered under your liability insurance.

Underinsured and Uninsured Motorists

If your policy contains an underinsured rider, this coverage applies to claims where a driver who's at-fault hits your vehicle, but they don't carry enough liability insurance to cover all your repairs and medical bills. There is also uninsured motorist insurance that pays your bills when an at-fault driver without any insurance damages your vehicle, or when a hit-and-run occurs. Many states require you to carry uninsured motorist coverage, so check with your insurer for details.

Other Types of Auto Insurance

There are a few kinds of specialty auto insurance that your policy may already contain, or that you may wish to consider. Those include:

Gap insurance. This coverage is wise when you're leasing, or when you owe more on your vehicle's loan than it's worth. In the event it's totaled out by the insurance company, Gap insurance will pay the difference between the loan balance and its actual cash value.

Umbrella coverage. If you have a lot of financial assets, this type of insurance can protect those once your liability limit has been exhausted. For example, if you have $500,000 maximum in liability coverage but cause injuries totaling $1 million, your umbrella policy would pay the difference.

Commercial insurance. This coverage protects your vehicle when it's used to earn a living, for example as an Uber driver or sales rep. This coverage usually features higher payout limits due to the increased driving risks associated with your job.