Why You Need Auto Insurance...
It's a question many people ask: do you need auto insurance? And while the answer should seem obvious to anyone who's not paying cash, it might be less clear for those who are. You'll need auto insurance if you're financing a car, if you're leasing a car, or if your lending company requires it. It seems like an easy enough decision: pay today and avoid paying tomorrow. But which type of auto insurance is best for you?
This post will cover your choices and help you decide which one is right for your individual needs.
Do You Need Car Insurance?
Car insurance can help protect you in many different ways. There are a number of different types of auto insurance, each protecting you against a specific risk. In some cases, your choice of auto insurance may be required by the lender that you've borrowed from, or the leasing agency that rents out your vehicle. Some types of auto insurance are mandatory. But before we explain how your documents and loaner requirements affect which type of car insurance is right for you, let's first review what exactly each type does and when it's appropriate to purchase them.
The Most Common Insurance Options
Let's start by reviewing the most common types of auto insurance. First is basic liability insurance, also known as personal injury protection (PIP) or minimum liability. PIP protects you against the costs of accidents that involve yourself or anyone else in your party. It's optional for you to have this coverage; however, if you can't get it, many states will require that you purchase it as a condition of renting a vehicle.
Second is collision and comprehensive coverage, also called "total loss. With this type of car insurance, you'll get reimbursed for damages to your vehicle after the cost of repairs outstrip the current value of your car. Collision coverage is optional; however, if it's not purchased, many auto rental companies will require it as a condition for renting their vehicles. As with PIP, collision coverage can be purchased alone or in conjunction with comprehensive coverage.
Lastly, there's third-party liability insurance. This type of insurance protects you against losses from someone else's negligence. It's important that you have this coverage because third parties may be held liable for damages that were caused by negligence on their part. This includes damages to your property, but it could also include damages to others, including medical expenses and lost wages.
It's important to note that the type of car insurance you need will depend on how you're financing your vehicle. If you're financing a vehicle, either from a bank or a leasing agency, then you'll probably need all three types: basic liability coverage, collision and comprehensive coverage, and third-party liability coverage. If you're leasing a vehicle from an auto rental company or if your lender requires it as part of the loan agreement, then you'll likely only need PIP and collision coverage.
What Documents Do You Need to Purchase Car Insurance?
The type of car insurance you need will depend on the documents that you have. For example, if you're financing your vehicle from a bank, then you'll need all three types: basic liability insurance, collision and comprehensive coverage, and third-party liability coverage. If you're leasing your vehicle from an auto rental company or leasing agency, then their requirements will dictate which type of coverage you'll need.
It's important to note that many auto loaners require both PIP and collision insurance. This applies even if the auto lender or leasing agency offers "gap" insurance themselves.
If you're renting a vehicle from an auto rental company, then you'll need collision and comprehensive coverage. If you're leasing your vehicle from an auto dealer or leasing agency, then they may require only PIP coverage or possibly more comprehensive coverage. The requirements of your auto lender will also dictate which type of car insurance is right for you.
How Does Your Auto Insurance Coverage Work?
Regardless of the type of car insurance that's right for your individual needs, all cars require some type of insurance cover to operate legally on the roadways. The three types of coverage are brokers; liability and medical payments; and uninsured/underinsured motorist (UM/UIM) coverage.
Liability insurance is the most common type of coverage and will act as a shield between you and the costs of accidents. This can be either personal injury protection (PIP) or third-party liability insurance, which protects you from the cost of lawsuits against you.
Medical payments coverage pays for injuries and/or illnesses – not necessarily resulting from an accident – that are sustained while you're in your car. If a driver doesn't have car insurance, then medical payments will help cover the cost of treatment after an accident involving your vehicle.
UM/UIM coverage helps protect you if someone with car insurance causes an accident that injures you or damages your vehicle.
With all of these types of insurance, you won't be required to purchase them. But if your car is damaged in an accident that isn't your fault, then you will need to file a claim against your auto insurance coverage. A good rule of thumb is that if you can't afford to pay for the repairs yourself, then you'll need to file a claim. If this happens, then the claims process can take significantly longer than if you had car insurance coverage because auto claims are a legal matter and therefore require legal representation when filing them. If necessary, seek an attorney's advice as soon as possible after any accident involving your vehicle.
Proving You Had Car Insurance
When you're driving a rental car, it's more likely than normal that you'll need to prove that you had car insurance. For instance, if your vehicle is involved in an accident while you're renting one, then the other driver or their auto insurance company will likely want proof of insurance before settling any claims. This is important because without insurance coverage, you'll be held responsible for damages even if they weren't your fault.
This is why it's important that you maintain your rental car insurance and keep up with any renewals. If you don't, then there's a chance that your coverage will lapse before you're even able to drive the vehicle back to its owner or return it to the rental company. As a result, your liability insurance may go back up to $1 million and you could be forced to pay more than $4,000 in damages if you're found responsible for an accident while driving a rental vehicle. This is why it's so important that you keep up with renewals of insurance coverage.
Conclusion
Auto insurance is an essential part of having and operating a car. This is why it's essential to understand what your car insurance policy covers and what it doesn't before you buy one. This includes understanding the three main types of coverage: basic liability, collision and comprehensive, and third-party liability. When purchasing car insurance, keep in mind that the type you need depends on the vehicle you purchase, whether or not you're financing it through a bank or auto dealer (or other financial institution), and if your lender requires it as part of the loan agreement.