Most states legally require drivers to carry a minimum amount of car insurance in order to drive. Not only does it protect the policyholder in the event of an auto accident, but it also protects other drivers on the road. But while almost every driver has car insurance, discussing auto insurance can be a difficult topic.
To many people, car insurance is something of a necessary evil. You need to have insurance in order to get behind the wheel, but it can also be incredibly expensive. And if you never have a claim, you may never see the benefits of being properly insured. However, car insurance has lots of benefits that are important to understand.
What insurance is right for me?
Drivers in most states need to have car insurance, but you get to choose what type of insurance and how much insurance you purchase. Car insurance policies are highly customizable, giving you the freedom to design a policy that suits your individual needs.
Despite the fact that car insurance is often a legal requirement, some drivers skip insurance altogether. As of 2019, 12.6% of drivers were uninsured. Neglecting to purchase mandatory coverage comes with a range of ramifications, including hefty fines, higher rates, and potential legal consequences if you get caught.
If you live in a state that mandates car insurance, you must have at least a minimum amount of liability insurance, which includes bodily injury and property damage liability. Personal injury protection (PIP) is also a requirement in no-fault states. Most other coverages, including physical damage insurance, gap insurance, and roadside assistance, are optional.
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When choosing car insurance coverage, it is important to consider how much risk you are willing to take on. If you drive an older vehicle with a low value, a liability-only policy might be sufficient.
However, if you drive a newer vehicle or struggle to pay for expensive repairs out-of-pocket, adding a comprehensive and collision coverage policy to your insurance may be worth considering. If your vehicle is financed, comprehensive and collision coverage will likely be required.
Weighing the cost-benefit and risk based on what coverage types you choose can help you determine what car insurance policy is best for your situation.
Coverage types: Pros and cons
Every driver has different coverage needs. Therefore, choosing your car insurance coverage wisely can be very beneficial. Not only does it benefit you to have adequate protection for your vehicle, but if you select coverage strategically, it can also help you get a more affordable premium. Proper coverage can also help a car accident lawyer best defend your claim if needs be.
Here are some of the biggest pros and cons of popular car insurance coverages:
Liability
Liability insurance, which includes bodily injury and property damage coverage, is required in every state that mandates car insurance. Drivers must carry at least the minimum amount of coverage in order to legally drive. Without this type of coverage, you cannot get behind the wheel.
If you cause an accident, liability insurance covers the other driver’s injuries and their vehicle’s damages. It also helps pay for your legal fees and a court settlement if you get sued. The biggest pro of this coverage is that it keeps you from paying high out-of-pocket costs for someone else’s losses in an at-fault claim. However, this coverage offers no protection for your vehicle or injuries.
Uninsured motorist
Uninsured motorist bodily injury coverage is required in some states and optional coverage in other states. If you are hit by a driver who does not have insurance, this coverage can help pay for your injuries and the injuries of your passengers. This coverage is beneficial because, without it, you would have no coverage if you or your passengers are injured in an accident with an uninsured driver.
Uninsured motorist property damage is another coverage type that may be available in your state. This coverage helps cover repair costs if your vehicle were to be damaged by an uninsured driver. Without this coverage, you would only have coverage if you carry collision coverage because you can usually make a claim under collision regardless of fault. Keep in mind that uninsured motorist property damage does usually have a deductible.
Collision and comprehensive
When you purchase a “full coverage policy,” you are essentially adding collision and comprehensive coverage. Collision insurance pays for your vehicle’s repairs after an accident you cause, and comprehensive insurance covers non-collision damage, including theft.
Buying a full coverage policy can be a good idea because it provides physical damage coverage to your vehicle. If you only have a liability-only policy and your car is damaged in an accident you cause, you would be responsible for paying for the repairs in full.
Similarly, if your vehicle was stolen and you did not have comprehensive car insurance, you would have to pay for a new car yourself.
Both comprehensive and collision coverage have deductibles, but the benefit is that you can choose deductible amounts that you are most comfortable with affording in the event of a claim.
Personal injury protection
Personal injury protection (PIP) is required coverage in no-fault states. C will pay for your and your passenger’s medical expenses if you get injured in a crash. This coverage takes effect regardless of which driver caused the accident.
Having PIP can expedite a bodily injury claim because there is no question about which driver’s insurance company is responsible for the compensation. Additionally, PIP coverage can help pay for lost wages, funeral expenses, and other essential costs after a serious accident.
Gap insurance
Gap insurance helps repay your outstanding loan balance if you lease or finance a newer vehicle and it gets totaled in a covered claim. This coverage is optional if you buy it through your insurance company, but some lenders automatically include it as part of your lease agreement (for a fee).
While no one expects to total a new vehicle, gap insurance can help you avoid a huge out-of-pocket cost if your financed vehicle is totaled. New vehicles depreciate quickly, and auto insurers pay actual cash value (the depreciated value) if your vehicle is totaled. Without gap insurance, you would have to repay your lender out-of-pocket for the difference between what you owe on your loan minus your vehicle’s depreciated value.
Rental reimbursement
Rental reimbursement is an optional coverage that will cover the cost of a temporary replacement vehicle if your car needs to be repaired after a covered loss or while you shop for a replacement vehicle if it was totaled. If you do not have this coverage, you might be responsible for paying for a rental car yourself or simply going without a car until yours is fixed or replaced.
However, this coverage may not be necessary for every driver. If you own a secondary pleasure vehicle that you could use as an everyday vehicle while yours is being repaired, you might forgo this coverage. Additionally, your vehicle’s manufacturer or auto body shop might provide a loaner while your car is getting repaired.
Roadside assistance
Many of the best car insurance companies offer roadside assistance, which covers things like towing, flat tire changes, fuel delivery, and more. If you choose not to purchase roadside assistance through your insurance carrier, you can also get it through a third party, like AAA.
Although roadside assistance is usually inexpensive, it is not essential, especially if you already have some form of emergency roadside assistance through another company or your vehicle’s manufacturer.
The bottom line
Car insurance is a legal requirement for most drivers. However, you have the freedom to design a policy that fits your unique needs. When it comes to buying auto insurance, knowledge is power. It is important to understand the various coverages available and how they work. Remember that car insurance is only valuable if it provides sufficient protection for you and your vehicle.
Author: A Bankrate writer, Elizabeth Rivelli has two years of experience writing for insurance websites like The Simple Dollar, Coverage.com and NextAdvisor, among others. In addition to auto insurance, Elizabeth regularly writes about home insurance, renters insurance and life insurance. She also covers industry trends and general insurance education.
