The average U.S. driver shells out around $1,500 per year only for car insurance. So, failing to understand your insurance policy can get expensive. Ignorance is costly, and auto insurance is a textbook example. We rounded up a list of what you need to know about car insurance this year.
Types of Auto Insurance
Each state has its own minimum car insurance requirements for car users to drive their cars legally. The most common types of mandatory coverage may include:
- Bodily injury coverage. This one will cover the medical costs for the injuries caused to another person in a car crash. It may cover funeral expenses, legal fees, and lost wages, as well. You must be at fault in the collision for this type of coverage to kick in.
- Property damage liability coverage. This one will cover the damage caused to another person’s property, including a parked car, if you are at fault for the accident. The car repair costs may exceed the limits of this coverage. In that case, you’ll need to pay the extras out of your pocket.
- Personal Injury Protection (PIP) This type of coverage is known as “no-fault insurance.” It will help cover the medical expenses for all people including in a road accident, regardless of fault. This means that you can offset some of the costs for your or your loved ones’ medical treatment. And this can happen even when you caused the accident.
- Uninsured/Underinsured Motorist Protection. This type of coverage is critical if the other driver caused the crash, but he’s either uninsured or underinsured.
Other types of coverage that your car insurance agent might mention include
- Collision insurance. This one is optional in most states. But if you plan to lease a car, the lender will likely require it. After a crash, collision insurance helps you repair or replace your vehicle even when you are at fault. It may also cover what the other driver’s insurance doesn’t when he’s the one who hit your car.
- Gap insurance. This is another optional insurance you might want to consider if you lease a new car. Gap insurance will cover what you still owe on a vehicle if it gets stolen or totaled.
What Is a Totaled Car?
A totaled car is a car that was so damaged in a traffic incident that repairs are no longer worth it. Some states have total-loss thresholds, beyond which a car is totaled. For instance, Louisiana as a total-loss threshold of 75%. If your vehicle is worth $10,000 and the repairs cost $8,000, your car is considered totaled.
Other states let car insurers deem a car a “total loss”. Car insurance companies use their own formulas for “total losses.” As a result, some insurers may total your car while others may decide to repair it.
All insurers, though, will look at the car’s current value or its Actual Cash Value (ACV) when deciding whether a repair is worth it. ACV is the value of the car one minute ahead of the crash according to the car insurer’s calculations. The Actual Cash Value takes into account normal wear, mileage, and prior road incidents (if any).
But calculating a vehicle’s ACV is not an exact science. And some insurers might be tempted to drag that value down for their own profit.
What Happens If My Car Is Totaled?
If your insurer deems your car a total loss, you’ll be paid an amount equal to the vehicle’s ACV. This sum doesn’t include the deductible for the collision coverage if you had one. In return, the insurance company will seize your damaged car in a bid to recover some of their losses. If the vehicle is brand new (no older than three months), you might get a new one. To understand the legal process behind a totaled car, get more details on what happens when insurance totals your car.
What If I Want to Keep My Car?
As of 2017, nearly 1 in 5 cars was totaled, and that number is expected to climb further. This is mainly due to the growing number of old cars on the nation’s roads. But many drivers would rather keep their damaged cars and repair them themselves.
While for some drivers, the old car may have sentimental value, for others, it may be the only car they can currently afford. This means that what they may get from the insurer is not enough to cover the cost of a new car.
So, one question remains, “Can insurance company force you to total your car?” The short answer is no. If you believe your wrecked car is worth more than what the insurer claims, you can bring forth evidence to prop up your case. But don’t expect an easy fight with the insurer. You might need to hire a car accident attorney for that.
You may also accept the insurer’s decision to declare your car a total loss but keep the vehicle and repair it yourself. The insurance company will give you just the cash value of the car, as stated in its decision, minus deductibles, and the junk vehicle worth.
