Your Best Guide To The Right Auto Insurance
TLTR: This blog explores auto insurance and how you can get one according to your needs.
Imagine, it’s the weekend and you are out on a family drive. Winding roads, clear sky, and upbeat music – could this day get any better? Coupled with a warm weather and you swaying with the music as you drive along, BAM! You’ve just rear-ended the van in front of you. Crumpled hood, smashed in bumper and the other driver is complaining of neck pain.
At this point, you’ll see hefty bills alert! But thanks to your auto insurance, you know you’re covered and won’t have to dig deep in your pockets to cover the costs.
Road accidents happen more frequently than you realize. The Association for Safe International Road Travel reports that road accidents cost US $380 million annually in direct medical costs. Compared to other high-income countries like Canada, Australia, Western Europe, and Japan, the US has a 50% higher number of deaths from road crashes. Clearly, accidents in the US are unfortunately a common occurrence, and it’s vital that you have auto insurance.
In this blog
Auto Insurance and Personal Automobile Policy
Auto insurance, is a legally binding contractual agreement between you (the insured) and the insurance company (the insurer). It protects you against gratuitous financial losses due to vehicular theft or vandalism, as well as vehicular damage, property damage, and medical expenses arising from an accident in return for a monthly premium.
Broadly categorizing, there are two types of auto insurance–commercial auto insurance and personal auto insurance, also known as personal automobile policy (PAP). Commercial auto insurance is for vehicles used primarily for commercial purposes, while PAP or auto insurance is for privately owned cars.
What Does PAP Cover?
By and large, the available PAP coverages depend on the laws of your state and the type of policy that you purchase. However, the general coverages of a PAP are as below:
Auto Liability Coverage
At this point, in most states, auto liability coverage is mandatory. The auto liability coverage can be for:
- Bodily Injury Liability – Costs associated with a third party’s injuries caused by an accident.
- Property Damage Liability – Costs related to replacing or repairing another person’s property.
Basically, auto liability coverage covers all the costs that you are liable for.
Medical Payments or Personal Injury Protection (PIP) Covered Under Auto Insurance
Medical payments following car accidents can be quite high. For any death or bodily injury sustained in an auto accident, your PAP also pays for reasonable medical and funeral expenses. PIP, on the other hand, covers you and your passengers’ health costs as well as results in lost wages after an accident.
For instance, according to the Florida Department of Financial Services in Florida, PIP covers 80% of all reasonable and necessary medical expenses like x-rays, ambulance, hospital, dental, rehabilitative, and nursing services. It also pays 60% of lost wages and has a $5,000 death benefit.
Uninsured and Underinsured Motorist Protection (UI/UIM) Liability Coverage
A PAP is not mandatory in all states and many drivers go without one. Additionally, even in states where having a PAP is compulsory, some drivers may be underinsured. There is a possibility that you may get in an accident with an uninsured or underinsured motorist. In such cases, UI and UIM coverages cover your costs for bodily injury and property damages.
Physical Damage Coverage
Your PAP covers damages to or a complete loss of your insured auto (owned or non–owned like a borrowed car). Due to this, you can decide how much property damage cost you want your PAP to cover you against different risk exposures.
Under collision coverage, your PAP will cover the costs to repair your vehicle after a collision with another vehicle or any object like a fence. Your insurer pays for the repair or replacement of your vehicle. The replacement coverage is provided by deducting your deductibles from the actual cash value of your auto. Usually, your lender and auto leaseholder ask for collision coverage.
Comprehensive coverage covers physical damage to your insured auto from theft, vandalism, fire, hail, or falling objects. Your insurer pays for the repair or replacement costs of your damaged auto when the costs are caused by covered perils. However, this coverage excludes any damages caused due to collision or overturn. Though comprehensive coverage is optional, your lender may ask you to include it in your PAP.
There are other types of PAP coverages that you can include per your needs. Your local auto insurance agent will advise you during the insurance purchase process. The different coverages that you may want to ask about are:
- Rental reimbursement coverage
- Sound system coverage
- New auto replacement coverage
- Gap coverage
- Towing and labor cost coverage
Sometimes accidents can result in substantial expenses on your behalf. However, an appropriate PAP with an adequate insured amount helps you cushion that blow.
Exclusions For Car Insurance
- Payments for intentional bodily injury or deliberate property damage are not entertained.
- Compensation won’t be provided if someone uses your insured auto without your permission.
- No coverage for vehicles that are designed for off-road rides.
- Coverage for vehicles with less than four wheels is not given.
- No coverage for vehicles used for flight or in water.
For this reason, it will be important for you to wisely pick a reliable auto insurance company.
Endorsements help you personalize your insurance policy by adding, modifying, or removing coverages as per your need. The most common endorsements for your PAP are as follows:
If you hit someone with your leased car, the injured party can sue you and your lessor. Given that be, a PAP is viable to cover defense costs for your lessor too.
If you hit someone while driving a car whose title is held solely in the name of your family trust, then the injured party can sue both you and the trust. With trust endorsement, you add the trust as an additional insured.
Additional Resident of your household
This endorsement is for additional residents of your household like roommates, domestic partners, housekeepers, etc. who may use your vehicle but do not own it. With this endorsement, your PAP extends coverage to the named person.
Miscellaneous Type Vehicles
It’s important to realize that recreational vehicles like dune buggies, motorcycles, motor homes, motorized gulf carts, etc., are usually excluded from a standard PAP. You can either apply for individual coverages such as golf cart insurance or drone insurance.
You can also protect your recreational vehicles through a Miscellaneous Type Vehicles endorsement on your PAP.
Limited Transportation Network aka No Passenger Public or Livery Endorsement
If you use your vehicle for ridesharing, this endorsement is for you. Typically, your PAP contract is void if you use your auto for commercial purposes. This endorsement limits or excludes coverage from the time you log into Uber or Lyft or any transportation network platform, regardless of passenger occupancy in your auto.
Once you add endorsements to your policy, they become a part of the legal contract. Reach out to your local auto insurance agent to get expert advice on the type of PAP you need.
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Frequently Asked Questions (FAQ)
Do I need auto insurance?
Almost all states require you to have auto insurance except Virginia, New Hampshire, and Mississippi. If you are a Virginia resident and do not have auto insurance, you are subject to an uninsured motor vehicle fee by the state. Likewise, in the other two states, you have the option to post cash bonds.
Additionally, many other states also give the option to self-insure by posting a bond or depositing funds at the DMV. However, this usually costs tens of thousands of dollars, so may not be a realistic option for the average driver.
How can I keep my auto insurance costs low?
There are many ways to keep your premiums low:
- Maintain a good driving record.
- Make timely payments to your insurer.
- Determine the cost of auto insurance before purchasing a vehicle. For instance, high premiums are charged for high-performance vehicles.
- Keep your annual mileage low.
- Ask about available discounts. Here are a few of the more common ones:
- Specific occupational discounts.
- Students with good grades can lower their premiums.
- Have multiple policies with the same insurer.
- Have multiple cars on the same policy.
- Take a defensive driving course.
Do my personal auto insurance cover losses if I use it for ridesharing?
No, as soon as you use your car for commercial purposes like ridesharing, your insurance contract will be void. A commercialized vehicle has higher liability risks than a personal vehicle. Higher risks mean higher costs of car insurance. If you want to use your vehicle for ridesharing, you can either opt for an endorsement or purchase rideshare insurance.
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