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An Auto Insurance Primer

Here are some definitions to help you understand the different insurance coverage available to pay property damage, medical bills and other damages from a motor vehicle crash:

Policy Limits

When you purchase insurance, your policy limits will usually be stated as a set of three numbers. These numbers reflect the limits for bodily injury per injured person, followed by a total injury limit per accident, while the third number typically shows property damage limits per accident for damage caused to others’ property. At the writing of this article, the minimum coverage limits are:

Note these are minimum levels and many people choose to carry higher levels to protect their assets. Unless otherwise noted, the other insurance options described below are not required by law. If you choose not to purchase the additional coverage, you may end up paying many of these expenses on your own.

Bodily Injury Liability

All states require drivers to carry bodily injury liability insurance. This type of insurance covers injury caused by you or another covered driver if you are determined to be responsible for the accident. Coverage includes medical expenses, funeral expenses, lost wages, etc. The first number shown in the policy limit is the maximum amount payable for each individual injured or killed. The second number reflects the total limit per crash where two or more parties were injured or killed.

Property Damage Liability

States also require drivers to carry property damage liability insurance. This coverage pays for damage caused by you or another authorized driver to other people’s property. This may include things like the not-at-fault party’s car, fences, walls, street lights, street signs, etc. NOTE: This coverage does not pay for damage to your property.

Collision Coverage

Collision coverage pays for damage to your vehicle that occurred as the result of a crash. Insurance carriers will pay to repair your vehicle unless the cost of those repairs exceeds a maximum threshold based on the value of the vehicle. If this happens, the insurance company will “total” the vehicle and pay you (or the lienholder) the cash value of the car. Many people with older model cars will choose not to carry collision coverage (if the bank has a stake in the car, they will normally require collision coverage). If the car is wrecked, the owner is responsible for paying to repair or replace the vehicle.

Comprehensive Coverage

Comprehensive coverage is designed to cover damage to your vehicle from something other than a crash. This optional coverage will pay for things like hail damage, fire, theft, contact with an animal, etc.

Uninsured Motorist (UM) and Underinsured Motorist (UIM) Coverage

While not all states require drivers to carry UM and/or UIM coverage, this coverage will pay for injury and damage when the at-fault party does not carry any insurance or does not carry enough insurance. Uninsured Motorist covers expenses for injury and property damage when the at-fault party does not carry insurance. Underinsured Motorist pays up to the difference between the at-fault party’s bodily injury limit and your UIM limit. UIM does not pay for property damage.

Medical Payments Coverage

This optional insurance, sometimes called MedPay, pays medical expenses or funeral expenses for you or a family member as a driver or occupant of any vehicle involved in a crash or if you are a pedestrian and are involved in an accident.

Other Coverage

Most insurance companies offer a variety of other add-on’s that may be worth including in your policy. Adding towing or rental car coverage is usually inexpensive and can make your life easier if you are involved in a crash.

 

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