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Article 3 of 7 in Liability Coverage |
The basic coverages in car insurance policies |
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Auto insurance policies are comprised of several different coverages. Typically, policies consist of liability, collision and comprehensive coverages. Here’s what each type of coverage represents:
- Liability. Liability coverage, which covers you for the damage you do to others for both bodily and property damage, are represented by three numbers. For example, 30/40/10 means that you have $30,000 for bodily injury coverage “per person”, $40,000 in bodily injury coverage “per accident” (when more than one person is injured) and $10,000 in property damage coverage “per accident”. Liability coverage is required by most states and each state has different “minimum” required amounts. It pays for things such as legal defense costs, lost wages, medical bills, pain and suffering and repairing or replacing another person’s vehicle. To see your state’s minimum requirements, go to: http://www.iii.org/individuals/auto/a/canidrive/.
- Collision. Collision coverage pays to repair or replace your vehicle. It is usually the most expensive portion of the car insurance premium. After an accident, insurance companies will access the damage and decide whether it makes more sense to repair or replace the vehicle. When a car is totaled (heavily damaged or destroyed), insurers may pay you the actual cash value (ACV) of the car. The ACV is calculated by taking the replacement cost of the car and subtracting the amount of depreciation on a car’s value.
- Comprehensive. Comprehensive coverage pays for damages that were not caused by an accident such as fire, theft or hitting an animal. This type of coverage also has a deductible and most insurers will only pay for the value of the car before the accident. As a general rule of thumb, look at the value of the car to decide how much comprehensive coverage to buy. It may not be cost effective to have collision or comprehensive coverages on cars worth less than $1,000 because any claim you make would not substantially exceed annual cost and deductible amounts.
Other types of coverage:
- PIP / No-fault / Medical. Personal Injury Protection, or PIP, provides medical expense coverage if the driver or another individual covered under the policy is injured in an automobile accident. It is often called no-fault coverage because it pays medical expenses no matter who caused the accident. PIP coverage pays hospitals, doctors, trauma centers and other medical providers directly for treatment of injuries from automobile accidents. It also pays for medical equipment that may be needed as a result of an accident.
- Uninsured / Underinsured motorists. This type of coverage is required in many states and pays for your injuries (and possibly property damage) if you are in an accident with someone who does not have adequate insurance or someone hits you and flees the scene. The National Association of Insurance Commissioner’s (NAIC) website (http://www.naic.org/state_web_map.htm) provides links to state insurance departments. Look under consumer information to see whether your state requires this type of insurance
- Supplemental. Adding supplemental insurance coverages to your basic auto insurance policy (such as towing, repair or car rental reimbursement) may save you money. Many insurers offer supplemental coverages for a few dollars a month.
Click here, for more information on automobile insurance policy basics. |
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