Vehicle Insurance also known as auto insurance, GAP insurance, car insurance or motor insurance. This is insurance purchased for cars, trucks, motorcycles and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom. Vehicle insurance may additionally offer financial protection against theft of the vehicle and possibly damage of the vehicle sustained from events other than traffic collisions.
In the US, some states require a motor vehicle owner to carry a minimum level of liability insurance.
Virginia does not require the vehicle owner to carry car insurance but an uninsured motor vehicle fee may be paid to the state.
Although auto insurance is not mandatory in New Hampshire, most drivers opt to purchase it anyway. Drivers who have been involved in car accidents or have been convicted of serious traffic violations, have to purchase car insurance.
In Mississippi other than buying car insurance, drivers can also post a bond for the minimum coverage amounts or make a cash or security deposit equal to the minimum coverage amounts.
Coverage in general:
Consumers may be protected by different levels of coverage. Some states require drivers to carry at least liability insurance to ensure that their drivers can cover the cost of damage to other people or property in the event of an accident.
This coverage is offered for bodily injury or property damage, for which the insured driver is responsible. The amount of coverage provided (a fixed dollar amount) will vary from jurisdiction to jurisdiction. In some states, such as New Jersey it is illegal to operate a motor vehicle that does not have liability insurance coverage. In some jurisdictions. liability coverage is available either as a combined single limit policy, or as a split limit policy.
Combined Single Limit:
A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured driver with a combined single liability strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver’s car, as well as payments for injury claims to the driver and passenger, would be paid out under the same coverage.
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver’s vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage. Bodily Injury damage is usually split into a maximum payment per person and a maximum payment per accident. The limits are often expressed separated by slashes in the following form: “bodily injury per person”/”bodily injury per accident”/”property damage”
For example, California requires the minimum coverage.
$15, 000 for injury/death to one person
$30, 000 for injury/death to more than one person
$5, 000 for damage to property.
This would be expressed $15, 000/$30, 000/$5, 000
Another example, in the state of Oklahoma, drivers must carry at least state minimum liability limits
of $25, 000/$50, 000/$25, 000. In the state of Indiana, the minimum liability limits are
$25, 000/$50, 000/$10, 000 so there is a greater property damage exposure for only carrying the minimum limits.
Generally, liability coverage purchased through a private insurer extends to rental cars. Comprehensive policies (“full coverage”) usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage however, cannot apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle.
Most rental car companies offer insurance to cover damage to the rental vehicle. These policies are unnecessary for many customers as credit card companies such as Visa and Master card provide coverage if the rental transaction is processed using one of their cards.
Full coverage refers to the combination of comprehensive and collision coverage. The term “full” coverage is a layman’s misnomer, that often results in drivers and vehicle owners being woefully underinsured. A misconception in the US is that vehicles that are financed on credit are required to have “full” coverage in order for the financial institution to cover their losses in the case of an accident. While most states do require additional coverage, some states such as Pennsylvania only require Comprehensive and Collision to be purchased in addition to liability and not “full” coverage.
Also known as other than collision, comprehensive provides coverage, subject to a deductible, for cars damaged by incidents that are not considered collisions. For example, fire, theft, (or attempted theft), vandalism, weather, or impacts with animals, are types of comprehensive losses. “Acts of God” are listed as an aspect of comprehensive coverage. These are events beyond human control, such as, a tornado, flood, hurricane or hail storm.
Uninsured/underinsured motorist coverage:
Also known as UM/UIM, provides coverage if an at-fault party either does not have insurance, or does not have enough insurance. In effect, the insurance company pays the insured’s medical bills, then would subrogate from the at-fault party. This coverage is often overlooked and very important. In Colorado, for example, it was estimated in 2009 that 15% of drivers were uninsured. In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws. In some states, it is mandatory.
Also known as GAP coverage or GAP insurance. Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called “upside-down” or negative equity.
If the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. GAP waivers provide protection when a “gap” exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances this insurance will also pay the deductible on the primary insurance policy.
What GAP insurance does not cover:
1. Any unpaid delinquent payments due at the time of loss.
2. Payment deferrals (known as “skips”)
3. Refinancing of the vehicle loan after the policy was purchased.
4. Late or administration fees assessed after the loan assessment.
Therefore, it is important for a policyholder to understand that they may still owe on the loan even though the GAP policy was purchased. Failure to understand this can result in the lender continuing their legal remedies to collect the balance and the potential of damaged credit.