5 Types of Car Insurance Coverage Explained
Amrita is a full-time corporate employee, and commuting to and from the office to work is an unstated part of her job description. Her office is about 20 km away from her home, as a result, her Wagon-R is her daily ride. However, lately, she noticed smoke from her car and frequent overheating of the engine. She wanted to take her car to the workshop over the weekend, but she was swamped with work and put off the task till the following weekend. The following Monday, as she pushed her key into the ignition, the engine didn't start.
Upon investigating, the oil was found to be leaking and had caused damage to the car. The cost was exorbitant, but luckily her car was insured. She contacted her insurance provider to claim the coverage, and to her shock, they refused!
Importance of knowing the types of car insurance coverage
Many car users like Amrita pin their hopes on their insurance to cover all kinds of expenditures associated with car repairs. What they are often ignorant about are the dimensions covered by their insurance policy. As in Amrita's case, she didn't know that damage caused to the engine due to an oil leak is not covered in car insurance.
Policyholders need to be aware of their policy's different coverages in extensive detail to avoid frustrating situations. One must always remember that the truth lies in these details. There are five types of car insurance coverages extended by the insurance providers; liability coverage, collision coverage, personal injury coverage, uninsured motor protection, and comprehensive coverage. Each will be explained in detail as you move forth.
Liability Coverage is also referred to as Third Party Liability. This provides coverage against the claims made by a third party for any damage or injury caused to them due to the accident. It also covers the legal expenses and pay-outs that the insured party is liable for.
Liability coverage policies, as opposed to other forms of insurance, give the pay-out directly to the third party without involving the policyholder. Provisions excluded from this coverage are -
- Contractual obligations
- Criminal prosecution
- Intentional damage
A type of liability insurance called Umbrella Liability is a unique insurance product designed for catastrophic losses. The Umbrella Liability coverage generally kicks in when the limits of other insurances are reached. There is no specific reason that marks which type of liability coverage is better for you. It is all a matter of different strokes for different folks!
Collision coverage provides coverage to the insured driver for the damage to his car due to his fault. More often than not, it is an extension of a basic automobile policy. One thing to be mindful of is the exclusion of damage due to theft and vandalism. It also excludes the repair expenses paid by another driver's policy when he is found to be at fault.
Collision coverage provides for damage due to potholes or accidents involving inanimate objects like poles. Its premium often seems quite steep as it can only be bought in conjunction with liability coverage and comprehensive coverage.
Personal Injury Coverage
Also known as PIP, personal injury coverage is an extension of your automobile policy that covers the healthcare expenses associated with a car accident. It covers injuries of policyholders and their passengers irrespective of the status of the health insurance purchased by them.
We must remind ourselves that personal injury coverage has a maximum limit per individual if multiple individuals are injured in the accident. Contingent upon the limit of the personal injury coverage, if exceeded, is then covered by the individuals' health insurance. Furthermore, personal injury coverage also provides for all the expenses related to child care, lost income, and funeral expenses.
Uninsured Motorist Protection
A wise person is likely to use the third-party liability coverage of the second party if he ends up having to face losses and injuries through no fault of his own. This can work out just fine as long as the person at fault has third-party liability coverage with an upper limit that is adequate to provide for the medical injuries and damage. But what if he doesn't?
This is where uninsured motorist protection pulls you out of the fire by helping you cover the cost of damage and injuries when the third party's policy cannot. Using the uninsured motorist protection in lieu of activating your car insurance policy's claim keeps your claim history clean and keeps your No Claim Bonus intact.
Comprehensive coverage is the kind of insurance that provides for damages to your car due to circumstances other than road accidents. Arbitrary factors like destruction due to natural calamities, vandalism, and damage due to fallen trees are covered in comprehensive coverage. It also offers coverage against third-party liability along with own damage. Hence, offers complete protection to you and your car.
Is having Comprehensive coverage the best option?
Purchasing comprehensive coverage is mostly a decision based on the driver's discretion. In most states, it is not even mandated by state law. Bearing in mind the steep cost associated with comprehensive coverage, we advise you to examine the way you drive your car scrupulously. If you own an older car that does not have much value, buying comprehensive coverage is akin to pouring money down the drain. People living in metros are more prone to collision damage due to high traffic rather than non-collision damage. Our advice to them would be against buying comprehensive coverage and opting for collision cover instead.
On the other hand, even if someone lives in an area prone to natural calamities or theft, then purchasing a comprehensive policy makes a lot of sense.
Exclusions under such a Comprehensive coverage policy -
Having a comprehensive coverage policy should safeguard you from any and all possible damage. But before you get one, note that it also has some exclusions -
- Driving under the influence of alcohol
- Driving an already damaged car
- Unapproved modifications in your car may lead to denial of further claims
- Damage incurred if the 'restricted drivers' clause is not followed
- Damage incurred while driving without a valid driver's license
- Damage incurred in an accident while your car was overloaded
- Damage to tires
- General wear and tear
- Legal confiscation of your car
- Electrical or Mechanical breakdown
- Damage caused due to involvement in motorsports
- Damage caused to a personal vehicle being used for a commercial purpose
Not all coverages are apt for everyone. Having the proper knowledge of your needs and your insurance plan's specifics is vital in choosing the right plan for your needs and avoiding disappointment.