The auto insurance industry offers a bewildering array of insurance policies and options. The last few decades have seen the basic idea of auto liability and/or collision coverage morph into a wide variety of options. One option is comprehensive coverage, which includes loss from theft or weather-related damage, towing and/or rental car coverage while your vehicle is being repaired, as well as "gap" coverage and new vehicle replacement coverage where you receive a new car and not just the current value of your totaled vehicle.
Basic Types of Auto Insurance
The basic type of auto insurance is liability insurance, where the driver/vehicle is insured for any damage caused to others that is the driver's fault up to the liability limit. Another common type of car insurance is collision insurance, where you are essentially insured against most damage you do to your own vehicle.
New Vehicle Replacement Coverage
New vehicle replacement coverage is insurance coverage that will replace your vehicle with a new vehicle of the same make, model and factory equipment as the totaled vehicle or the cash equivalent. New vehicle replacement insurance, however, is relatively expensive and is generally only available for the first year of car ownership.
Gap Coverage
Gap insurance coverage, also called loan/lease coverage, protects the buyer of a new car from the immediate 15 to 25 percent depreciation of buying a new car. Let's say you got in an accident and totaled your $25,000 car just four months after buying it. The insurance company will only pay you the actual cash value of the vehicle, which could be as low as $20,000, and assuming a $1,000 down payment and four $300 payments, you will still owe the financing company around $2,800. Gap insurance would cover this amount. Gap insurance is relatively inexpensive and is typically chosen by those who are leasing or making small down payments on new vehicles.
Rental Car Coverage
Rental car coverage will cover the costs of a rental vehicle while your vehicle is being repaired or otherwise for some specified period of time -- usually from a week to 30 days. Rental car insurance is inexpensive and commonly packaged with emergency roadside assistance insurance as a low-cost or free additional service.
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