Owning a car symbolizes fun and freedom for many. But it also comes with the real and severe risk of financial disaster for all, which makes car insurance is a necessity. A car insurance program creates a contract between a car insurance company and a car owner. Car insurance companies issue a policy that confirms the details of how they will protect owners—their insureds—from financial losses that result from an accident or theft in exchange for receiving premium payments from the owners.
Who Needs Car Insurance?
Car insurance is not optional for anyone who owns or operates a vehicle. States make it a legal requirement to have a minimum amount of car liability insurance coverage. Lenders require auto liability coverage that will pay medical bills and damage to another's vehicle or property that results from the accident and will pay some legal fees because of the accident. Until a loan is paid off, lenders are the primary owner of a vehicle. As such, they also set minimum requirements for some of the car insurance coverages listed below.
What Does Car Insurance Cover?
Car insurance programs cover an extensive range of potential losses in the primary categories known as property, liability, and medical. They are spread among the six components detailed in the following section of this guide to car insurance.
It is useful to know what is not covered by a car insurance program even when full coverage, including liability, collision, and comprehensive, is part of the policy. There are standard exclusions found in car insurance policies. Examples include:
Acts of God: These are exclusions for damage caused by natural disasters such as floods, hurricanes, and earthquakes.
Personal Possessions: Items in the vehicle are not covered if they are damaged in an accident or stolen.
Aftermarket Upgrades: Although installed in the vehicle, stereos, navigation systems, custom seats, and other such items need a policy endorsement to be covered by car insurance.
Operating Another Vehicle: A car insurance policy does not cover drivers when operating a vehicle not listed on the policy. If the other vehicle has insurance, it should protect drivers who have permission to use the car.
Business Use: Standard car insurance coverage is for personal use, including commuting to and from work. If a vehicle is used for business purposes, even occasionally, the policy is not in force during this period. A commercial auto policy is necessary.
Normal Wear and Tear: Car insurance does not cover the costs to maintain the vehicle.
Driver Exclusions: Teenagers not specified on the policy or a driver with a history of accidents or driving under the influence may be excluded when the policy is written.
Components of Car Insurance
When seeking the best car insurance coverage, there are six components of car insurance to consider. Laws do not require all components. However, some lenders require them, and they are only optional for those who outright own their vehicles without a lease or a loan.
Bodily injury is a car insurance liability coverage set up to pay for injuries or death on behalf of the owner when the vehicle operator is found to cause the accident.
Medical Payments/ Personal Injury Protection
Medical payments, often called "Med Pay," is an optional coverage that is not available in all states. It helps to pay for the medical expenses of vehicle passengers and the operator if they are injured during a car accident without regard to who is at fault for the accident. A health insurance program may be primary, and in those cases, Med Pay will fill the gaps in coverage.
Personal Injury Protection (PIP), like Med Pay, covers medical bills, but only for the insured and drivers using the vehicle with permission. PIP is not available in all states and varies in what it covers. Generally, PIP will cover costs such as medical payments, and lost wages for operator and vehicle passengers in an accident, regardless of fault. PIP may also cover other provisions, including paying for funeral and burial expenses, childcare and household expenses, and survivors' loss to dependents of a breadwinner's income.
State laws mandate property damage insurance. It is liability coverage found in every standard car insurance policy. Property damage pays out when the insured's vehicle causes harm to another person's property. The coverage goes beyond paying for losses and repairs to vehicles to include any property belonging to another person involved in an accident caused by the driver.
Collision insurance is an optional coverage that helps with payments for a vehicle requiring repair or replacement when it is damaged in an accident, whether with a car or an object such as a building, phone pole, or fence. For car owners who have financing in the form of a lease or a loan, the lender will specify and require minimum collision coverage while the loan is active.
Uninsured/Underinsured Motorist (UM/UIM)
Unfortunately, some drivers operate a vehicle with no insurance, which creates an uninsured risk to others. Some cars are only insured for the legal minimum amount, which makes underinsured risks for other drivers. The two parts of (UM/UIM) coverage are bodily injury and property damage. They are optional but highly advisable in states where not a legal requirement.
UM/UIM bodily injury will help pay for medical bills, lost wages, and pain and suffering to the driver and other people in the car when involved in an accident caused by a person with no insurance or coverage too low to compensate for sustained losses fully. UM/UIM property damage works the same as bodily injury to cover losses to the vehicle and property caused by a driver with no insurance or limits too low to fully compensate for losses.
Comprehensive is a type of car insurance that will pay to repair or replace a stolen or damaged vehicle in incidents other than collisions. Examples include covering payments for damages due to vandalism, fire, and falling objects, such as rocks, hail, or trees. Lenders require comprehensive coverage for loans and leases until paid off. Some car insurance policies include no-deductible glass coverage for windshields, side and rear windows, and sunroofs. Others make it an optional policy endorsement.
It is important to note that collision and comprehensive will only pay up to the insured car’s current market value. Because there is often a rapid depreciation in the value of a new car, a gap between the vehicle’s payoff and its actual market value may exist. This situation creates a “gap” problem if the vehicle is stolen or deemed a total loss. Gap insurance will pay the difference for the insured. Today, lenders provide gap coverage for leased cars by rolling the coverage into the overall lease payments.
Car Insurance Costs
The cost of car insurance varies widely, with many factors affecting the premium. The type and age, and use of the vehicle are judged along with the drivers' age; the driver's experiences and claims history also influence the price. The policy's deductible amount and the location of where the car is kept are also considerations for underwriters.
Best Car Insurance Programs
Looking for cheap car insurance is understandable. However, it is not advisable to use cost as the top car insurance buying decision. A better solution is to work with a leading broker with extensive experience working with multiple car insurance carriers. We recommend you review the Program Business listing for Orchid Insurance LLC for the best car insurance program.
For two decades, Orchid has been the first choice for catastrophe exposed property insurance. It provides flexible products, fast processes, expert underwriting, and competitive pricing with customized solutions to its partner agents from coast to coast. Orchid offers proprietary and tailored insurance solutions with distinguishable ease of use and expertise. Its goal is to meet and exceed its commitments to all it serves.