Additional Coverage Options – Auto Insurance Add-Ons Explained
Last Updated on December 13, 2020
When you purchase auto insurance, you think that you click a box, set some minimums, and your policy is complete. In reality, you have more than a few options to go through, and even though you have the state minimums like liability, comprehensive, and collision coverage, you also have a few add-ons worth considering before you finalize your purchase.
Some add-ons make sense depending on how often you drive and who else uses your car, while other times these add-ons could cost you more in the long run with limited returns.
By understanding how each of these add-ons works, and the role they play, you can make better decisions when it comes time to purchasing or upgrading your policy.
An In-Depth Look at the Various Add-Ons for Your Auto Insurance Plan
Not all insurance companies offer the same add-ons, and they often have different names for those add-ons, making it even harder to decipher what they are. If you read the description, however, you will find quickly that they are relatively the same.
GAP coverage is typically offered for new vehicles. That is because when you get a new car, your vehicle is worth less in market value than it is when you buy it – so you are already in the red. GAP insurance protects you in case you are in an accident, and that vehicle is totaled. Why?
Well, insurance companies will only pay for the market value; not your loan balance. Therefore, you want GAP coverage to pay the remaining amount not covered between how much you owe and the market value your insurance company pays out.
If your car is not underwater on the loan, then GAP coverage is not necessary.
However, if you did not make a significant down payment when you purchased your vehicle, you are likely negative.
Roadside assistance works differently by the insurer, but the basic concept is the same. You will have the ability to contact a third-party roadside contractor who may tow your vehicle in for repairs, replace a flat tire, fill your car with gas, etc. All of these are offered free as part of your roadside assistance add-on, but there are catches – like only towing so many miles or only bringing enough gas to get you to the nearest gas station for a full fill-up.
If you travel frequently, or you have young children, and you do not want to be stranded on the side of the road, then roadside assistance could be worth it. Some companies will even reimburse you on the cost of roadside if you had to contact someone else and pay out-of-pocket for the service.
The vanishing deductible is rather new when it comes to add-on services. It usually only unlocks for premium insurance plans, so if you have a lower plan or budget plan, you may not get to use it. Each renewal period you drive without accidents, tickets, or claims, the company rewards you by lowering your deductible a specific amount.
Every insurance company differs on how much they reduce your deductible, and some companies will limit on how far down you can go – meaning you may never reach a $0 deductible even with a perfect driving record for a decade. Read the print on your insurance company’s offering to see how much you are limited to before assuming you will eventually have no deductible.
Also, some companies only keep the vanishing deductible amounts until you get an infraction. So, if you were to get a speeding ticket, your deductible could go back to where you started.
Uninsured Motorist Coverage
Some states require uninsured motorist coverage, while others it is optional. What is important to realize here is that if you were to get hit by a vehicle, but they do not have insurance, you need that extra coverage to handle your damages. Uninsured motorist coverage protects you when someone without insurance causes the accident – and keeps you from exhausting your existing benefits.
Underinsured Motorist Coverage
Underinsured motorist coverage might be offered with uninsured or separate – depending on state requirements and the insurance company. Underinsured covers you when the party has insurance, but not enough to cover the damages. For example, you have $200,000 in damages, but their insurance only pays $120,000. You could file a claim with your underinsured motorist coverage to get the remainder so that you are not left paying for these damages out of pocket.
Funeral and Accidental Death Coverage
In a car accident that results in death, the insurance company would then pay for funeral costs and the associated losses if you have this add-on to your policy. That means loved ones would not have to pay out-of-pocket for your funeral expenses.
Sometimes, employers offer accidental death and funeral coverage as well, which may cover accidents outside of the workplace too. Therefore, read and see if you are already covered through another program before adding this one on.
Rental Car Reimbursement
Rental car reimbursement insurance means that if your vehicle is damaged in an accident, the insurer picks up the cost of renting a car until your car is repaired adequately. Not all policies include this automatically, so check to see if you need to add it on before assuming you’re covered. Otherwise, you would pay yourself for the rental vehicle. If you have a credit card with rental car coverage or a service like AAA, you may already have rental car reimbursement coverage.
Coverage for Rented Vehicles
This is an add-on for your insurance company, but it covers rental vehicles when you are out-of-town and cannot drive your vehicle. Before you pay for this, however, ask your credit card company if they already offer that to you. If you rent a car using that credit card, they most likely have coverage in place, so you don’t need supplemental insurance through your insurance company.
Personal Injury Protection (PIP)
Some states require that motorists have PIP, but others do not. This insurance covers your medical costs and a portion of your lost wages if you are injured in a motor vehicle accident – regardless of fault.
A Few Last Thoughts before You Buy
While add-ons do give you extra layers of coverage, you must first ask yourself if they are worth it. How much would it save you, in the long run, to pay for these monthly in addition to your auto insurance premium? Could you save more just putting that premium in savings? Look at the pros and cons of each, the cost, and then decide if they are worth it in the end.