Auto Insurance: Understanding Standard Coverage

Standard auto insurance coverage varies by state, but it typically includes liability coverage, collision coverage, comprehensive coverage, and uninsured/underinsured motorist coverage. Liability insurance covers bodily injury and property damage to other parties when you are at fault in an accident. Collision coverage pays for repairs to your car if it is damaged in an accident with another vehicle or object. Comprehensive coverage pays for repairs to your vehicle caused by events other than a collision, such as theft, fire, or vandalism. Uninsured/underinsured motorist coverage pays for your and your passengers' medical bills and property damage if the at-fault driver doesn't have insurance or doesn't have enough coverage.

Bodily injury liability

The types of expenses that a third party can file against your bodily injury liability policy include:

• Medical bills: Hospitalization, follow-up care, and related medical or healthcare costs for the other party.
• Lost wages: If the injured party is unable to work due to serious injury, your bodily injury liability coverage compensates for their lost income.
• Legal fees: Your insurer will usually provide legal defence if you are sued by the other party, and this is paid for under your bodily injury coverage.
• Funeral costs: Pays for costs associated with funeral and burial if someone is killed as a result of the crash.

The liability limits on your insurance policy will typically show three numbers, such as "100/300/100". These numbers represent your per-person bodily injury liability coverage, per-accident bodily injury liability coverage, and per-accident property damage liability coverage, respectively.

For example, if you buy a policy with bodily injury insurance limits of 100/300, and you cause an accident that results in the following expenses for injuries to the three people in the other car:

• Michael: $90,000
• Anne: $50,000
• Chris: $140,000

Total expenses: $280,000

This is how you can interpret your insurance coverage and how much you'll have to pay out of pocket:

Bodily injury limit per person: The first number, 100, is your bodily injury per-person payout limit. Your policy will not pay more than this amount for any one person's injuries. In this case, both Michael and Anne's medical expenses are under $100,000, so your bodily injury insurance will cover all of their expenses. However, because Chris's medical costs exceed $100,000, you'll have to pay the remaining $40,000 out of pocket.

Bodily injury limit per accident: The second number, 300, is your per-accident limit, or the maximum amount your policy will pay for all injuries in any one accident. This number remains the same no matter how many people are injured in a crash. As the total medical expenses in this case are $280,000, which is above the $300,000 per-accident limit, you'll have to pay $80,000 out of pocket in total.

The amount of bodily injury liability coverage you need depends on your state's requirements and your personal situation. You'll want to get at least the amount required to drive legally in your state, with some experts recommending bodily injury limits of at least $100,000/$300,000. You may want to purchase insurance with higher limits to protect any financial assets that could be seized in a lawsuit. In general, it's recommended to have enough coverage to cover your net worth (what you own minus what you owe).

Property damage liability

The amount of property damage liability coverage you need will depend on the state you live in, as each state sets its own requirements. However, it's important to note that the state-mandated minimum coverage may not be sufficient for your needs. If you own a home or other expensive items, or if there are a lot of expensive vehicles driven in your area, you may want to consider raising your coverage limit. This is because if the cost of damages exceeds the amount of your coverage, you will be responsible for paying the remaining cost out of pocket.

You can choose a higher limit for property damage liability coverage, which means you'll be covered for a higher amount if you're in an accident. Additionally, you may want to consider adding an umbrella insurance policy, which can provide additional coverage on top of your normal car insurance.

It's important to review your auto insurance policy carefully and understand your coverage limits and exclusions. If you have any questions, be sure to contact your insurance agent, broker, or company for more information.

Uninsured/underinsured motorist coverage

Uninsured motorist coverage safeguards you in the event that you are hit by a driver with no auto insurance. Underinsured motorist coverage, often offered alongside uninsured coverage, protects you if the other driver doesn't have sufficient insurance to cover the damages or injuries they caused. These coverages are mandatory in many states and highly recommended for all drivers.

If you are in an accident with an uninsured or underinsured driver, this coverage can pay for:

• Lost wages due to inability to work.
• Pain and suffering compensation.
• Car repairs and replacement of property in your car.
• Rental cars, if needed.
• Medical bills for you and your passengers.

Understanding the Different Types of Uninsured Motorist Coverage

• Uninsured Motorist Bodily Injury (UMBI or UM): This covers medical expenses for you and your passengers if you're in an accident caused by an uninsured driver.
• Uninsured Motorist Property Damage (UMPD): This covers damage to your vehicle if it's hit by an uninsured driver. In some states, UMPD can also cover hit-and-run accidents.
• Underinsured Motorist Bodily Injury (UIMBI or UIM): This covers medical expenses for you and your passengers if the at-fault driver doesn't have enough insurance to cover your bills.
• Underinsured Motorist Property Damage (UIMPD): This covers damage to your vehicle if it's hit by a driver who doesn't carry sufficient liability insurance.

State Requirements and Recommendations

While not all states mandate uninsured/underinsured motorist coverage, it is required in many. Even in states where it's not mandatory, it's highly recommended as it provides financial protection in case of an accident. In some states, you have the option to reject this coverage in writing or it might not be offered at all.

Deciding on the Right Coverage

When determining how much uninsured/underinsured motorist coverage you need, consider the following:

• State Requirements: Check if your state mandates a minimum amount of coverage and ensure you meet those requirements.
• Health Insurance Coverage: If you have good health insurance, you may not need as much uninsured motorist coverage. However, if you have a high-deductible health plan, consider higher coverage to avoid paying a large amount out of pocket.
• Collision and Comprehensive Coverage: If you already have collision and comprehensive insurance, you may not need UMPD coverage as collision coverage will usually cover vehicle damage regardless of the other driver's insurance status.
• Local Prevalence of Uninsured Drivers: Consider the percentage of uninsured drivers in your state. If it's high, you may want to opt for higher coverage.

Collision coverage

The cost of collision coverage can vary depending on factors such as your driving history and the type of vehicle you have. If you have a clean driving record, you can generally expect lower rates compared to someone with a history of accidents or who is considered high-risk. Similarly, if you have an expensive or newer vehicle that would be costly to repair, you will likely pay higher rates than someone with an older, less expensive car.

When deciding on collision coverage, it's important to consider the value of your vehicle and your ability to pay for repairs out of pocket. Collision coverage is particularly recommended for newer, more expensive, or leased vehicles. It can provide peace of mind and protect you from costly repairs or replacements in the event of an accident. However, if you have an older car with a low value, collision coverage may not be worth the additional cost.

It's worth noting that collision coverage only applies to damages to your own vehicle and does not cover medical expenses, damage to another person's property, or bodily injuries sustained in the accident. To cover these expenses, you would need additional insurance policies, such as liability insurance or personal injury protection.

Comprehensive coverage

When purchasing comprehensive coverage, you don't select a limit. The maximum payout is based on the actual cash value of your vehicle, and you are responsible for paying your selected deductible. It's important to note that comprehensive coverage does not cover normal wear and tear on your vehicle or damage caused by hitting another vehicle or object.

In summary, comprehensive coverage is a valuable addition to your auto insurance policy if you want protection against unforeseen events beyond collisions. It provides peace of mind and financial protection, especially if you have a leased or financed vehicle, or if your vehicle has a high cash value.

Frequently asked questions