Unlike health insurance, car insurance policies are actually made up of several different types of coverage each with its own premium and benefits. Motorists can often select different coverage amounts for the different components so its important for consumers to understand what is being covered to construct the best policy package. While other benefits exist, the following is a review of the most popular types of auto insurance.
Liability Car Insurance
Liability car insurance helps to cover financial damages to other parties when you are at-fault in a car accident. Liability auto insurance is actually the combination of two types of coverage: Bodily Injury (BI) and Property Damage (PD). The first pays for expenses that result from injuries sustained an accident while the latter serves to compensate for damaged property. In order to drive in most states, motorists must have some form of liability coverage or demonstrate another form of financial responsibility. This is to ensure that drivers that end up hurting others or damaging property can property compensate the other party.
When purchasing liability insurance, consumers will usually be quoted limits broken down into 3 numbers in the following fashion: 100/300/100. These numbers, also known as ‘split limits’ indicate the maximum amount that your carrier will pay out for bodily injury coverage for one individual, bodily injury coverage for all people involved in the accident, and property damage respectively. Any damages that exceed these limits will have to be paid out of your own pocket, so its important to have sufficient coverage.
Bodily Injury Liability
Bodily injury liability coverage (BI) is the most common type of auto insurance because it’s required in almost all states. It covers you in the event you cause an accident that injures or kills others. Your car insurance company steps in to pay for the other party’s medical expenses, lost wages, or funerals. BI even covers any legal fees you incur if the other party decides to sue you in court.
Protection is provided by your insurer up to the BI liability limits in your policy; any bills beyond that will be your liability. Minnesota require BI limits of $30,000; this can range significantly from state to state. What works for you should be based on an assessment of what assets you have at risk and your budget.
People usually get bodily injury liability and Personal Injury Protection (PIP) mixed up. PIP coverage entails your insurance company paying for any injuries that happen to you or your passengers in an accident. More below.
Property Damage (PD) insurance covers any sort of damage that you may cause to someone else’s property. As an example, if you were to lose control of your car and run into your neighbor’s house, property damage insurance would cover your liability. Likewise, if you were to rear-end someone’s car due to no fault of their own, property damage insurance would also cover their vehicle.
It’s up to each state to determine the minimum amount of PD insurance each driver is required to carry. But remember, while it may be tempting to only comply with minimum PD coverage, any property damage amount exceeding your liability minimum will have to be paid out of your own pocket! Minnesota’s minimum property damage coverage is only $10,000, which does not get far if you cause damage to a newer vehicle or multiple vehicles. Anything beyond the $10,000 will be paid out of pocket.
One thing many people get confused about is whether property damage insurance covers your car. In short, it DOES NOT. To cover damage to your vehicle you’ll need one of the two physical damage car insurance coverages, which we’ll discuss below.
Physical Damage (Collision) Car Insurance
When your vehicle is damaged from crashing into someone or by a fallen branch above your driveway, physical damage car insurance is what you need to have your insurer to pay auto repair costs. It also consists of two types of coverages, collision and comprehensive, which are differentiated by the circumstances under which your car was damaged. Know that versus the limits of liability car insurance, physical damage car insurance comes with a separate deductible amount that you will need to pay on your own per incident before your coverage kicks in. The deductible amount varies by insurers, but the typical policy will range from $250 to $1,000. The deductible you choose impacts your premium, with higher deductibles resulting in lower premiums, and vice versa.
Collision coverage is an optional insurance rider, although we do recommend you to include it in your policy in most cases. Collision insurance pays for repair costs to your own vehicle if it turns out you were responsible for the accident. Even if you are the world’s best driver and didn’t cause the accident, there’s always the chance that you will be ruled partially at-fault. If that’s the case, you could find yourself in a legal battle trying to prove it wasn’t your fault. In this scenario, collision coverage will pay for repairs to your car while the insurance company attempts to prove your innocence and get their money back.
Note that when you’re in a car accident that’s another driver’s fault, the property damage portion of the other driver’s auto insurance policy would step in to pay for repairs to your own car.
Comprehensive car insurance, also referred to as Other Than Collision or Comp insurance, covers such issues as vandalism, theft, and damage from natural disasters. Both collision and comprehensive fall into the “physical damage” category of car insurance incidents. Comp coverage essentially covers all physical damage to your car not covered by collision (such as hitting a large animal). A common misunderstanding about comprehensive insurance is that it covers everything. It does not. It only covers automobile damages from non-collision accidents and will not cover personal items, such as your wallet or car radio, if they are stolen.
No-Fault or Personal Injury Protection
Personal injury protection (PIP) pays for medical expenses for you and passengers in your car when you get into a car accident. It’s also called “no-fault insurance”, and is derived from the fact that it covers your injuries regardless of who is at fault for the accident. Beyond hospital expenses, PIP will sometimes cover lost wages, replacement household and childcare service expenses, and even funeral costs. PIP is mandatory in many states, including Minnesota, and optional in others. This typically means faster peace of mind and reimbursements than in at-fault states. In at-fault states, you’d have to file a claim or potentially sue the at-fault party’s insurance policy, which tend to be much more drawn out processes that can be less attractive, especially for people with tighter budgets. However, because it pays out for expenses regardless of who is at fault, premiums in no-fault states can cost a bit more.
Uninsured / Underinsured Motorist Coverage
Despite most states mandating that drivers carry auto insurance liability protection, there are still a number of motorists on the road without any insurance coverage. Estimates of uninsured drivers range from 1 in every 8 drivers to 25% in certain parts of the country. Uninsured and underinsured motorist coverage step in when you’re involved in an accident involving someone in this situation. While this is a relatively low-cost coverage to include and incredible critical in time, Minnesota and many other states actually include UM/UIM as part of the minimum required auto insurance.
Uninsured Motorist Coverage
Uninsured Motorist Coverage handles financial costs for injuries or damages that you may sustain at the hands of an uninsured driver. While it is illegal to drive without some form of insurance or financial responsibility in most states, some accidents inevitably involve drivers who don’t have coverage and may not have the finances to pay. In such cases, you may be faced with medical or property related expenses and have little financial recourse. Uninsured Motorist Coverage steps in to fill this gap. Not only will it cover an accident caused by an uninsured driver, but it also covers hit & runs, and stolen vehicles as well.
Underinsured Motorist Coverage
This covers costs or damages when an at-fault driver’s insurance coverage isn’t sufficient to pay for the damages they’ve caused. If your claims exceed these limits, you can sue the driver for additional reimbursement but in some cases the underinsured driver may not have enough assets to pay. In these cases the Uninsured Motorist Coverage that you pay for will help cover the balance of medical bills or other expenses related to the accident. Underinsured motorist coverage exists to help reduce the risk that there may be a financial gap between what the third party claim or driver is able to afford.
SR-22 State Filing
SR-22 – is neither car insurance nor a type of coverage, but still merits some attention here. You really only need to worry about it when you have committed certain motor vehicle violations that cause a court to order you to get one. It is an official proof of financial responsibility – basically a piece of paper filed by your auto insurance company to the state’s department of motor vehicle to show them you have auto insurance meeting the state’s mandated limits. In most states, filing a SR22 requires a fee.