What is car insurance?
Car insurance also known as auto insurance protects people against financial loss if they have accident. It is a contract between someone and the insurance company. He She agrees to pay the premium and the insurance company agrees to pay his/her losses as defined in his/her policy.
Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium.
Types of car insurance policy
There are three major types to choose from: third party, third party fire and theft, and fully comprehensive cover.
Third Party car insurance
It will cover you for the damage caused by your car to other people’s property. Even if you do not think that your car is worthy of insuring taking out this policy will cover you for the damages bill if you collided with a luxury car, a bill potentially worth thousands.
It will also pay out if you caused an accident and injured another driver – or their passenger. But it does have its limitations, as it does not cover the cost of repairs to your own vehicle, and would not cover you if your vehicle was stolen or damaged by fire. If you own a car and want to drive on public roads, third party car insurance is the minimum level of cover required by law.
Third Party Fire and Theft Insurance
As the name states, this type of auto insurance coverage applies when your vehicle is damaged or totaled as a result of fire, or if your car is stolen. Auto insurance theft coverage is something that most drivers do not consider until it’s too late.
If your car catches fire due to lightning or an explosion, this coverage will pay to repair or replace your vehicle. It also offers very specific coverage to include damaged resulting from the sinking, collision, derailment, burning, or stranding of a trailer that is transporting your car. It also offers some redundancies in coverage for things like floods, earthquakes, hail or wind damage, vandalism, or accidents caused by hitting an animal.
This coverage applies to almost any type of loss that may occur, but not as a result of an auto accident. This is the insurance coverage that pays for damage to your car caused by something other than another vehicle. It could be anything: damage from severe weather such as tornadoes, hurricanes, or hail storms, or natural disasters such as earthquake, flood, or fire.
It also applies if you hit an animal, or if your vehicle is vandalized or stolen. Even in the unlikely event that something falls on your car and damages it, comprehensive coverage will pay for the repairs. It’s a good idea to pair comprehensive coverage with another type of coverage like collision to cover damage that does result from an accident.
Other related car insurance policies include:
Physical Damage Coverage
Physical damage coverage is an umbrella under which three other types of coverage fall—fire and theft, comprehensive, and collision. If you’re still making payments on your car, chances are either your lien-holder and or the state law will require you to carry at least the minimum amount of physical damage coverage. Once your car is paid off, this coverage may become optional, but it’s still a good thing to have to protect you against almost any sort of potential damage to your vehicle. It’s especially important to have physical damage coverage if you own your car outright, and it’s a luxury vehicle, or retains a high resale value.
Personal Injury Protection
Uninsured/under-insured motorist liability
There are 2 types of uninsured and under-insured motorist liability coverage: bodily injury and property damage. Both are designed to protect you, financially, from drivers with minimal or no coverage.
Uninsured motorist bodily injury liability coverage can help pay for medical expenses and lost wages of policyholders, authorized drivers, and passengers when the accident-causing driver is uninsured.
Under-insured coverage works similarly to uninsured insurance, except this coverage steps in when the at-fault driver’s liability limits aren’t enough to cover your post-accident expenses.
Uninsured under-insured motorist property damage coverage helps pay for your car’s repairs if the at-fault driver doesn’t have enough of the required property damage coverage or it they are uninsured.
If you are still making car payments, gap insurance may be a good choice. It’s meant for drivers who still owe money on their cars and need to pay off the vehicle if it is totaled in an accident. It’s generally a good choice if you owe more on your car than you could easily pay off on short notice.
Since many insurance policies will only cover the value of the car, rather than the cost to replace it. Some lenders may require you to have gap insurance or something similar until you pay off the vehicle, so you may already have it whether you know it or not.