Money Lesson 22 - Auto Insurance [Page 1]

Auto insurance protects against financial loss if you are involved in a collision. It is a contract between you and the insurance company. The insured agrees to pay the premium, or cost of insurance, in exchange for the insurer's agreement to pay for losses defined in the insurance policy.

Auto insurance provides property, liability and medical coverage:

Property coverage pays for damage to or theft of the insured car.
Liability coverage pays for legal responsibilities to others for bodily injury or property damage.
Medical coverage pays for the cost of treating injuries, rehabilitation and, in some cases, lost wages and funeral expenses.

Most auto insurance contracts last for six months to a year. Your insurance company should notify you by mail when it is time to renew the policy and to pay your premium.

Auto insurance policies are comprised of six different kinds of coverage. Most states require drivers to buy some, but not all, of these coverages.

1. Bodily Injury Liability

This coverage applies to injuries to someone else. Drivers listed on the policy are also covered when driving someone else's car with their permission.

2. Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.

3. Property Damage Liability

This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures.

4. Collision

This coverage pays for damage to your car resulting after an accident. It also covers damage caused by potholes.

5. Comprehensive

This coverage provides reimbursement for loss due to theft or damage caused by something other than a collision, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer. Comprehensive insurance also provides coverage for cracked or shatter windshields.

6. Uninsured and Underinsured Motorist Coverage

This coverage provides reimbursement if the insured vehicle is hit by an uninsured motorist. Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.

Next : Things To Consider When Buying Auto Insurance

Money Lessons


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