Auto insurance is really just a contract between you and your insurance provider which safeguards you from potential financial loss should you be involved in an accident or if your vehicle is stolen. In return for your paying a regular premium, your insurance provider agrees to cover your potential losses as set out in your policy. It is important to understand that your insurer will not always be able to pay for all potential losses and consequently may only cover the majority of your claim if you have sufficient cover.
The basic premise upon which auto insurance works is that it takes the loss of a vehicle out of the hands of the insurer and transfers it to you. In the event of an accident, your policy provides cover for both personal injury and property damage. In certain instances your auto insurance will provide cover for additional damage incurred such as to a third party’s car. There are several different types of cover which you can choose from depending on the type of auto insurance you have chosen.
Most states require car owners to have some form of bodily injury liability insurance as a condition of obtaining a driver’s license. This type of policy is sometimes referred to as PLI, which stands for “personal injury liability”. An example of this type of policy would be the “no fault” policy. If you were to hit a pedestrian or another vehicle, your auto insurance coverage would pay for medical costs and other compensation that resulted from the accident. In order to be legally able to drive a vehicle, every state requires car owners to have this coverage regardless of whether it is paid for up front or not.
The next type of policy is the uninsured motorist coverage, which compensates you for injuries sustained in an accident with another driver who has no medical coverage. In order to legally be allowed to drive, every state requires that you carry this type of coverage. In the event that you are injured in an accident with someone who does not have medical coverage, your insurance will pay you to the extent of the injury.
The third type of policy that you must carry is called the gap insurance policy. This coverage pays out if you are involved in a wreck where the other driver does not have any insurance coverage. GAP insurance pays out the actual cash value of the vehicle that was damaged or stolen if there is no current value. Gap coverage varies by state, so check with your local Division of Auto Insurance for the specifics. Some states only require the policy to be carried at the actual cash value while other states allow for both the actual cash value and the replacement value.
Auto insurance coverage is important if you want to feel safe behind the wheel. If you are in an accident, even if you have coverage, you may not be covered unless you have the gap insurance. If you own a vehicle that has a full policy including a gap insurance policy, you can be covered even if the other driver has no coverage at all.