Basic personal auto insurance is mandated by most states and will provide you with some financial protection in the event of an accident.
Auto insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for you paying a premium, the insurance company agrees to pay your losses outlined in your policy.
What Does Auto Insurance Cover?
Your auto insurance will cover a few things but you should read your insurance policy to get a good understanding of it. If you need help – you should always speak to an agent.
A typical auto insurance plan will cover:
- Property: such as theft or damage to the car.
- Liability: your legal responsibility to others.
- Medical: the cost of treating injuries, lost-wages, or funeral expenses.
Auto insurance coverages are priced individually (a la carte) to let you customize your coverage amounts to suit your exact needs and budget. Basic personal auto insurance is mandated by most U.S states and the laws vary in each state.
Who is Covered by My Auto Insurance?
To answer this question you have to review your policy you paid for. When you sign up for an auto insurance policy you select who is covered.
Your auto policy will cover you and other family members on your policy whether driving your car or someone else’s car. Your policy also provides coverage if someone who is not on your policy is driving your car with your consent.
Your personal auto policy only covers personal driving and does not cover commercial work or commercial driving. For example, if you deliver pizza your personal insurance will not cover you if you get in an accident on the job.
Something most people don’t know is that your personal insurance does not cover you in ride-sharing jobs either. If you drive for Uber or Lyft you are not covered and will need to talk to your provider to find the right insurance for you.
Is Auto Insurance Mandatory?
The requirements and what is mandated varies from state to state. If you’re financing a car, your lender will have their own requirements. You can expect to have to carry auto insurance if you’re financing a car.
Nearly every state requires car owners to carry:
- Bodily injury liability: covers costs associated with injuries or death that you or another driver causes driving your car.
- Property damage liability: reimburses others for damage that you or another driver operating your car causes.
In addition to the above, many states require you to carry:
- Personal injury protection (PIP): provides reimbursement for medical expenses for injuries to you or your passengers.
- Uninsured motorist coverage: reimburses you when an accident is caused by a driver who does not have auto insurance, or in the case of a hit-and-run.
Other Types of Auto Insurance Coverage
There are mandated types of auto insurance and others you can add for a higher monthly payment but they may cover you in the long run.
Outside of the mandated coverages, you can sign up for:
- Collision: reimburses you for damage to your car that occurs as a result of a collision with another vehicle or object.
- Comprehensive: provides coverage against theft and damage caused by an incident other than a collision, such as fire, vandalism, hail, etc.
- Glass: provides coverage for your windshield which is a common item people fix often due to cracks.
What is Gap Insurance and Do I Need It?
Collision and comprehensive only cover the market value of your car and it doesn’t cover what you paid for it. The moment you take a car off the lot it depreciates in value quickly and continues to depreciate in value.
Let’s say you bought a car for $30,000 and you opted to not get GAP insurance. You’ve owned the car for 6 months and have made payments bringing your total balance down to $28,000. You get in an accident after month 6 and the car is estimated to be worth only $25,000. The insurance company will only cover $25,000 of the loan and it is up to you to pay the remaining $3,000. If you have gap insurance, that will pay the remaining $3,000 for you.
If you have a leased car there is a good chance gap insurance is already paid for you. A typical gap coverage plan is relatively cheap around $20 or less per month in most cases and can save you in the long run.