Car insurance protects you against financial loss when an accident or other event damages your vehicle. It also saves you from legal consequences for reckless driving and can provide additional perks. The types of coverage on a policy vary, and the coverage amounts are based on limits. Understanding the different types of car insurance can help you save money by buying what you need.
Uninsured/Underinsured Motorist Coverage
Uninsured/Underinsured Motorist coverage (also called UM or UIM) pays for your expenses when you’re involved in an accident with a driver who doesn’t have insurance or whose policy limits aren’t high enough to cover your costs. It also covers hit-and-run accidents and can help pay for your injuries if you’re struck as a pedestrian. Some states require UM/UIM as part of your car insurance.
While it’s possible to get by with just the minimum liability coverage required by your state, most insurance professionals from websites like https://carinsurancecheap.net recommend adding collision and comprehensive coverage to your policy. These extra car insurance types are usually relatively inexpensive and can protect you from expensive damages. However, like the other parts of your policy, they come with a deductible, which you’ll have to pay out of pocket before your insurer begins to spend on a covered claim. You can choose the amount of your deductible when you buy these coverages.
Liability Coverage
Liability insurance pays other people’s costs when they are hurt in traffic-related accidents you cause. It covers their medical bills, pain and suffering, lost wages and funeral expenses. It also covers property damage like repair costs for their cars or buildings. In most states, you need at least a minimum of liability car insurance to drive. Comprehensive coverage pays for your car’s damage caused by things other than a collision – such as severe weather, fire, theft, vandalism and animal damage. It’s typically included in a package with collision insurance or offered as a standalone policy. It is usually recommended or required by lenders for leased or financed vehicles. Your premium is calculated based on many factors, including your years of driving experience, the number and types of accidents and traffic violations, your car’s safety features and where you keep it when not in use. For rating and underwriting purposes, insurers may not use your sex, marital status, race, creed, national origin or religion.
Collision Coverage
Many people know they must have liability insurance, but some may need to be more familiar with other types of car coverage. While these other options don’t protect other drivers, they can help cover costs for the driver. Collision coverage, for instance, pays for damage to your vehicle in an accident, no matter who caused it. It also covers damage caused by hitting stationary objects like fences or buildings. However, the limit for this type of coverage is your car’s actual cash value minus your deductible.
Conversely, comprehensive coverage covers damages from non-collision accidents like natural disasters, flooding, fires, theft and vandalism. Some policies combine collision and comprehensive into a full-coverage plan, which many lenders require if you finance or lease your vehicle. The NerdWallet team recommends including both optional policies in your policy. This way, you can save on the cost of a new car and still have protection if something happens.
Comprehensive Coverage
Comprehensive coverage, also known as “other-than-collision” coverage, helps pay for damages to your car that don’t result from a collision. It includes things like theft, fire and natural disasters. Some policies also include rental reimbursement, which can help cover the cost of renting a vehicle while yours is being repaired or replaced after a covered claim. Unlike collision, comprehensive insurance doesn’t have a limit—it pays up to your car’s actual cash value (ACV) after depreciation, minus your deductible. It’s generally worth getting if you have a newer vehicle that would be expensive to repair, or replace or live in an area with high levels of weather-related damage or theft. If you’re leasing or financing your vehicle, your lender will likely require comprehensive coverage. It’s also a good idea to have it if you’re in one of the 20 states that require uninsured motorist coverage. It will help offset medical expenses for you and your passengers if an accident occurs with an uninsured driver.
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