Some Elementary Concepts in Auto Insurance

Written By: Theodore Hoffstrader on June 7, 2009 No Comment

by Theodore Hoffstrader

According to the Department of Motor Vehicles (DMV), US law requires every car owner in the country to covered by a some type of auto insurance. This law exists for two reasons: first, to protect the car owner from damages he or his car suffer in an accident, and second, to protect other people from damages that he may cause and may be his fault.

Auto Insurance Coverage includes several definitions. These definitions determine the responsibilities and obligations of the policy holder, as a car owner, in case of damage to his car, the theft of his car, or an involvement in a car accident.

The following are important definitions:

Property Coverage: this describes the amount of coverage available to a policy holder whose car was damaged in an accident, or through other means, such as vandalism. It also includes the theft of his car. Obviously this is an option every car owner should want to obtain.

Liability Coverage: this covers the the policy holder’s legal responsibility for property damage or bodily injures he causes. Basically, it protects the policy holder than no matter what, the insurance company will protect him – to an extent defined in his policy – from property or bodily damage caused by him.

Medical Coverage: this term defines how much money the insurance company would be willing to pay for injuries and necessary hospitalization that were sustained during an accident, as well as the costs of rehabilitation afterward. At times it may also include wages that were lost by the injured person while he is incapacitated.

Standard policies:

There is a great variety of auto insurance policies which exist for the purpose of indemnifying the car owner in case of loss, injury or damage. These also can be classified into several types.

Third Party: this is the simplest and cheapest policy, and the bare minimum, a car owner must possess if he owns a car. It financially protects an insured individual when he causes damage to someone or their property.

Fire and Theft: this type of policy protects a car owner from situations where his car is either burnt or stolen, but it does not protect him from other situations, such as property damage or medical injuries.

Collision: this type of policy covers the cost of repairs of the insured car even if the policy holder is responsible for the accident that caused the damage.

Personal Injury Protection (PIP) or Medical Payments (MedPay): this type of policy covers medical bills and lost wages of the driver and any passenger that were in his car during a car accident. This occurs even in the event that the driver was responsible for the accident.

Comprehensive: this is the most expensive car insurance, and unsurprisingly, the best one as well. It covers the policy holder from accidents, auto theft, medical bills resulting from bodily injures (at least partially), fire damage, and even “acts of god” (such natural disasters). On top of that, it even partially covers the cost of items stolen from a car.

The following are specialized policies:

There are also specialized policies that suitable to some scenarios.

Classic car insurance: this policy is equivalent to a comprehensive car insurance in all ways, except that it covers a car older than 25 years. However, normally there are extra stipulations, such as the owner cannot drive more than a predefined number of miles every year.

Rental Reimbursement: in the event a policy holder’s car is unavailable (i.e. it is in repairs as a result of an accident), this policy ensures that the car owner gets a replacement rental car for this period.

No matter which policy you may have, it is essential that you are intimately familiar with its details as this could have significant financial repercussions when the time comes. For instance, some auto insurance plans only reimburse 80% of the value of a stolen car – the reason being, to avoid fraud (car owners from staging theft of their own cars).

About the Author:

Theodore Hoffstrader has been wrestling for years with Auto Insurance matters, and has learned a lot from his experiences. In this article he discussed several Auto Insurance Basics. To view more articles that will help you better understand Auto Insurance procedures and may save you money, visit his site, the Auto Insurance Information Highway.