Vehicle insurance. It can be considered a scourge or savior depending on your point of view or experience over time. You pay a premium – usually monthly or quarterly, depending on the number of vehicles covered, age of the drivers and claims history. Most people don’t realize that like your car loan and the actual vehicle purchase that you can and should shop for the best rates for insurance as well.
So just what is vehicle insurance? Vehicle insurance is designed to cover risk of financial liability or the loss of a motor vehicle the owner may face if their vehicle is involved in a collision resulting in property or physical damages. Some states require a motor vehicle owner to carry some minimum level of liability insurance. States that do not require the vehicle owner to carry car insurance include Virginia, where an uninsured motor vehicle fee may be paid to the state; New Hampshire, and Mississippi which offers vehicle owners the option to post cash bonds.
A motor vehicle owner typically pays insurers a monthly fee, often called an insurance premium. The insurance premium a motor vehicle owner pays is usually determined by a variety of factors including the type of covered vehicle, the age and gender of any covered drivers, their driving history, and the location where the vehicle is primarily driven and stored. Most insurance companies offer premium discounts based on these factors.
Insurance companies provide a motor vehicle owner with an insurance card for the particular coverage term which is to be kept in the vehicle in the event of a traffic collision as proof of insurance.
The typical vehicle insurance policy is typically divided into the following types of coverage:
Collision – This coverage provides coverage for vehicles involved in collision and is subject to a deductible. This can vary by level of coverage purchased and a deductible is an amount paid by the policyholder out of pocket before an insurer will pay any expense as a result of a filed claim of damage by the policyholder. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. While Collision coverage is optional, if you plan on financing a car or taking a car loan, the lender will usually insist you carry collision for the finance term or until the car is paid off.
Comprehensive – Is coverage subject to a deductible for cars damaged by incidents that are not considered collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are types of comprehensive losses. Additionally, the majority of insurance companies list “Acts of God” as an aspect of comprehensive coverage. By definition, it includes any events or occurrences that are beyond human control. For example, a tornado, flood, hurricane, or hail storm would fall under this category.
Liability – This coverage is offered for physical bodily injury (BI) or property damage (PD) for which the insured driver is deemed responsible. The amount of coverage provided (a fixed dollar amount) varies from state to state. Whatever the minimum, the insured can usually increase the coverage (prior to a loss) for an additional charge.
Uninsured/Underinsured Motorist – This coverage is for those situations if an at-fault party either does not have insurance, or does not have enough insurance. In effect, the insurance company pays the insured medical bills, then would subrogate from the at fault party. The definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws. In some states it is mandatory. In the case of underinsured coverage, two different triggers apply: a damages trigger which is based on whether the limits are insufficient to cover the injured party’s damages, and a limits trigger which applies when the limits are less than the injured party’s limits.
NEXT TIME – Optional coverage for an additional premium plus the misnomer of “Full Coverage”.