Many financial emergencies are caused by major life events, such as a car accident. While the results of such events can be devastating, maintaining adequate insurance is one good way to protect yourself from financial ruin. In fact, for your protection and the protection of those around you, many states now require some types of insurance.
Because there are many types of auto insurance available, it is important to understand what you are getting for your money.
-Liability. The most important type of insurance, liability covers costs associated with property damages or bodily injury caused by you or a member of your household. It could protect you from losing everything in a lawsuit.
-Collision. If your car is damaged in an accident, collision coverage will pay for the damages.
-Comprehensive. Damage to your car by factors other than an accident (fire, vandalism, theft) are covered by comprehensive coverage.
-Medical payments. This coverage guarantees immediate medical payments regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, even if you are walking or on a bicycle.
-Uninsured motorist. This coverage protects you if you are ever in an accident caused by an uninsured driver. It may also provide protection in a hit-and-run accident.
-Underinsured motorist. If an accident is caused by someone who is not adequately insured, this insurance would cover the additional expenses.
-Gap insurance. A type of insurance growing in popularity, gap insurance covers the difference between an insurance settlement and your loan or lease balance.
-Extra coverage. Some people choose to pay for voluntary coverages. Coverages available include towing insurance, auto glass insurance, emergency roadside insurance, and rental insurance.
-No-fault. No-fault insurance is required in many states. With no-fault insurance, your insurance company would cover your expenses in an accident—regardless of who was at fault. Other drivers would be covered by their own policies. No-fault insurance eliminates the need for accident victims to establish another’s liability in a lawsuit.
Most types of insurance are available with different levels that limit the dollar amount the insurer will pay in the event of an accident. Generally, the lower your limit, the less the insurance will cost you. The potential downside to low limits is that if you are ever in an accident, your coverage may not cover all of your costs.
Some insurance policies also have deductibles. Your deductible is the amount you would have to pay before your insurance policy kicks-in. For example, a $500 deductible means that you pay for the initial $500 of each loss. The higher your deductible, the lower the cost of your policy. However, you should consider how much you would realistically be able to pay if you were involved in an accident.
Also, you should be aware that it’s common for auto insurance companies to use credit information when deciding whether to issue a policy on your car and at what cost. Therefore, it pays to maintain a positive credit history.
Note: I am not an attorney. The above information is being shared for educational purposes and should not be interpreted as legal advice.