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Understanding the Different Types of Auto Insurance CoverageBodily Injury and Property Damage Liability coverage is perhaps the most important type of protection that auto insurance policies offer, and the one that almost all states require. Bodily injury liability applies to damages you cause to others. It covers their medical bills and lost wages. Property damage liability pays to repair or replace property that you damage or destroy. This includes other cars or property, such as fences. It can also pay for "pain and suffering" damages if someone sues you after a car accident. Almost all states and the District of Columbia require minimum liability coverage amounts by law. Personal Injury Protection (PIP) and Medical (MedPay) coverage pays for both medical expenses and lost wages to the policyholder and any passengers injured in the vehicle in the event of an accident. Some experts advise people with good medical and disability policies to only take on the lowest limit of PIP coverage required by their state. Some states, such as New Jersey, allow drivers to reject PIP entirely. Even so, PIP usually provides “dollar-one” coverage over injuries (i.e., there is no deductible); people with significant deductibles and co-pays may very well want to consider PIP. Collision and Comprehensive is another major area of coverage, but one that is not required by law. Collision coverage insures you in the event of any kind of accident, whether it's with another car or an object, such as a utility pole or fire hydrant. Comprehensive coverage protects you in the event of theft or natural disaster (i.e., losses caused by anything other than a collision). If you have an older car, and the cost of repairing or replacing your car is likely more than its value, you may want to waive both collision and comprehensive coverage. Unlike liability coverage, this type of coverage is not required by law. However, your bank (if you are financing your car) or your leasing company (if you are leasing your car) will likely require that you carry this coverage until you have paid for your car in full or for the life of the lease. Uninsured Motorist coverage provides you protection from crashes with motorists not carrying car insurance, as well as covering you in the event of a hit-and-run accident. Also, uninsured motorist insurance coverage comes into play when an at-fault driver doesn't have enough liability coverage to pay for the damages from an accident. Most states require drivers to carry some level of uninsured motorist coverage. Gap coverage for a new vehicle pays the difference between the actual cash value of the vehicle and the amount left on your car loan if your vehicle is totaled. Due to the sharp decline in the value of a car immediately after purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan more than the reimbursable value of the car. Gap insurance does not always pay off the full loan value however. These cases include but are not limited to:
Therefore, it is important for consumers to understand that they may still owe on the loan even though the Gap insurance policy was purchased. Rental reimbursement coverage pays for a rental car when your vehicle is damaged or stolen. Towing and Roadside assistance pays for fees due to road breakdowns.
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