Before a driver can make an informed decision about buying auto insurance coverage, he or she must be able to understand this financial product and the types of benefits the driver is getting from having it in place. Auto insurance coverage has two components: coverage which protects the driver’s own vehicle from physical damage and protection from being personally responsible for damages caused in an at-fault accident.
Physical damage coverage includes collision and comprehensive protection. Collision coverage pays for repairs to the policyholder’s own vehicle following an accident which involved striking another vehicle or an inanimate object. Comprehensive protection pays for damage caused by other events, including fire, severe weather, and vandalism. It also pays out if the car is stolen and not recovered.
Liability coverage is put in place to pay for damage claims made by the occupants of the other vehicle when an at-fault accident occurs. It pays for personal injury claims (medical bills and lost wages). In some states, an at-fault driver can also be sued for pain and suffering related to the accident.
The liability portion of the policy also pays for property damage claims. The other driver can seek compensation for the cost of repairs to his or her vehicle under the property damage liability portion of the policy. Property damage coverage also pays for repairs to items such as buildings, sheds, fences, guard rails and sign posts following the incident.