How to make sense of the different types of car insurance

BY COVER

How to make sense of the different types of car insurance
For the best in Carriers, Coverage, and Service, call us at The Huttenlocher Group. (Photo by Getty Images)

Click here to request an auto insurance quote


Do you have enough insurance for your vehicle or enough of the right types of car insurance? In virtually every state, you need some level of coverage when you drive.


Given the different range of coverage available, which ones do you need, which ones make the most sense for you?


This overview will get you up to speed on the essentials.


Why you need car insurance


Some form of coverage is the law in every state. While New Hampshire does not have a mandatory insurance law, the state does require you to pay for costs of damage resulting from an accident if you are at fault.


Depending on where you live there could be mandatory coverage for liability, medical payments, personal injury payments, or uninsured/underinsured coverage.


So how do these different types of insurance work?


Liability insurance


Liability insurance covers the costs of damage you could do to other people and their property when driving. So if you’re at fault in an accident and other people require medical attention or need to pay for vehicle repairs, your liability insurance would pay for this.


Having a minimum level of liability insurance is the law. This is because you need to pay for the damage you may cause to others on the road. Liability insurance is the way to make sure you can do this.


Liability insurance covers three main areas that have different coverage limits.

  • The maximum coverage per injury per person in an accident

  • The maximum total coverage for injuries in an accident

  • The maximum coverage for property damage in an accident

If you see a liability coverage limit written as 20/40/10, this would mean:


$20,000 per person injured

$40,000 total for injuries in an accident

$10,000 property damage coverage.


What happens if I don’t have enough liability coverage?


If your maximum liability coverage is not high enough to cover all the costs of an accident, you could be exposed to further risk. Therefore you should not think of the state minimums as recommended levels.*We do not write the State Minimum at The Huttenlocher Group as we do not feel it will adequately cover you in the event of a loss.


For example, in California, the minimum property damage coverage per accident is $5,000. Now factor in how much repairing or replacing another driver’s car could cost. For example, in 2017 the average cost of a used car was estimated at $19,400.


You start to see how this minimum could get used up pretty quickly.


Imagine you had a $10,000 minimum property damage limit but caused an accident with $20,000 worth of damage. In this situation, the other driver’s insurance company has the right to come after assets of yours to make up the difference.


This is why insurance agents will recommend higher levels of coverage on your liability insurance.


Personal Injury Protection & Medical Payments


Liability insurance only covers costs arising from damage you may cause to other people while driving. If you just have liability insurance, you have no protection for yourself.


There is nothing to cover repair costs for your vehicle, or for medical treatment you might require.


Medical Payments Coverage or MedPay covers your expenses for things like medical, surgical, or dental treatment, and could also include ambulance transportation, hospitalization, nursing care, or funeral costs.


Medical payments insurance is not designed to take the place of health coverage. It will only cover you for treatment in the event of an accident.


Personal Injury Protection, or PIP, provides wider coverage. In addition to medical costs, PIP covers therapy costs as well as losses you could sustain by not being able to work. Either Medpay or PIP is a requirement in 16 states.


Uninsured/Underinsured Coverage


Despite legal requirements for all drivers to carry liability insurance, an estimated one in eight drivers goes without coverage.


If you are in an accident caused by an uninsured driver, things could get complicated. The driver has no liability insurance to cover your costs.


Taking legal action could be an option, but may not be worth it if the driver has no means to pay your medical bills.


In this situation, Uninsured Motorist Bodily Injury (UMBI) coverage, if you have it, would cover the cost.


If the driver has only a very low level of injury coverage on their liability policy, their insurance might not cover the full amount of treatment you require. In this situation, if you have, Underinsured Motorist (UIM) Bodily Injury coverage you have would layer on top of that driver’s liability limits


Uninsured or underinsured motorist insurance coverage is a requirement in 19 states, but in many other states, this is standard on most policies.