You Have Two Kinds of Car Insurance
Filed Under Types of Car Insurance | 1 Comment
The idea of having to shop around and buy car insurance is an annoying inconvenience. State laws set minimum amounts of required coverage, and very often that is what folks purchase. In tough times we especially look to purchase the minimal amount in order to get by. We just can’t afford to pay more than we have to, and if we’re going to weigh the risk between not having enough insurance and paying the electric bill, the electric bill wins every time.
Here’s a shock, I agree. I agree that one should have the minimal amount of coverage from the insurance company that one needs in order to get by. However, it is the kind of coverage one purchases for their car that makes a world of difference.
Car insurance is intended to indemnify you from a loss that occurs as a result of something for which you are at fault (we’ll discuss comprehensive and uninsured motorists coverage later). Think about it. If your car is damaged as a result of someone else’s negligence, their insurance company will pay for the damage. Car insurance is all about protecting yourself from your own mistakes.
A car insurance policy is essentially two different kinds of insurance. The first kind is the insurance that indemnifies you against the loss from damage to your vehicle. This vehicle damage insurance is divided into two kinds of coverage: Collision and Comprehensive (also called Other than Collision).
Collision insurance is coverage for damage to your vehicle that results from you accidentally colliding with another object such as another car or a light pole in a parking lot. It is designed to cover the expenses to repair the damage that you caused to your car. Comprehensive insurance, also called Other Than Collision (because it is not “comprehensive”) is coverage for damage to your vehicle that is from something that is no one’s fault, such as damage that results from hail, a fallen tree branch, or an animal running into your car.
The other kind of insurance on an auto policy is Liability insurance. This kind of insurance is designed to pay for the expenses that result from physical injuries that occur to any people who are injured because of your driving mistake. Under the Liability portion of the policy there is also provision for coverage of expenses incurred due to damage you caused to someone else’s property.
Remembering the principle that insurance is for catastrophes, we must now distinguish between these two kinds of car insurance. Which one is designed to cover a loss that is a painful financial setback, and which kind covers a loss that is a catastrophe?
Looking at the first kind of car insurance, the kind that indemnifies you against the loss from damage to your vehicle, what is the most you would stand to lose if you did not have this insurance? In a worst case scenario, if you totally damaged your car so that it was beyond repair, you would lose the actual cash value of that vehicle. Now if it is a brand new Mercedes Benz, and if you are in debt up to your eyeballs, this loss could be financially devastating. You would have the loss of the money you still owe on the vehicle, plus the loss of replacing it. But if it was an older vehicle worth only several thousand dollars, the loss would be painful, but not devastating. Thankfully, this kind of car insurance (Collision insurance) comes with an option that allows you to take some of the burden of insuring your vehicle upon yourself, thus reducing your premiums.
We’ll talk about this special feature in the next article.
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