Typical Auto Insurance Policy
According to the Better Business Bureau, "losses from property damage, medical and legal costs, and lost income add up to billions of dollars annually for automobile mishaps." Driving an automobile without insurance is illegal in most states, and can cause financial devastation if you are at fault in a serious crash. Arming yourself with a typical auto insurance policy with plenty of coverage can protect you and others in case of an automobile collision, but you want to have at least the minimum coverage required by your state.
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Declarations
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A typical auto insurance policy will provide an insured person with a declarations page, setting out the details of the coverage he selected for his automobile, and can also show coverage for more than one vehicle covered in a household. It shows the policy number, name and address, the make, model and year (and sometimes the VIN number) of the automobile(s) covered, the coverage and limit amounts, the premium amount and the period covered by the policy.
Coverage
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A typical auto insurance policy contains six types of standard coverage: bodily injury liability, property damage liability, uninsured/underinsured protection (UM/UIM), medical or personal injury protection (PIP), collision and comprehensive insurance. Optional coverage sometimes included in a typical auto insurance policy includes rental car reimbursement, towing and labor and roadside assistance. "Depending on where you live," according to Insure.com, "some coverage is required and some is optional."
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Function
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Bodily injury protection pays for another person's medical bills, including family members and others driving your car. Property damage pays to repair another person's car or other property, such as a fence, that you may damage. Medical coverage pays your medical bills and those of your passengers. Collision insurance pays to repair your car regardless of fault, and comprehensive pays if your car is stolen, catches fire, is damaged from hitting a deer or from severe weather, for example. Uninsured coverage pays your medical bills if you're in an accident with an uninsured driver or the victim of a hit-and-run, and underinsured covers you if another driver doesn't have enough insurance to cover your losses.
Limits
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Every state has its own requirements for minimum levels of liability insurance in a typical auto insurance policy. Bodily injury and property damage liability coverage limits are typically identified as three numbers: the first is the amount of bodily injury coverage for each person; the second is the amount of bodily injury coverage for each accident; and the third is the amount of property damage coverage for each accident. For example, 20/40/10 means $20,000 per person, $40,000 per accident, and $10,000 for property damage.
Deductibles
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A typical auto insurance policy includes the payout of a deductible, an amount of money that an insured person needs to pay out of pocket before his insurance company will pay out on collision or comprehensive claims. Typical deductibles are $200, $500 or $1,000. The higher the deductible, the lower the premium. According to the Better Business Bureau, "increasing your deductible from $200 to $500 could reduce your collision and comprehensive cost by 15% to 30%." Liability coverages don't carry deductibles.
Considerations
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People who carry only the minimum level of liability insurance will be financially responsible for damages to another person or his car that exceed that minimum. Collision and comprehensive coverage may not be cost-effective for cars worth less than $1,000. An insured driver who carries high deductibles on collision or comprehensive coverage needs to have that money available to pay up front in case he needs to make a claim.
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References
Resources
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