Skip to content

Understanding the Basics of Auto Insurance

When it comes to purchasing auto insurance, there’s a lot to think about. It helps to start by knowing the coverage a basic policy provides, what minimum coverage your state requires, if that minimum will truly protect you in the event of an accident, and what optional coverage you can add to your policy to best protect your safety on the road, and your pocketbook. Understanding these basics will help you make a list of questions to ask an independent insurance agent. In dependent agents represent a number of different insurance companies. They can match you with a company that provides the amount of coverage you need at a price that you can afford.

Auto insurance basics

Basic auto policies may include six coverage options, and each one will likely be priced separately.
  • Bodily Injury Liability– Pays for injuries that you as a driver cause to someone else. It’s important to be sure you buy enough liability insurance in the event that you are involved in a serious accident that results in a lawsuit. If you carry only the state-required minimum limits, assets like your home and your savings may be at risk if you are sued.
  • Property Damage Liability– Covers damage you do to someone else’s property as a driver. Most often the damage is to another car, but it would also pay if you damaged a fence, building, lamp post, etc.
  • Medical Payments/Benefits or Personal Injury Protection (PIP)– Pays the medical bills for you and others covered by your policy in the event of an auto accident.
  • Collision– Pays for damage to your car that occurs when you collide with another car, an object such as a guardrail or building, or in the event that you flip your car over.
  • Other Than Collision (Comprehensive)– Covers loss or damage to your car caused by something other than a collision, such as fire, flood, hail, falling objects, vandalism, theft, or coming into contact with animals like deer or birds. It also covers damage to your windshield.
  • Uninsured and Underinsured Motorist Coverage– Uninsured Motorist Coverage reimburses you if you are hit by a driver who has no auto insurance. Underinsured Motorist Coverage reimburses you when an at-fault driver has insurance but does not carry enough insurance to cover your total claim.

Required Coverage

Coverage requirements vary from state to state. Most states mandate that all drivers carry liability coverage, which pays for injuries to other people or damage to other vehicles that you may cause. Required coverage in Pennsylvania:
  • Medical benefits(also known as First Party Benefits–state requires minimum coverage of $5,000 for medical benefits, but residents may choose a higher limit and additional coverage options.)
  • Bodily injury liability
  • Property damage liability
  • Selection of limited or full tort(limited tort does not allow you to sue for certain types of damages, such as pain and suffering, while full tort gives you unrestricted rights to bring suit against the negligent party).
Required coverage in Maryland:
  • Bodily injury liability
  • Property damage liability
  • Personal Injury Protection(state requires minimum coverage of $2,500, but residents may choose a limited PIP option).
  • Uninsured/Underinsured Motorist Bodily Injury Liability
  • Uninsured Motorist Property Damage Liability
In addition to requiring certain types of coverage, states usually require that certain minimum amounts of that coverage be carried as well. For example, Maryland drivers must purchase enough insurance to cover at least $15,000-worth of property damage.

Should you choose minimum or maximum coverage?

If a particular coverage is not mandated by the state, how do you decide if it might be worth it for you to add it to your policy? Let’s consider collision and other than collision coverage. While most states don’t require that you carry these coverages, a bank or auto lender may require that you do before they will loan you money for a car in order to protect their own financial interests until the car is paid off. Even if your car is paid off, what happens if you hit a deer or your windshield is shattered? Without other than collision coverage, that damage could mean money out of your pocket. By the same token, it may not be cost-effective to carry collision and other than collision coverage on an older vehicle worth $1,000 or less, since any claim you make might actually be less than what it cost you to pay for the insurance premium and the deductible (the part of the claim you must pay before insurance coverage payment kicks in). It comes down to weighing how much risk you’re willing to take. Carrying minimum coverage will mean a lower insurance premium, but it also means you must be prepared to pay, and perhaps pay a great deal, in the event of an accident or damage to your car. An independent insurance agent can help you think through the risks and decide whether minimum or “full” coverage is the answer for you.

Optional Coverages Add Up to Peace of Mind

In addition to the six basic coverages listed above, most insurance companies provide a variety of other options that you may add to your policy for added peace of mind when you’re on the road:
  • Towing Coverage– Reimburses you, up to the limit on your policy, for towing and labor costs if a vehicle covered under your policy is disabled. Often it’s only available if you carry collision and other than collision coverage on the vehicle. Learn about Mutual Benefit’s Auto Advantage Coverage.
  • Rental Reimbursement Coverage– Pays for the cost, up to the limit on the policy, to rent a vehicle if you have a loss covered by collision or other than collision insurance. Learn more about Mutual Benefit’s Auto Advantage coverage form.
  • Gap Coverage– Pays the difference between the insurance company’s payment for a totaled vehicle and the balance you may still owe on a vehicle loan. This coverage is traditionally only available when an individual is purchasing a new vehicle, but ask an agent about options that insurance companies offer. Learn more about Mutual Benefit’s Auto Loan/Lease Coverage (gap coverage).
  • Income Loss– Pays for part of the wages you may lose if injuries you suffered in an auto accident keep you from working.
  • Extraordinary Medical Benefits(PA only) – Pays for medical and rehabilitation expenses that total more than $100,000. Provides various limits up to a maximum of $1 million of coverage.
  • Accidental Death Benefit– This is paid to the personal representative of a policyholder if bodily injury causes the death of the named insured or any family member within 24 months from the date of the accident.
  • Funeral Benefit– Pays up to a certain dollar amount for funeral expenses if you or a family member dies within 24 months from the date of the accident and as the result of a vehicle accident.

Things to consider as you purchase auto insurance

There are a number of things you should consider when making auto insurance purchases, including everything from asking about discounts and deductible amounts to inquiring about service fees for setting up installment payments with an insurance company. Read these  things to consider when buying car insurance. Find independent insurance agents that will help explain required coverage and additional protection that’s right for you.