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How To Pick The Right Car Insurance Coverage

Updated on September 7, 2014

Understand what car insurance coverage's and terminology mean to make the best decision on how to insure your auto

Buying auto insurance can be a daunting task. Not only can it seem like finding a needle in the haystack to get the best rate but understanding the coverage choices for many is like ordering a meal off a foreign menu. This guide will help break it down in simple English so that you can pick the best car insurance coverage to protect you and your family. Truly understanding what everything does and means can also help you save money by focusing your insurance cost on the areas you need it most.

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Bodily Injury Liability Car Insurance Coverage

While you're on the phone with an agent they quickly rattle off a list of coverage amounts and it sounds like they're saying two different amounts. 100/300 liability, 100/300 uninsured motorist... You're left wondering, which is it 100 or 300? The first number is the amount of coverage in thousands that you have to cover each individual person. The second is the amount again in thousands that covers each incident. So simply put if you have 100/300 liability coverage if you hit another car and injure those passengers it would pay up to 100,000 per person to a maximum of 300,000. So if there were four injured parties they could not all receive 100,000. If you injured one person they could still receive no more than 100,000. If however you had a single limit policy of 300,000 then that could be split up between multiple people or go to just one. However these policies are not as common as split limit policies. Keep in mind that liability covers only your liability to others and does not provide any coverage for your bodily injury. State will have minimum requirements such as 15,000 per person and 30,000 per incident. In a serious accident these amounts would be used up in a day or two of inpatient hospital care. It's wise to carry higher amounts if you can at all afford it.

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Property Damage Liability Coverage for Auto Insurance

Property Damage Liability is a little more straightforward. You pick the amount you want in thousands and that's how much you have to cover any property of others that you damage. This does not cover your vehicle. This amount can cover vehicles, fences, walls. Whatever you crashed into property-wise would be covered if you're found to be at-fault. Many state minimum requirements are pretty low such as 10,000. When choosing a coverage amount keep in mind that there are many vehicles out there worth significantly more than 10,000. It's also possible to be liable to more than one vehicle in an accident. If you stick to the state minimums there's a good possibility that you could be coming out of pocket for the difference in an accident.

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Uninsured & Underinsured Motorist Coverage for Auto Insurance

Uninsured & Underinsured Motorist coverage pays for you and your passenger's medical expenses if another driver was at fault however either does not have insurance or does not have enough insurance to cover your injuries. The coverage choices are the same as for bodily injury liability. By law you cannot carry more for uninsured/underinsured motorist that you do for liability. If you want to carry a high amount here you'll have to bump up your liability limits.

Medical Payments Coverage on an Auto Insurance Policy

Medical Payments coverage is the amount of coverage per person in thousands. It's usually a smaller figure like 1,000 or 5,000 because people usually match this amount to their health insurance deductible since this is a supplemental coverage. This means it will not pay out in addition to health insurance and will only fill in the gaps where health insurance doesn't pay. If you have no health insurance carrying a higher amount here is a very good idea. It's important to understand that this pays out regardless of fault. Whereas uninsured and underinsured motorist coverage's will pay out only if the other driver was at fault. So if you're at fault this is the only medical coverage you would have.

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The amount listed for comprehensive and collision coverage is not the amount it will pay but the amount it won't pay. This is known as a deductible, which is the amount that will be deducted from your payout should a loss occur. A deductible is meant to reduce people from making numerous claims for every small ding they get on their car. The higher the deductible the lower your insurance premium will be. Though keep in mind you have to be able to afford the deductible should you get in an accident. If you wouldn't have the ability to come up with $1,000 then you should probably stick to $500 or less. Comprehensive and collision coverage aren’t required unless you have a loan on your automobile. However if your car is a newer vehicle or is still worth a decent amount of money it's a good idea to include these coverage's. Typically the insurance company will cover the cost to repair your car unless the cost to repair is so high that they consider your automobile totaled. In this case your settlement amount would be based on the current value of the car less depreciation.

Gap Insurance Coverage for your Car Loan

Gap coverage can be a very important coverage if you have a loan on a new car or you lease your auto. If you buy a new car the second you drive it off the lot its worth less than the moment you bought it. This is because it's no longer considered a new car. Imagine if purchased a new auto for $10,000 and took a loan for the entire balance. You then drove off the lot and got into an accident. If your car was totaled the amount insurance is going to pay will be less than what you owe due to depreciation. This would vary on the situation but might come in around $8,000. That $2,000 gap is what gap insurance would cover so you don't have to come out of pocket to pay off the loan company for a car you don't even get to drive. Dealerships offer this as a stand-alone coverage however if your insurance company offers it it's typically cheaper to buy it that way than from the dealer.

Glass Insurance Coverage on an Auto Insurance Policy

Glass coverage is a yes or no question- either you have it or you don't. If you don't select glass coverage you still would have coverage for your glass (if you have comprehensive and collision coverage) but it would be subject to your deductible. Typically a windshield is going to cost less than the average deductible so you'd just end up paying out of pocket. If you have glass coverage that means glass claims are not subject to any deductible. So whether a chip needs to be filled or the windshield needs to be replaced, there would be no out of pocket expense to you. This coverage is particularly prevalent in places like Arizona due to the large amount of rocks in addition to high heat. Both of which are responsible for many breaks. However keep in mind that many insurance companies will increase your rates if you make excessive glass claims. So it might be in your best interest to pay a lot of the smaller claims yourself.

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Rental Reimbursement on your Car Insurance Policy

Rental Reimbursement pays for you to rent a vehicle while your car is being repaired or while you purchase a new one in the event your vehicle was totaled. The limits are split into the daily amount and the total amount of coverage. So if you have 30/900 that means you can spend up to $30/day for a total of no more than $900. This is typically reimbursement coverage. Meaning you would pay for the rental and then submit to be reimbursed by the insurance company. Some insurance companies however will pay the rental company directly upon request.

Towing Insurance Coverage for your Vehicle

Towing coverage is also reimbursement coverage for up to the amount you have selected on your policy. If you have 50 towing that means you'll be reimbursed up to $50 if your vehicle is towed. You'll just need to send in your receipt. Some insurance companies have more of a comprehensive roadside assistance package similar to AAA. These might cover towing up to a certain mileage instead of a flat dollar amount. They would also include other services like opening your car if you lock your keys inside which would not be covered with just the basic towing coverage.

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Does buying car insurance intimidate you?

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      Ashley 2 years ago

      My car insurance doesn't cover very much, and I want to get better insurance now that I'm making more. I didn't know there was so many different kinds of insurance. Thanks for all the information, I actually didn't know about the glass insurance coverage. http://www.dainsurance.com/autoinsurance.nxg

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      carinsurancecompare 3 years ago

      I suppose it can be a little intimidating with all the options you have to be aware of. In South Africa, it's not mandatory to have car insurance unless you have financed the car in which case the banks insist on it (to protect their asset). You seem to have covered all the options well though.

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      AutoInsuranceGuru 3 years ago

      Gap coverage is a good thing to know about. A lot of easy to digest info here! Thanks!

    • TolovajWordsmith profile image

      Tolovaj Publishing House 4 years ago from Ljubljana

      I don't have a car, but if I buy one, I ill definitely get back for this info. Thanks!

    • Snakesmum profile image

      Jean DAndrea 4 years ago from Victoria, Australia

      Having seen this lens, I can't help but notice how different our terms and conditions are here in Australia. Car insurance is never an easy thing to understand, but yours looks tough!

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      anonymous 4 years ago

      Buying car insurance does not bother me at all. However,if it did this lens would be a great place to start the learning process. I love the simple, clean, easy to read way you present information.Very professional.

    • TACTCI LM profile image

      TACTCI LM 4 years ago

      Great car insurance information lens from an expert in the insurance business! Thanks for the time and excellent presentation.

    • dragonlildragon profile image

      dragonlildragon 4 years ago

      not a very pleasant experience dealing with insurance companies. Very well laid out information. A terrific lens.

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      DMVAgent 4 years ago

      Very thrifty lens, very useful.Choosing a high deductible will have a direct impact on the amount of money you pay for your car insurance. Sometimes, the price should still be a strong consideration.

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      jennyb85 4 years ago

      Very informative lens! Car insurance can definitely be very confusing, and this broke it all down in a very easy way to understand.