What You Need to Know about the 3 Components of Your Auto Insurance Policy

When it comes to driving, there is no more important tool to have in your possession than your auto insurance. While your car has numerous types of safety equipment, it’s your auto insurance that protects you financially from any wrongdoings or damage done to your car.

Today there are hundreds of small insurance companies and some notable big ones, who charge various amounts based on the driving record of the named insured.

The Anatomy of an Auto Insurance Policy

Car insurance policies can be hard to understand. Sometimes, even contacting customer service isn’t much help. So, what is auto insurance exactly? While there are numerous line items on your declaration page, auto insurance can basically be divided into three main components:

- Collision

- Comprehensive

- Liability

Collision coverage is important because any damage you incur from an accident or from hitting a stationary object such as a tree, street sign, or building. Comprehensive covers random acts such as theft, vehicle damage that does not involve another driver (such as that caused by a flood or other natural disaster), or hitting an animal.

Liability, on the other hand, serves as protection for yourself should you cause damage to another car or if you are at fault in an accident that results in bodily injury to another person. Regardless of where you are in the world, vehicle insurance is likely required in some form.

Line Items in a Collision/Comprehensive Policy

Collision/Comprehensive coverage is generally required anytime you finance a vehicle through an auto dealer. Since vehicles are depreciating assets and the value of the vehicle backs the loan you receive, it is in the lender’s best interest to ensure that the car holds its value for the life of the loan in case of an accident, or if you default on your loan. However, after your car is paid off, as an owner it is your decision whether to carry these coverages.

Opting out of comprehensive and college coverage will lower your premium, but means your damages won’t be covered in the event of an accident. Sometimes, when the value of a car has depreciated past a certain point, a vehicle owner may find that it’s better not to waste money on full coverage since the car holds so little value.

The collision coverage section has numerous line items designed to protect your car from certain types of incidents. Some of the features include:

- A collision with another car

- A collision with an object, such as a fence or tree

- A single-car accident that involves rolling or falling over

Comprehensive coverage is similar to collision coverage except it covers things not necessarily due to a car in motion but usually when a car is parked. This is important because many times things happen when you are not behind the wheel, and you will want to be protected when you don’t have eyes on your car. Comprehensive usually covers the following:

- Car theft and damage from theft

- Fires and explosions

- Weather conditions, such as wind damage from hurricanes

- Violence from civil unrest

- Vandalism

Line Items in Liability Policy

Liability is perhaps the most important to carry and ensures that you are protected at the most basic level. However, liability auto coverage is critical regardless of the value of the car, whether it’s paid off or how much you drive the car. In the event of an accident, liability typically covers the following:

- Medical Bills

- Prescription

- Lost Wages

- Pain and Suffering

Most of the time, liability is required for any car you drive and will protect you against a potential hefty lawsuit if you are ever at fault for an accident and cause bodily injury to another driver. Liability carries the largest cost of insurance and can vary based on the driving record of the named insured.

It will protect you if you cause damage to another person’s property, such as a yard or a light pole. Liability coverage can also protect you if you are driving a rental car and cause damage to the car.

Other Line Items in Your Insurance Policy

There are a few other line items on your declaration page that you may find helpful when securing insurance. One is uninsured motorist coverage. This is important to have because occasionally you may get into an accident with an uninsured driver.

While you may be able to file a lawsuit against them, you may find it beneficial to file claims with uninsured motorist coverage so that your insurance can cover costs for your repairs and then have the insurance company deal with trying to recoup costs. You will usually have to meet your deductible, however, and some agencies may raise rates, even if you were not at fault.

Finally, there is usually a line item for car rental and travel expenses. This optional coverage is useful for any time your car gets damaged and needs to go to the repair shop and will require a rental during the time your car is in the shop. It’s a relatively cheap line item but it can give you discounts if you need to utilize a rental during your time without your car.