5 Types of Auto Insurance Coverage It Pays to Understand

When you pick up the phone to purchase auto insurance, you’re more than likely only thinking about two things, ”How much is this going to cost me?” and “How much will they give me if I total my car?”

These are fair priorities, but most vehicle owners do not consider the extra expenses that occur during a loss that you may not be covered for if you go for the low-premium auto insurance.

In most cases, auto insurance is mandated by law, but it's not enough to just get the minimum coverage required.

Read: Why You Need More than the Statutory Minimum When You Buy Auto Insurance

Here are five auto insurance coverage you may need to make sure your financial future is protected.

1. Waiver of Depreciation

The old saying goes “your vehicle starts depreciating as soon as it leaves the lot.” This is where a Waiver of Depreciation comes into play. With this coverage, the insurance company will replace your vehicle without considering depreciation in the event of a total loss. This means they will replace your vehicle with a brand-new version of your vehicle of that year. For example, if you purchased a Waiver of Depreciation when you first bought your 2018 Toyota 4Runner and were in a total loss with that vehicle, the insurance company will place your old vehicle with the cost of a 2020 Toyota 4Runner. If you did not purchase this coverage, your vehicle would be assessed at its original value, minus depreciation.

This coverage usually can be purchased for the first 30 or 60 months of owning your new vehicle (classified as the first owner or a demo under 5000km). The premium for this coverage may increase as the years go on because the price difference between your model and the newest model of vehicle will get larger due to inflation.

Read: How a Car Insurance Company Values Your Car

2. Uninsured/Underinsured Motorist Protection

Although most governments require drivers to buy car insurance, some people still drive around without it or only purchase the bare minimum, which is often not enough.

Uninsured/underinsured motorist coverage protects you if you get into an accident with a driver who doesn't have insurance, whose insurance is minimal, or a driver who commits a hit-and-run. Under normal circumstances, the at-fault driver’s insurance should cover your medical expenses, property damage, lost wages, and even the expense of a rental car until your vehicle has been fully repaired, but if they are underinsured, have no insurance or take off after the accident, this coverage will make sure you’re taken care of.

3. Collision Coverage

Collision coverage offers protection against crashes with a stationary object or another vehicle. It covers the cost of repairs or replacement for your car. You may be thinking, “Is it really worth it to put collision coverage on my 2005 Honda Civic?”

If you have an old car that's worth very little, collision coverage may not be worthwhile as you can easily pay more in additional premiums than the car is worth. Ask your broker or agent the specific cost of collision by itself. If it’s more than the cost you paid for the car, you may not need collision. If you can afford to repair or replace your vehicle out of pocket, then collision coverage may not be worth the premium for you.

However, if you do NOT have collision coverage and another vehicle hits you, it is your responsibility to make sure the other party’s insurance pays to fix your vehicle. When you do not have collision coverage, your insurance company does not have to fight to make sure you are covered for collision in the event of loss, regardless of fault. So, removing collision may save you premium, but it may also create a headache down the road as you chase down information to get compensated for your not-at-fault claim.

Read: The First Steps You Need to Take After Wrecking Your Car

4. Comprehensive Coverage

Comprehensive coverage covers various types of damage to your car that result from perils other than a collision. This may include theft, vandalism, fire, falling objects, civil disturbances like a riot, natural disasters like tornado and earthquake, and damage from animals. Your broker or agent may vaguely describe this coverage as “anything that can happen to your vehicle that isn’t a collision.”

It’s important to double-check the policy wordings with your broker or agent before purchasing this coverage. Some may exclude instances of flooding or classify hitting an animal under collision coverage. In insurance, the word “comprehensive” doesn’t always mean it will exhaustively cover everything.

5. Personal Injury (Accident Benefits)

Personal injury protection (PIP) is a no-fault policy, meaning that it may pay out benefits regardless of who is at fault. It may cover as much as 80 percent of medical and other expenses, such as lost wages, rehabilitation, and funeral costs, for you and your passengers. Because it may cover other costs beyond medical treatment, it differs from medical payments coverage.

PIP also applies in case you incur injuries as a passenger in someone else's car or as a pedestrian. When you receive your policy documents, it is important to read through these accident benefits. It sounds great that they will cover lost wages and funeral costs regardless of fault, but to what amount? Depending on the province or state, PIP or Accident Benefits have a cap on how much they cover, and you may want to look into purchasing additional life and medical insurance to make sure you and your family are fully financially protected.

Conclusion

When you make the call to purchase vehicle insurance, your directive is usually to get in and out of there as fast as possible so you can get behind the wheel, but spending a bit of extra time talking to your broker or agent about these coverages will help you down the road. Take the time to protect yourself and your car against the risks you deem worth insuring and enjoy peace of mind while on the road.