Understanding the Basics of Car Insurance Coverage
What Does Car Insurance Cover?
If it’s been a while since you looked over your car insurance policy, or if you’ve never purchased auto insurance before, the coverages under your auto insurance policy may be a bit confusing. If you’re like most Americans, you probably don’t even know what is covered under your policy.
Here is a breakdown of what typical car insurance policies cover. Keep in mind, though, that coverages vary from state to state – each state has its own laws that dictate what coverages insurance companies can (or must) offer, so it’s a good idea to check with your agent to see what is available under your car insurance policy.
Basic Types of Coverage that you Can Purchase
Bodily Injury Liability Coverage
This part of your car insurance policy pays for the medical injuries of other people if you cause an accident. Bodily injury liability coverage doesn’t pay for the injuries of other people in your car in most states – rather, it is designed to pay for the medical and rehabilitation expenses of other drivers and their passengers. In nearly all states, bodily injury liability coverage also protects pedestrians.
Nearly every state requires you to purchase a certain amount of bodily injury liability coverage inorder to legally drive. The minimum amount of coverage varies by state, and is typically shown on your policy as a per person/per accident limit (for example, $25,000 per person/$50,000 per accident). Using this example, the most your bodily injury liability insurance would pay for one person’s injuries is $25,000. If you injure more than one person in an auto accident, the total your policy will pay (regardless of the number of people injured) is $50,000.
For example, suppose you cause an accident, and four people in the other car get hurt. Instead of getting $25,000 each, they would only have a total of $50,000 to split up for their medical bills. Each state has different laws regarding how the payment is divided.
If you cause an accident that injures others, and their injuries exceed your policy limits, they can sue you for the medical bills not covered by your policy. Because of this, it’s a good idea to choose the highest bodily injury liability limit you can afford, so you can reduce the chance of being sued.
Property Damage Liability Coverage
Like bodily injury liability coverage, property damage liability coverage is designed to compensate other drivers – it only pays for their car and/or personal property – not yours. Most states require that you purchase this coverage in order to legally operate a vehicle, and set the minimum policy limit that you can purchase.
Keep in mind that the state minimum limit is typically not enough to cover the replacement of many types of vehicles – some states allow you to buy property damage liability limits as low as $10,000! If you can afford it, choose limits that are much higher than the state mandated minimum limits – hitting a BMW when you only have $10,000 in property damage liability coverage could easily turn into a very bad financial problem.
Medical Payments Coverage
Medical payments coverage pay for your medical expenses, and medical expenses incurred by the occupants of your vehicle, no matter who caused the accident. It can help pay for deductibles and coinsurance required under your health insurance plan, but if you have health insurance, this coverage may not be worth the extra premium.
Comprehensive coverage, also called “other than collision coverage”, pays for the repair or replacement of your car if it is damaged by something other than another vehicle. A few examples: theft, vandalism, hail, and collision with an animal.
This coverage pays for damage to your car when you are in an accident with another vehicle. It doesn’t matter whose fault the accident was – if you have collision coverage, it will still pay.
If your car is totaled, comprehensive and collision coverage payments are calculated according to the actual cash value (ACV) of the vehicle. This means that the payment will be determined by the value of your car at the time of the accident, not what you paid for the it. If you owe more on your vehicle than it is worth, comprehensive and collision coverage may not completely pay off your car.
Uninsured/Under insured Motorist Coverage
These coverages pay for your injuries if you are hit by an uninsured motorist, or by someone who does not carry enough coverage to pay your expenses.
Similar to bodily injury liability coverage, uninsured/under insured motorist coverage limits are typically shown as a per person/per accident limit.
Some states view uninsured motorist and under insured motorist as a single policy coverage, while others consider them to be separate coverages. In some states, you can also buy uninsured motorist property damage coverage, which pays for your car if you’re hit by an uninsured driver.
Personal Injury Protection Coverage
Only a few states require insurance companies to offer personal injury protection coverage. It covers you and other people in your vehicle. In some cases, this coverage may extend to your family members, even if they were not in the car at the time of the accident.
The specifics of personal injury protection coverage vary widely among states – some require insurers to only pay for your medical bills, while others require extensive coverage that pays for everything from concierge services to income loss.