Auto Insurance: Coverage Basics

Although not required in all states, auto insurance generally covers cars and people against more than just accidents. Possibilities of theft, damage from natural disasters, potential injuries to passengers, pedestrians, and other drivers demonstrate the importance of proper coverage.

In today’s mobile society, navigating the options, terminology, and varying costs for personal vehicle insurance can be like finding your way through a maze. Understanding the possible coverage “pathways” will help you make appropriate decisions for your personal situation. The following simple definitions can help you understand the basics of auto insurance.

  • Bodily Injury Liability Coverage: This coverage protects you if you cause an accident resulting in injury to others. It is perhaps one of the most important coverages on your policy. A severe accident could cause serious injuries, and has the potential to cripple you financially. Higher limits are generally recommended, especially if you own property or other assets.
  • Property Damage Liability Coverage: This important coverage provides protections for any damage to the property of others, such as vehicles, and telephone poles. It also covers the loss of use of damaged vehicles, which is especially important if you are involved in an accident with a business vehicle that generates income.
  • Collision Coverage: Collision coverage is a valuable component of your policy, particularly if you own a newer or higher-priced automobile. This type of coverage insures against damage to the vehicle caused by a collision with another car or object, or by an overturn. It generally pays for repairs or, in the case of “totaled vehicle,” provides a cash payment representing the vehicle’s fair market value (FMV).
  • Comprehensive Coverage: This covers physical damage to your car caused by events other than a collision or an overturn such as vandalism, fire, theft, hail, or flooding. Comprehensive coverage is optional, but it may be required if you have a car lease or loan.
  • Medical Payments: Some policies have separate options for coverage associated with medical expenses of the named insured and other riding in the insured vehicle. Often, these expenses are covered even if the named insured is not at fault or if the named insured is not driving the vehicle. Coverage is generally limited to a stated dollar amount in the policy (e.g., $2,500 per person).
  • Uninsured Motorist Coverage: This coverage helps pay for damages or medical expenses (exceeding the limits of medical payments coverage) in an accident caused by an uninsured motorist. There is always the chance you could be in an accident with an uninsured driver. Some states do not require automobile insurance, and in states where automobile coverage is mandatory, some drivers illegally operate uninsured vehicles. If the other party is at fault, you may be hard-pressed to recover damages. For this reason, uninsured motorist coverage is often a valuable addition to a policy. Insures in many states also offer under-insured motorist coverage to protect motorists in cases where the other party is insured, but not to the extent necessary to cover the motorist’s personal injury damages.

-Robert Catalano