Driving is a privilege, but it comes with a price tag. There's the cost of the vehicle itself, maintenance, repairs, fuel and auto insurance. Many
states require you to carry a basic, minimum level of auto insurance. It's a way of sharing the risks of driving. You pay premiums to an insurance company for coverage. In return, your coverage will protect
you against most financial losses that might otherwise be your responsibility to pay.
Auto insurance is more than a matter of insuring your vehicle for loss or repairs after an accident. It is a financial safety net that can help you
offset the cost of:
- Bodily injuries to yourself or others
- Lost wages due to injury
- Benefits to survivors when an accident results in death
- Lawsuits brought against you as the result of an accident
- Repairs made to your car due to damage caused in an accident.
Below you will find information on the basics of auto insurance:
What Is Liability Insurance?
Liability insurance helps protect you and your assets if you cause an injury to others or damage the property of others with your vehicle and you are determined to
be liable. Bodily injury liability protects you in the event you are determined to be responsible for an accident in which someone is hurt or killed. Property damage liability covers the damage your vehicle causes to someone else's property, such as their car, mailbox or a fence on their land.
If you are judged to be legally liable for an accident, you may be held responsible for property damage, hospital and medical payments, rehabilitative
care, lost income and even the pain and suffering of the injured person. You can be sued for the full cost of the damages. If the cost of this loss exceeds the amount of your liability insurance coverage, you may
have to pay the rest. So, be sure you have sufficient liability coverage to protect your assets.
Your insurance policy usually describes the amount of liability coverage you have as split limits. Suppose your limits of liability coverage reads
50,000/100,000/50,000. In this example, $50,000 is the maximum the insurance company will pay for bodily injuries to each person in the accident. The maximum amount paid for all bodily injuries, no matter how many
people are hurt in the accident, is $100,000. The maximum amount paid for damage to someone else's property in the accident is $50,000. Your Bodily Injury and Property Damage Liability may also be shown as a single
limit, e.g., $100,000 Combined Single Limit (CSL). Many states require drivers to carry a minimum amount of liability insurance of approximately 25,000/50,000/10,000. That means there would be $25,000 to cover
injuries to any one person, $50,000 total for all injuries, and $10,000 for property damage.
What Are Collision and Comprehensive Insurance?
Collision coverage pays for damage to your own auto that results from colliding with another vehicle or object, or from a vehicle rollover. Your car is covered no matter who caused the accident.
Comprehensive coverage pays for damage to your auto caused by something other than a collision. This includes theft and vandalism, and disasters such as fire, flood and hail.
Collision and comprehensive coverage's usually do not pay for the total loss. You generally have a deductible, an amount you must pay out of
your own pocket before your insurance payment takes effect. Suppose, for example, that you have a $250 deductible. On a loss of $1,000, you would pay the first $250 and your insurance company would pay the remaining
$750. Depreciation will also affect the amount you recover for the damages done to your car. As your car ages and its value declines, the amount you would collect for a total loss declines as well. Your
insurance company reimburses you for the actual cash value of your car or its parts, at the time of the loss. For example, if your car was purchased for $20,000, you will get less than your original purchase price
to replace it due to the car's "natural" depreciation in value. You can find out the current value of your car by consulting the N.A.D.A. Official Used Car Guide, which is in most public libraries
Sometimes it may not make financial sense to buy collision and comprehensive insurance on an older car.
Why? Generally, speaking, cars depreciate as they age. The maximum amount that will be paid under Collision coverage is the actual cash value of your car minus the deductible. When making this decision, you need to know, the "book" value of your car, your deductible for each loss, the cost of coverage, and the amount you would receive if your car was "totaled" (after subtracting your deductible from the book value). Only you can decide after considering everything whether the cost of insurance is more economical than the cost of repairing or replacing the car at your own expense.
What Are Medical Payments Coverage and Personal Injury Protection Insurance?
Medical payments insurance covers the cost of doctors, hospitals and funeral expenses of you and/or your passengers, that result from an accident, regardless of who is at fault. This coverage will protect you when you drive another person's car (with permission) or if you or your family are struck by another vehicle as pedestrians. The coverage is relatively inexpensive and generally available with limits between $1,000 and $100,000. It also provides for funeral expenses, when necessary. The availability varies state by state. Personal injury protection (PIP) is a form of no-fault insurance required in states with no-fault laws. This coverage is a broader form of medical payments insurance. It pays for medical care, lost wages and replacement services for the injured party (for example, paying for a baby-sitter for children while a mother is hospitalized). It pays regardless of who is at fault in an accident. States with no-fault laws usually limit the right to sue for non monetary damages such as pain and suffering, but you still may be able to sue in cases of incapacitating disability or death. This coverage varies by state and is sometimes an optional offering in states without no-fault laws. In your evaluation of coverage, remember that Medical Payments and PIP also protects your passengers. If you exceed your medical medical coverage on your auto policy, then Bodily Injury coverage may be needed. Before choosing medical payments or no-fault protection, check with your state's insurance department for details of no-fault coverage in your state. Then review your other insurance policies. If you already have good medical and disability insurance, you may not need to purchase protection in addition to the minimum limits of your state (if Medical Payments/PIP is a required coverage).
What Is Uninsured/Underinsured Motorist Protection?
If you are involved in an accident with an uninsured driver, you have very little chance of collecting payment for your damages from that driver. Uninsured motorist (UM) coverage*
pays the cost of damages and injuries resulting from being hit by an uninsured driver or by a hit-and-run driver. Both you and your passengers are covered for medical expenses, lost wages and other injury-related
losses. You may also be able to collect for pain and suffering.
Similarly, Underinsured motorist (UIM) coverage* will pay for damages that exceed the amount of coverage carried by an underinsured
driver. You choose the amount of coverage when you buy this protection.
*Keep in mind that uninsured motorist coverage and underinsured motorist coverage vary by state law.