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Car Insurance Coverage Explained

According to CNN Money, in October 2013, auto insurance premiums were up 23% over the past five years. You may be tempted to buy less coverage, but you should be aware of the risks associated with only purchasing minimum coverage requirements. Insurance protects you from financial liability. If you get the minimum insurance required by your state, you could be at financial risk. Find your state’s minimum insurance requirements, as indicated below, and decide if the minimums are what you really need. In many states the mandatory requirement is not enough to replace you vehicle if it is totaled in an accident or pay for serious injuries. The minimums would only be enough to drive legally. If you have assets that could be seized for repairs and medical care, you may want to up your coverage limits. When accident costs exceed the limits on your policy, you could be personally liable.

Before you start insurance shopping online:

  1. Determine your state's mandatory car insurance requirements
  2. Find out your BHPH dealership’s mandatory car insurance requirements above state requirements, check for the comprehensive and collision deductible.
  3. Determine how much coverage you’d like beyond any required coverages.
  4. Research your car insurance premium factors. These factors are used by insurers to rate your insurance risk and calculate your premiums. Higher risk equates to higher premiums. Familiarity with these factors may allow you to make changes to lower your insurance premiums.

Find Your States Mandatory Car Insurance Requirements

Look up the mandatory auto insurance requirements for your state. Check if your state requires bodily injury (BI), no-fault personal injury protection (PIP), physical damage liability (PD), property protection (PPI) Michigan only, uninsured motorist (UM) or underinsured motorist coverage. You’ll also need to know the mandatory liability limits which are 25/50/15 in Colorado, meaning $25,000 of bodily injury insurance per individual injured in an accident, $50,000 of bodily injury insurance for all people injured in an accident and $15,000 of property damage insurance. The types of insurance coverages and limits differ by state.

Several types of auto insurance coverages are outlined below. The descriptions reflect the general definition of each type of coverage. Your actual coverages and benefits may be significantly different from what is stated below. To find your active policy’s coverages, please call your car insurance company directly or check your auto insurance policy contract.

What Does Bodily Injury Cover?

When you cause an accident, bodily injury (BI) covers damage to people you injure and pays medical bills, pain and suffering, lost wages, death benefits, medical equipment and other expenses related to those injuries. It will usually pay for legal defense if your accident ends up in a lawsuit. BI specifically covers people that you injure in an at-fault accident. The policy does not cover damages to yourself or to people within your vehicle.

What Does No-Fault Personal Injury Protection Cover?

Personal injury protection (PIP) will cover injury to you and your passengers when you’re in an accident that is not your fault, pay for medical expenses and may cover lost wages. Check with your heath insurance policy, and if applicable, your disability insurance. You personally could be protected from personal injury through these policies. Even if you have other insurance policies that cover you for personal injury, you may still want PIP coverage for passengers in your vehicle.

What Does Physical Damage Liability Cover?

If you’re at fault, the physical damage liability (PD) coverage pays for damage to the other car that you hit and it’s the third number in the 25/50/15 policy coverage. PD also provides protection against damage to inanimate objects like buildings, poles, signs or other people’s parked vehicles. The damage must be an accident, and does not cover damage to your own property.

What is Property Protection Insurance? - Michigan Only

In Michigan, the Michigan No-Fault Act requires auto insurance coverage to include Property Protection Insurance (PPI) coverage. If your car damages someone’s property like a parked car, fence or building, your insurer will cover the cost with the PPI damage. The PPI is paid without fault, meaning if two vehicles are involved in hitting a traffic light, both insurance companies will pay for the repair. In Michigan, PD insurance covers out-of-state accidents only.

What is Uninsured Motorist Coverage?

Uninsured motorist (UM) coverage will pay for costs when you are hit by someone without insurance.

What is Underinsured Motorist Coverage?

Underinsured motorist coverage will pay for costs when you are hit by someone with minimal insurance coverage.

What is Collision Coverage?

Collision coverage pays for repairs to your vehicle in an accident, and it is required by most BHPH dealers.

What is Comprehensive Coverage?

Comprehensive Coverage pays for damage not associated with an accident, like a stolen, vehicle, flood, fire or animals. It is required by most BHPH dealers.

Do You Need Comprehensive and Collision?

If you have a Buy Here Pay Here loan, your dealer, who is also your lender, will probably require you to have comprehensive (comp) and collision coverage to cover damages or replace your vehicle. BHPH dealers generally require comprehensive and collision with a $500 deductible. Check with the BHPH dealerships that you are considering for their required comp and collision coverage before you start to check insurance quotes.

Unpaid Insurance: Breach of Contract! Impound! Auto Repo!

In many states, if you are caught without insurance, the officer can impound your vehicle for driving as an uninsured motorist. To get your vehicle out of impound, you will need to pay applicable storage fees and prove that you have current auto insurance. BHPH dealers receive written notice of lapsed insurance and are not required by law to allow for any remedy. Unpaid insurance premiums expose your car to undue harm enabling the BHPH dealership to immediately seize your vehicle without the right to recourse or cure with zero tolerance. Even if you have one payment left and your insurance lapses for one day, your vehicle can be repossessed without the right to cure. It is one of the most serious breaches to the BHPH contract. Depending upon your state of residence, penalties and fines may vary. Once you own your vehicle and you have the required insurance, remember to set payment reminders and never let your car insurance premiums go unpaid!

Now that you’re acquainted with auto insurance coverages, you’re ready to start car insurance shopping!

Guest post by Rian Taylor, BHPH marketing expert at DRIVE 1 AGAIN Used Cars in the Denver, Colorado metro area. Follow her on Google+