What are the main types of auto insurance policy

Forty-seven of the fifty US states require you to carry some auto insurance when you drive on a public road. This means buying a “policy”. This is nothing more than a collection of contract terms defining how much the company will pay out in different situations. Just as important, the policy tells you when the company will not pay out. There is no such thing as a standard policy. Every company has its own set of contracts and they are all different in the detail. However, the following general types are usually on offer:

 

1. Liability
These policies give you cover against the claims made by third parties for any injuries or property damage you have caused. If you are found at fault, you are liable to pay not only the cost of repairing the property damaged, but also the costs of medical treatment and damages for the pain and suffering, loss of earnings and other expenses that may be been incurred. Forty-seven states set minimum figures but, if you own your own home and have other assets worth protecting, you should almost certainly buy more than the basic minimum.

 

2. Medical coverage
Regardless of fault, this covers all the medical expenses that may be payable as a result of a traffic accident.

 

3. Personal Injury Protection (PIP)
Regardless of fault, some states require all drivers to carry cover against the medical expenses for the treatment of injuries caused by a traffic accident.

 

4. Comprehensive
This pays for all the loss and damage caused to an insured vehicle by vandalism and theft, or by the weather, flooding or other natural perils. It does not cover damage arising out of a traffic accident.

 

5. Collision
This cover all the loss and damage that may be caused when the insured vehicle is involved in a traffic accident with another vehicle or a stationary object.

 

6. Uninsured or underinsured driver
This pays out if the driver at fault is either not insured or carries insufficient insurance to cover all the liability.

 

7. Miscellaneous terms
There are groups of terms that may be included in policies which, for example, pay the cost of towing your vehicle to a repair center if it is damaged in a traffic accident or pays the rental on a replacement vehicle while you wait from the return of your vehicle from the repair shop. Whether you ask for terms of this type to be added into your policy depends on how much risk you want to cover and how much you are prepared to pay.