Auto Insurance Basics: Understanding Liability And Basic Coverage

Basic auto insurance and liability insurance are often used interchangeably, but they are not exactly the same. Basic auto insurance usually refers to a policy that only includes liability coverage, which helps cover the damage you may cause to other people and their property. This includes medical bills, repair or replacement of property, and legal fallout. Liability insurance, on the other hand, is a type of coverage that is included in basic auto insurance policies. It covers bodily injury liability and property damage liability. Bodily injury liability covers injuries that you cause to others in an auto-related accident, while property damage liability covers the repair and replacement costs of damage to another person's belongings in an accident. While basic auto insurance typically only includes liability coverage, it is important to note that different states have different mandates for auto insurance, and there may be additional coverage requirements beyond just liability.

Bodily injury liability

In the unfortunate event of an accident, BI coverage can help pay for the medical expenses of those injured, including emergency treatment and ongoing care. It can also provide financial support if the injured individuals need to miss work or are unable to work due to their injuries. Additionally, BI coverage can assist with funeral costs in the tragic event of a fatality.

The amount of BI coverage you need depends on your state's requirements and your personal situation. Each state sets its own minimum Bodily Injury Liability limits, which you can find on your state's government website. These limits are typically split into two parts: the maximum amount per person and the maximum amount per accident. For example, a state may require a minimum of $25,000 per injured person, up to a maximum of $50,000 per accident.

It is worth considering purchasing higher BI coverage limits than the state-mandated minimums. Medical bills can be expensive, and having adequate coverage can provide peace of mind. Additionally, if the damages you cause exceed your liability limits, you could be personally liable for the costs that exceed your policy's limits. This could result in financial strain and potential consequences such as garnished wages or liens against your assets.

When shopping for auto insurance, it is important to understand the different types of coverage available and choose the options that best suit your needs. While BI coverage focuses on injuries to others, Property Damage Liability coverage (PD coverage) addresses damages to another person's property, such as their vehicle or home. By combining BI and PD coverage, you can ensure more comprehensive protection in the event of an accident.

Property damage liability

When choosing how much property damage liability coverage you need, consider factors such as whether you own a home or other expensive items, whether you usually travel in high-traffic areas, and whether there are a lot of expensive vehicles driven in your area. If you answered "yes" to any of these questions, you may want to consider raising your coverage limit.

Personal injury protection

PIP is available primarily in no-fault states, where, if a policyholder is injured in a car crash, their own policy will pay for their medical care, regardless of who caused the accident. No-fault states also put restrictions on the right to sue, allowing only lawsuits that involve severe injuries to be filed. The intent of the no-fault system is to reduce the cost of auto insurance by keeping lawsuits over minor injuries out of the courtroom.

PIP policies have a minimum coverage amount and a per-person maximum coverage limit. If the cost of necessary medical care exceeds the auto insurance policy's PIP limits, health insurance sometimes covers further expenses.

PIP is required in 15 states and Puerto Rico, while in other states it is either optional or not offered.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage safeguards you in the event that you, a family member, or a designated driver are struck by a driver with no auto insurance. This coverage also extends to hit-and-run incidents, providing additional security in such unfortunate situations. Underinsured motorist coverage, often offered alongside uninsured motorist coverage, comes into effect when the other driver doesn't have adequate insurance to cover the damages or injuries they've caused.

In terms of what's covered, uninsured/underinsured motorist coverage typically includes both bodily injury and property damage components. Uninsured motorist bodily injury (UMBI) helps pay for medical bills for you and your passengers, while uninsured motorist property damage (UMPD) covers the cost of repairing or replacing your vehicle. Similarly, underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD) cover medical bills and vehicle repairs, respectively, when the other driver's insurance limits are insufficient.

While not all states mandate uninsured and underinsured motorist coverage, it is required in about half of them, and it's highly recommended for drivers in all states. Even in states where it's not required, the risk of being in an accident with an uninsured or underinsured driver is significant. Without this coverage, you could be left paying out of pocket for medical bills and vehicle repairs, which can be financially devastating. Therefore, it's essential to understand the coverage options available to you and make an informed decision to protect yourself and your loved ones.

Medical payments coverage

• Hospital visits and stays
• Ambulance fees
• Surgery and X-rays
• Health insurance deductibles and co-pays
• Prostheses and other medical mobility devices

MedPay does not cover:

• Costs that exceed your auto policy's stated limit
• Childcare expenses during recovery
• Wage reimbursement for time lost due to injuries
• Medical costs for injuries to other drivers involved in the accident
• Any medical treatments that are unrelated to the auto accident

MedPay limits typically range from $1,000 to $10,000, depending on the state and insurer. It is generally a good idea to have MedPay coverage equal to your health insurance deductible so that it can be used to cover out-of-pocket medical expenses. If you do not have health insurance, a higher MedPay limit is recommended to help pay medical bills after an accident.

Frequently asked questions