CAR INSURANCE BASICS

PERSONAL FINANCE

Liability

This is required by law in most states and is the foundation of car insurance policies. It's designed to protect you financially if you're found at fault in an accident and cause injury or property damage to others. Liability coverage encompasses two components: bodily injury liability coverage and property damage liability coverage.

Bodily injury liability covers injuries that you cause to someone else. Generally, it pays for the other person's medical bills, recovery costs and lost wages.

Property damage liability covers the cost of repairing or replacing another person's property that you damaged. Typically, this covers damage to another driver's vehicle, but it can also cover damage to fences, lamp posts, telephone poles, buildings or other structures your car hits.

Collision

This pays to fix or replace your car if it's damaged in a collision with another vehicle or a stationary object, such as a streetlight or a tree. If you're leasing or financing your vehicle, your lender may require you to purchase collision coverage.

Comprehensive

This provides damage protection for your vehicle in situations other than collisions, such as damage caused by theft, vandalism, natural disasters, falling objects and other incidents specified by your insurance policy.

Medical payment

If you or your passengers are injured in an accident, this coverage helps pay for health care costs associated with injuries, such as hospital visits, surgery, X-rays and more. Some states require this coverage.

Personal injury protection

This will help pay for your and your passengers' medical expenses resulting from an accident, regardless of who is at fault, meaning you don't have to wait for your insurance company to determine blame to be compensated. It also typically covers rehabilitation, lost wages and funeral costs. It's not available in all states. But personal insurance protection is required in 18 "no-fault" insurance states, including Arkansas, Delaware, Minnesota, New York and Texas.

Uninsured or underinsured motorist

In cases where you're involved in a car accident with a driver who doesn't have car insurance or has insufficient coverage, uninsured motorist and underinsured motorist coverage steps in to cover your medical expenses and property damage.

— Daniel Bortz, Kiplinger's Personal Finance

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