Auto Insurance Basics 101

Every state in the country requires that drivers carry a minimum amount of car insurance. It protects you and the other driver in the event that you are involved in an accident. However, it is important that you have a good grasp on the auto insurance basics, such as how it works, coverage types, and even terms used within insurance policies.

For instance, did you know that car insurance can offer three different areas of coverage? These are liability coverage, physical damage coverage, and medical payments coverage. All three of those types play very important roles in your peace of mind and the level of protection you enjoy while on the road.

At Freedom National, we believe that it is important that you make an informed, accurate decision when it comes to your insurance coverage. To that end, we created this auto insurance basics guide. We’ll walk you through what you need to know in order to make certain that you have the right amount of protection, whether you want basic auto insurance or a little bit more.

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We’ll begin our discussion of auto insurance basics with a closer look at the three coverage areas we mentioned previously – liability, physical damage, and medical payments coverage.

• Liability – Liability coverage is mandatory in all areas we serve. This type of coverage pays for your financial obligations to another driver if you were at fault in the accident.
• Physical Damage – Physical damage coverage is what pays for damage to your car but will also apply if the car is stolen or damaged due to causes other than a collision.
• Medical Payments – Medical coverage is exactly what it sounds like. It provides coverage for those in your vehicle who were injured in the accident including doctor and hospital bills, but may also pay for lost wages from work, and funeral costs in some cases.

Those are the three broad areas where car insurance plays a role. However, there’s much more to know, such as how those three areas are addressed by various insurers and individual car insurance policies.

Now that we have established the three basic types of coverage, we need to delve into the car insurance basics a bit more in depth. The average car insurance policy is usually comprised of some combination of six different types of protection, all of which relate to the three areas we discuss above. Below, we’ll break those building blocks down, so you can understand how they work together to protect you and your family, as well as other drivers.

Bodily Injury Liability– Bodily injury liability is required to most states, and pays for injuries sustained by the other driver and/or passengers in an accident that is deemed your fault. Bodily injury coverage typically has a per-person limit and a per-accident limit. Some insurance companies allow you to combine bodily injury with property damage into a combined single limit, also known as CSL.

Property Damage Liability– Property damage liability is required in most states, and will pay for the damage to the other party’s vehicle in an accident that is deemed your fault. Property damage typically has a per-accident limit.

Medical Payments or Personal Injury Protection (PIP)– This type of coverage will pay for injuries to you and your passengers that occur because of an accident. Whether or not the coverage applies to at-fault accidents depends on your state and whether or not PIP coverage is available. PIP is a no-fault coverage that applies regardless of who was at fault. Medpay and PIP usually have a per-person, per-accident limit.

Collision– Collision coverage pays for damage to your vehicle caused by a collision with another vehicle, but also with other objects like trees and fences, and in the case of a rollover. Collision coverage will pay for damage sustained to your vehicle even if you were at fault, and, as such, is generally required by lenders if your car is not paid off. Collision coverage usually pays up to the actual cash value (ACV) of your vehicle, and it has a deductible that you must pay out of pocket for any covered repairs.

Comprehensive– Comprehensive coverage applies to most types of damage to your vehicle that are not covered by collision coverage, and to theft. If your car were to be damaged by a falling object or stolen, this coverage would pay for the repairs. Again, if your car is not paid off, the lender will very likely require you to carry this type of coverage for the duration of the loan. Like Collision coverage, Comprehensive coverage has a deductible and can cover up to your vehicle's ACV.

Uninsured Motorist Coverage– While all drivers are required to carry insurance, not everyone obeys the law. If you are involved in an accident with an uninsured driver and the accident is their fault, this type of coverage can protect you and your vehicle. Uninsured Motorist Bodily Injury (UMBI) offers coverage for injuries caused by an at-fault, uninsured driver, and Uninsured Motorist Property Damage (UMPD) covers your vehicle. A related coverage, Underinsured Motorist Coverage (UIMBI), can cover your injuries in the case of a serious accident with a driver who carries too little insurance for the damage that they have caused. All of these coverages have limits that will be stated in your policy documents.

In addition to those six building blocks, there are some additional coverage types that may be provided through your insurer.

These are:

Rental Reimbursement Coverage– This coverage is usually optional, and it provides reimbursement for rental expenses while your car is being repaired after an accident. It does not cover renting a car for going on vacation or any other reason. As its name implies, rental reimbursement coverage requires that you pay for the rental yourself, and then your insurance company reimburses you up to the limits of your policy.

Towing Coverage– Another optional coverage that is usually sold along with rental reimbursement, towing coverage will pay to tow your vehicle if it is disabled due to a covered accident. It usually does not cover towing due to mechanical breakdown or other issues - that would typically fall under roadside assistance coverage.

Roadside Assistance Coverage- This coverage will help you out if you're stuck on the side of the road and it can kick in even if you haven't had an accident. Check the terms and conditions of your particular policy for the exact details, but generally this coverage will assist in cases like running out of gas, locking your keys in your car, or changing a flat tire. Sometimes these plans work on a reimbursement basis, where you pay for the service and then your company pays you back, and sometimes it's on a dispatch basis, where the company sends someone out and pays them directly at no cost to you.

Gap Insurance- If you carry collision coverage, your insurance company will pay up to the actual cash value of your vehicle, minus your deductible if the car is totaled. But what happens if you owe more than the car is worth? Gap insurance is designed to pay off the difference, or "gap," so you don't have to pay off the difference in your loan out of pocket. Most finance companies will offer this coverage when you purchase the car, but many insurance companies also offer gap insurance as an add-on to the personal auto policy.

There you have them – the six building blocks that go into creating pretty much every auto insurance policy. Each state that we serve – California, Arizona, and Utah – mandates minimum coverage amounts. However, it is always worth considering carrying more coverage than the minimum to ensure that you really do have the protection that you require.

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At Freedom National, we work with people from all walks of life, from first-time drivers to those purchasing their first solo car insurance policy, high-risk drivers, and everyone in between. Our customers often have questions about the insurance process, protection types, and other auto insurance basics. In the section below, we’ll cover some of the most frequently asked questions our customers have to help you build familiarity with car insurance.

• What is a deductible?

A deductible is the amount that you must pay out of pocket before your insurance policy kicks in. In general, lower deductibles mean higher premium payments, while higher deductibles mean lower premium payments. You can set your own deductible to meet your budgetary considerations. Deductibles apply to physical damage coverages like comprehensive, collision, and UMPD.

• How much insurance do I need to carry?

Your state has minimum car insurance coverage requirements. However, it’s usually a wise decision to carry more than the bare minimum, as that is often insufficient in the case of serious accidents. If your policy is not enough to cover an accident that was your fault, then you must pay the balance out of your own pocket.

• How do I find the right car insurance policy?

The process of finding the right car insurance policy starts by getting insurance quotes and then comparing them. You can get a quote from us instantly online.

• Does my insurance include coverage for a broken windshield?

This will depend on your policy. In some cases, it is included if you purchased collision coverage, but your policy may have the option of full glass coverage as a standalone, which is handy because then you won't have to pay your deductible for glass repairs. Either way, auto glass can be very expensive to replace, so we recommend looking in to this type of protection.

• Does my insurance cover me if I hit a deer?

Your insurance will cover your car in the event that you hit a deer if you have comprehensive coverage. Comprehensive coverage is generally required by your lender, but can be a smart choice even if your loan is paid off.

• Does my auto insurance cover me if my car is stolen?

If your car is stolen, comprehensive coverage would apply if you have it. This coverage is usually required if your car is not paid off, but you may decide that it's worth paying for even if you own your car outright.

• How do I get a lower auto insurance quote?

There are many ways that you can qualify for lower car insurance rates. Being a safe driver, getting a multi-car discount for insuring all the cars in your household, driving a safer/low-risk vehicle, and even limiting the amount that you drive can all impact your insurance costs.

Do you have a question that is not answered above? Explore our resources, or get in touch with us directly. Ready to insure your car? Get a quote from us instantly with our online quote form.

Take a look at the average car insurance policy and you will come across a number of terms that might be more than a little confusing. In order to ensure that you’re making the right decision and have a firm grasp of the auto insurance basics, we’ll explain some of the most commonly used terms below.

• Actual Cash Value:The fair market value of stolen or damaged property; the amount required to replace stolen/damaged property, rather than the amount paid for said property originally.
• Anti-Theft Device:Any device that discourages theft of an automobile, including alarm systems, stereo anti-theft systems, and the like. In some cases, this may provide you with a discount on your car insurance premiums.
• At-Fault:The driver determined to have caused an accident, and who is legally responsible for the damages. Some states allow for comparative fault, where multiple at-fault drivers can share the liability for a single accident.
• Bodily Injury:A physical injury to any person involved in an automobile accident.
• Cancellation:The termination of insurance coverage during the coverage period.
• Car Insurance Policy:An insurance policy issued on a specific vehicle (or vehicles) and specific drivers to cover the risks involved with operating the vehicle on the road.
• Claim:Informing the insurer that an incident has occurred involving an insured vehicle.
• Claim Adjuster:The individual responsible for investigating claims and settling them with the insured party.
• Claimant:The person asserting their right to recovery on an auto insurance policy, generally the vehicle owner, but sometimes the lender or another party.
• Collision Coverage:Specific coverage for collision-related damage, separate from comprehensive coverage.
• Collision Deductive Waiver:Available in some states as a replacement for UMPD if you have collision coverage, this is a waiver stating that in the event that you are hit by a negligent or uninsured driver, your collision deductible will be waived.
• Comprehensive Coverage:Coverage for damage other than collision for your vehicle. This can include theft, vandalism, hitting a deer, damage due to falling rocks or trees, and most other damage to a vehicle that doesn't involve its collision with another vehicle or object.
• Declarations:A list of specific items/vehicles being insured, as well as other elements of your policy, including coverage amounts, premiums, etc.
• Deductible:The amount of out of pocket costs you must pay before insurance becomes payable. Note that you may have different deductible amounts for different coverage types.
• Endorsement:Sometimes called a rider; an item added or removed from your insurance policy.
• Exclusion:Incidents, circumstances, drivers, and other conditions that are specifically listed in your policy as not covered.
• Expiration Date:The date on which your insurance policy will cancel if not renewed.
• Insured:The name(s) of anyone protected under a car insurance policy.
• Insurer:The car insurance company issuing the policy.
• Liability Coverage:Property damage and bodily injury coverage that pays for damage to the other driver/vehicle if you are fault for the accident. This coverage is required in most states.
• Limit:The maximum amount payable with your insurance policy.
• Material Misrepresentation:False statements made by policyholders during the application process.
• Medical Payments:Payment for medical costs, rehabilitation, and funeral costs for the insured and others within a covered vehicle.
• Policy:The agreement/contract between you and the insurer.
• Policy Limit:The maximum your policy will pay out.
• Premium:The amount you must pay per agreed period for insurance coverage.
• Property Damage:Damage to property – vehicular or otherwise – caused by the insured.
• Quote:An estimate of insurance costs.
• Reinstatement:When coverage is restored after policy cancellation. The insured must cure the reason for cancellation before the policy can be reinstated.
• Surcharge:An additional charge on your insurance policy, generally resulting from a traffic violation or accident.
• Underwriting:The process of determining risk and insurability before issuing an insurance policy.
• Uninsured Motorist Coverage:Bodily injury and/or property damage coverage for the policyholder in the event of an accident involving an uninsured motorist.

Now that you know the auto insurance basics, you can make an informed decision regarding the protection you purchase. If you’re ready to move forward, we invite you to get a quote.