What are the main types of auto insurance coverage?
The law in all but three US states is clear. You must hold a valid auto insurance policy before you drive on the public highway. A policy is a contract between you and an insurance company. It defines what coverage the company will offer in return for you paying the premium. If money is no object, you can pay for a policy that covers every last possibility anyone can imagine. But most people buy policies off-the-shelf. Think of them as like a package containing standard terms. The following lists the most common policy types.
This pays out on claims made by third parties who are injured because of the way you drive. The law of tort has a simple rule. If you are negligent, you have to compensate anyone who is physically injured for their pain and suffering. You also pick up the bill for medical expenses, loss of earnings, repair costs on the vehicles or property damaged, and any other costs that flow directly from the traffic accident you caused. If the injured party sues and wins the case, you also have to pay his or her legal expenses.
This covers you against all the damage to your own vehicle caused by the collision. Under normal circumstances, this will be a collision between two or more vehicles in a traffic accident, but it can include collisions between your vehicle and physical property like walls, fences and trees.
This covers you against all the damage that could be caused to your vehicle by the weather, flooding, earthquakes, fires, and so on. As well as damage you might think of as an Act of God, it also covers you against the all-to-human theft and vandalism. This adds all the situations in which your vehicle is damaged other than by a collision.
This is optional coverage to pay out on all the medical expenses following a traffic accident no matter who was at fault.
Personal Injury Protection (PIP)
In some US states, you are required to carry PIP - a no-fault policy to pay all your own medical bills if you are injured in a traffic accident.
Uninsured or underinsured driver coverage
The cost of auto insurance has been rising steadily over the last ten years and an increasing number of drivers either cannot afford any cover or can only afford the minimum. This means the risk of being unable to recover adequate compensation from the other drivers at fault is growing steadily more real. To guard against this, you can pay an additional premium to pay your own costs and expenses if the other driver is uninsured or underinsured.
In addition, there are a range of different terms that can be added on to cover possible towing costs, the reimbursement of renting a replacement vehicle while yours is in the repair shop, and so on. It is up to you to decide whether this additional cover represents good value for money.