Auto insurance is a necessity for anyone who owns a car. It’s the law in all 50 states, and not having insurance comes with severe penalties when caught. But what policy is the right one?
The first step is to examine why an insurance policy is required. The car is owned outright, but there is the state law that needs to be satisfied, payments are being made on the car, and/or to protect the asset value of the car. The latter is important when an accident happens and the car is totaled, requiring replacement. To that end, a policy that has full coverage or liability is necessary. But there is a thing as too much and not enough insurance. Buying the right policy is vital towards keeping costs at an appropriate level along with making sure there is enough coverage available when needed.
Understanding the Differences Between Types of Insurance
There are a total of seven types of insurance policies for cars. The reason is that some states require specific types of insurance to be put under one umbrella. For example: the state of Illinois requires a car owner to have a liability policy, uninsured motorist bodily injury coverage and under-insured motorist bodily injury coverage. Insurance agents are familiar with state requirements for minimum auto insurance coverage and are capable of selling a client the correct type of insurance.
The other types of insurance include collision, comprehensive, medical/personal injury protection, no-fault and gap. When collision and liability are combined into one policy, it’s considered to be comprehensive. Under-insured or uninsured motorist policies work on the theory that state minimums for liability insurance are too low, and the offender won’t have enough coverage for the injuries that are inflicted. Medical/personal injury protection helps to cover the costs of medical bills along with any passengers that were in the car at the time. No-fault insurance is only available in 12 states, but it covers injuries and damage no matter who is at fault. Gap insurance fills in the gap of what the insurance company pays out versus what is still owed on the car. If the insurance company doesn’t cover the remaining balance, gap insurance steps in.
Picking the Right Policy
It’s possible to get a policy with every type of available insurance in it. But is it the right policy? Or is it overkill? Someone who owns a car that is over five years old and is paid off may not want to bother with getting a comprehensive policy, as the asset value of the car is less than the cost of the insurance for an entire year. On the other hand, if the car is in good condition, runs well, and is a model that is difficult to replace, a full policy may be the better choice.
The best way to determine what insurance is right is to discuss the various needs with an insurance agent and get multiple quotes from different insurance companies. The more informed the consumer, the better the decision that is made.
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