In states where auto insurance coverage is a legal requirement, drivers are directed to buy third party liability protection. Bodily injury and property damage insurance is meant to protect the occupants of the other vehicle involved in an accident.
Physical damage coverage protects the driver’s own vehicle. While it may not be required by law, a driver who has taken out a loan to pay for his or her vehicle may be required to buy collision and comprehensive coverage before a lender will agree to advance funds. The bank or financing company will want to protect its interests in the vehicle, and both of these types of coverage pay out based on the car’s cash value.
Collision insurance pays for repairs caused in an accident which involves striking another vehicle or an object. It also pays for damage sustained during a rollover accident. Before the insurance company will write a check to pay for these costs, the driver is responsible for paying the policy deductible. This is the amount the policyholder agrees to pay toward the cost of settling the claim personally.
Comprehensive insurance covers different types of losses. It pays for damage caused by severe weather, flooding, vandalism or fire. This part of the policy also pays out when the vehicle is stolen and not recovered.
Keeping collision and comprehensive coverage in place on a vehicle is known as full coverage. Once the car has been paid off, a driver may want to reconsider whether to keep this level of protection in place.