What is Car Insurance
Car Insurance, also called Auto Insurance, is a legal contract between You and an Insurance provider (Insurance company) that covers you against financial losses you sustain after involving in an auto accident or your car is damaged due to covered perils such as fire, vandalism, accident, and theft. You get this coverage in return for the premiums you pay monthly or annually.
What Does Car Insurance cover?
Car Insurance provides two main types of coverage: Mandatory and Additional. Mandatory coverages are a legal requirement in most states, while additional coverages allow you to add additional financial protection to your car insurance policy. Mandatory coverages include Third-Party Liability coverage and UIM/UM Motorist Coverage. On the other hand, additional coverages include collision coverage, comprehensive coverage, and Medical Payments or PIP (Personal Injury Protection) Coverage. We discuss all the coverages in detail here.
Third-Party Liability Coverage
Liability coverage protects you from claims or lawsuits filed against you regarding a third-party bodily injury or property damage due to an accident when you’re at fault. It also covers any legal costs, such as lawyer and court fees and settlements between you and the affected third party. Your Liability coverage helps you pay the medical bills associated with the injuries sustained by another driver as a result of an accident you caused. It also covers you for repairing, restoration, or replacement costs if you cause damage to third-party property, such as a fence or building. Third-Party Liability Coverage is a legal requirement to drive your car on the road in most states.
UIM/UM (Uninsured or Underinsured) Motorist Coverage
UIM/UM Coverage reimburses for the financial losses you sustain in an accident caused by a driver who is uninsured or underinsured and doesn’t have enough auto insurance to pay your losses. This coverage mostly comes into play in hit-and-run cases. In some cases, your UIM/UM coverage reimburses you for lost wages after getting injured in an accident caused by an uninsured driver.
Collision Coverage
As the name implies, collision coverage covers you against damage to your car that occurs as a result of a collision with another car or a solid object like a tree or guardrail. It protects you when you’re at fault in a collision accident.
Comprehensive Coverage
Comprehensive coverage covers you against damages to your car caused by an incident other than collisions, such as fire, vandalism, falling objects, or haul.
PIP (Personal Injury Protection) or Medical Payments Coverage
PIP coverage reimburses you for medical bills if you, your passenger, or any of your family members riding in Your insured car get injured in an accident. It also covers lost wages if you or your passenger becomes unable to do their job after getting injured.
Besides these coverages, some insurance companies also offer Glass coverage that protects you against windshield damages. Some insurance companies also offer emergency roadside assistance coverage, rental reimbursement, and mechanical breakdown coverage. However, regular wear & tear to your car are not covered by your car insurance policy.
Now you know what does car insurance cover, maybe you would like to learn What are the differences between whole and term life insurance?