General accident car insurance is an insurance policy you purchase to cover the costs resulting from a car accident. If you are at fault for causing an accident, you may be liable to pay for damages and medical expenses to the other driver and passengers. General accident insurance will cover these costs instead of you having to pay out of pocket.
Almost all states require drivers to carry a minimum amount of liability auto insurance. These minimums vary by state, but many drivers like to purchase additional insurance for better protection and security. In addition, if you have a loan on your car, your lender may require you to carry specific types of insurance.
Auto insurance covers three basic areas: property, liability and medical. Let's look at the various types of insurance coverage available to protect you.
Personal liability and property damage protects you in the event you are at fault in a car accident. Bodily injury liability insurance covers medical expenses of other parties from an accident caused by your vehicle. Property damage liability insurance covers the expenses to repair the damages to the other person's property.
Liability insurance is usually presented as three numbers, such as 25,000/50,000/20,000.
The first number, 25,000, means the insurance company would cover up to $25,000 per person for bodily injuries. The second number means the insurance company would only pay up to $50,000 in total for bodily injury coverage for a single accident. The third number, $20,000, is the limit that the insurance company would pay for property damage.
Without this protection, you could be facing a financial disaster if you cause an accident. If you rear-end another car that piled into the car in front of them, you could easily be liable for several hundred thousand dollars in bodily injury and property damage claims. In this case, 25/50/20 won't cover it.
Liability insurance premiums are not expensive, and you should get as much as you can afford. Many insurance companies offer up to 250/500/250.
However, liability insurance does not cover any of your medical expenses or damages to your property. For that coverage, you need to add collision and comprehensive.
Collision insurance pays for damages to your vehicle after colliding with another car. It also covers damage to your car caused by collision with other objects, such as trees, fences and utility poles. Collision insurance could also cover damage to your car from hitting something in the road, like a pothole.
Collision insurance does not cover damage to your vehicle when you're not driving, like damage from hail or if your car is stolen. It also does not cover damage to another person's vehicle or any medical bills.
Although most states don't require drivers to have collision coverage, a lender may require it to protect their collateral, which is the car.
Comprehensive cover policies pay for damages to your vehicle caused by something other than an accident. Examples of comprehensive coverage would be damages from falling objects, theft, flood, fire and vandalism. States do not require comprehensive coverage but your lender or lessor, if you are leasing a vehicle, will usually require it.
Some drivers will decide to drop their comprehensive coverage or raise their deductible limits as their car depreciates in value to save on insurance premiums.
Personal Injury Protection
Personal injury protection (PIP), commonly known as “no-fault insurance,” covers your medical expenses from an accident regardless of who's at fault. It also covers other drivers if they're included in your policy, household members and any passengers.
Uninsured/Underinsured Motorist Coverage
Uninsured motorist coverage reimburses you when you are involved in an accident caused by another driver who does not have insurance or is underinsured. It happens more often than you might think because so many people choose to take the risk and drive without insurance. Basically, you're paying for insurance to protect yourself against other people who drive without insurance.
If the other at-fault driver has minimal coverage and does not cover the total cost of the accident, your underinsured motorist coverage would fill the gap
About half the states require this type of coverage, and it's optional in the rest.
Read More: How Theft Rates Affect Car Insurance Premiums
In addition to your state’s required liability insurance, insurance companies offer other types of coverage that you may want to consider.
Guaranteed Auto Protection (GAP)
With the extension of auto financing up to seven or eight years and because of the rapid depreciation of a car as soon as it leaves the dealer’s parking lot, many loans go quickly “under water,” meaning that the loan balance is higher than the car’s actual value. If you have an accident and total the car, your insurance company will only pay you its actual value, leaving you with a deficit balance still remaining on your loan.
GAP insurance will make up that difference between your car's actual value and the balance on your car loan.
Personal Umbrella Policy
If you have assets over $1 million, you may want to consider taking out a personal umbrella policy. This policy offers you liability protection beyond the coverage provided by your homeowner and auto policies.
If you've been involved in an accident and your car is in the shop being repaired, you'll need to rent a car. Rental reimbursement coverage will cover the cost of renting a car, which can run up to several hundred dollars. This type of insurance has limits on the amount paid per day and per claim, but it's usually enough to cover the full cost of a rental car.
Emergency Roadside Assistance
Although cars have become more reliable, it's still possible for you to find yourself on the roadside with smoke pouring from under your hood. With emergency roadside assistance coverage, you can get a tow truck to move your car to a nearby garage and not leave you stranded.
Emergency service we'll also help you if you have a dead battery, run out of gas or need to change a flat tire.
With more employees working remotely, people are driving their cars fewer miles to work. A new type of policy offers a way to lower your auto insurance premiums.
Rather than estimating your annual mileage, like 12,000 miles per year, and paying a premium based on that estimate, a pay-as-you-go policy only charges you for the actual miles driven.
Each insurance company has its own algorithm to set its rates and these models are constantly changing. What may have seemed like a good rate a year ago may not be as attractive now. A good practice is to get updated insurance quotes at least annually and maybe even every six months. You could wind up saving several hundred dollars each year.
- Bankrate: What is Car Insurance and How Does It Work?
- Insurance Information Institute: What Is Auto Insurance?
- U.S. News: How Much Car Insurance Do I Need?
- Insurance Information Institute: Background on: Compulsory Auto/Uninsured Motorists
- Cover.com: Is It Enough Coverage to Only Have the State Minimum For Car Insurance?
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James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.