Types of insurance coverage

Shopping for auto insurance involves more than simply calling an agent and asking for a quote. To get the most out of your insurance requires that you first fully understand what risk you want to protect against and how best to shift that risk using the various types of insurance coverage.

Here are some major types of insurance coverage you should be familiar with. This section is intended as a general description of the definitions typically used in a personal auto policy. For specific definitions and coverages, you should always refer to your current policy or the policy that you are considering.

• Collision: The portion of the policy that pays for the damage to your car caused by a crash, regardless of responsibility. If another party is responsible for the damage to your car, the insurance carrier will pursue the other party on your behalf and collect payment for the repairs from the other party's insurance carrier or the party directly. The maximum amount of collision protection is usually limited by the depreciated value of your car (which is not the same as the replacement cost). Collision insurance is usually required by a lending institution if the vehicle is financed or leased.

• Comprehensive: The portion of the policy that pays for damage to the vehicle caused by non-crash events such as theft, vandalism, acts of God, striking an animal, storms, etc.

• Medical: This coverage pays the initial medical bills for you, members of your family and passengers in your car. If the cost of medical treatment exceeds the medical coverage limit, non-family passengers in your car can obtain compensation from your liability coverage, but you or your family members would not be covered by your own liability coverage. You or family members could look to other medical insurance for additional coverage. It also covers you and those in your household if you're a passenger in a car involved in a crash, or if you're a pedestrian struck by a car.

• Liability: This coverage pays for bodily injury or property damage that you become legally responsible for as a result of driving your vehicle. Family members living with you who are listed with the insurance company as drivers on your policy and anyone driving your car with your permission will be covered by the liability coverage for injuries or property damage that you or they become legally responsible for while driving your vehicle. Your liability coverage will not pay for injuries to your own family members in the car, which will be covered by medical coverage described above.

• Uninsured motorist: This covers your property damage and personal injury in the event you're hit by an uninsured motorist. It also covers hit-and-run crashes and is required by many states.

• Underinsured motorist: This covers your property damage and personal injury caused by another party, when the amount of damage exceeds the other party's liability limits. This coverage will pick up after the other party's liability limit is exhausted.

• Umbrella: If you also have homeowner's liability coverage, you may want to consider a personal liability umbrella. The umbrella will pick up bodily injury or property damage amounts that you become legally responsible for, above the policy limit of the underlying personal auto policy, up to the umbrella limit. The premium for this additional coverage is typically only a fraction of the cost of the personal auto policy and also provides additional liability coverage above the liability limits of the underlying homeowner's policy.

• Gap insurance: This coverage provides for the difference between the amount paid under collision or comprehensive coverage to cover a total loss and the amount to pay off the lease or finance contract balance on the vehicle. Many lease or finance contracts include this coverage, but if yours does not you should consider including the coverage on your auto policy. If the payoff amount on the vehicle is more than the payout under your comprehensive or collision coverage and you don't have gap coverage, you will be responsible for the difference.

• Other optional coverage: This can include emergency towing or repairs while on the road and rental car reimbursement when your car is being repaired.

No-fault insurance

A number of states have no-fault insurance provisions. In no-fault states, the insurance company covers a client's personal injury claims regardless of who was at fault in the crash. However, victims can still sue the other party under certain conditions.

No-fault programs are intended to reduce the costs of auto insurance by reducing claims and litigation.

High-risk insurers

Not everyone has a squeaky clean driving record. A history of too many tickets, crashes, or insurance claims can make it difficult to obtain coverage. In some cases, major carriers may actually refuse coverage, having determined that such drivers represent too great an insurance risk.

However, this does not mean coverage is not available. On the contrary, most states require personal liability coverage, so high-risk drivers are actually guaranteed coverage. Even if a larger carrier may refuse them coverage, select high-risk insurers must accept them.

When obtaining your insurance through a non-standard insurer, look into factors such as customer service, time to process claims and payment of claims. Just because you're a high-risk client doesn't mean you should accept poor service.