Your state probably requires you to purchase auto insurance. For many people, purchasing or updating and insurance policy is a loathed chore, because automobile insurance information is provided in highly technical language. Happily, most of the jargon is easy to understand with a little guidance. What follows is a clear and easy-to-follow explanation of automobile insurance terms.
When shopping for auto insurance quotes, you’ll usually purchase a policy that provides “Bodily Injury Liability.” This figure often appears as a set of numbers, such as “$15,000/$30,000.” The first number equals the amount of money available to pay for injuries of any single person, while the second number represents the total amount of coverage available for all injuries together. This amount also covers the funds available for your legal defense. Bodily injury coverage does not cover property damage, and it only covers incidents where you are held liable—either because you admitted fault, or were judged at fault by a court.
For example, imagine you and a friend are driving, and you collide with another car. Further, imagine that after a trial, you are judged to be at fault. If both the driver of the other vehicle and your passenger sue you for bodily harm, and you have Bodily Image Liability limits are $15,000/$30,000, then not only will your insurer pay for legal costs, it will pay up to $15,000 in damages to each person who has sued you. Beyond that amount, you’re personally responsible for any loss. For example, if you’re held liable for $80,000 in medical bills, you’ll have to pay all but $15,000 of that amount—or $65,000, in this case.
Ideally, you should purchase enough Bodily Injury Liability to protect your assets. For example, if your assets total $200,000, you should purchase $200,000/$400,000 of bodily injury liability coverage. Keep in mind that Bodily Injury Liability only pays for bodily damage, not property damage. So, if the court finds you’re liable for damage to another person’s car, you’ll have to pay this amount out of your own assets, unless you’ve purchased Property Damage Liability (see beneath).
Keep in mind that Bodily Injury Liability only provides coverage if you’re judged to be at fault in the accident. If you’re not judged at fault, then you wouldn’t be liable in the first place, and your Bodily Injury Liability coverage is irrelevant.
Many states require vehicle owners to purchase bodily injury liability. In California, for example, you must purchase at least $15,000/$30,000 worth of bodily injury liability coverage.
Medical Payments Coverage
While Bodily Image Liability pays damages to another person for an accident for which you’re at fault, Medical Payments Coverage covers medical bills no matter who is at fault. In other words, Medical Payments Coverage is basically medical insurance for you and any passengers injured in an accident. If you have medical insurance, you may not wish to purchase Medical Payments Coverage.
Uninsured and Underinsured Motorist
Uninsured and Underinsured Motorist coverage can cover medical bills or property damage that occurs when an uninsured or underinsured motorist harms you. This may overlap with Medical Payments Coverage, so it usually doesn’t make sense to buy both. You may not wish to buy Uninsured and Underinsured Motorist insurance if you have health insurance. This insurance makes sense for those who don’t have medical insurance or Medical Payment’s coverage.
Property Damage Liability
Because Bodily Image Liability does not cover property damage, many people also purchase “Property Damage Liability.” This is the amount your insurer will pay if you damage someone else’s property, including their car, home, or pet. Your Property Damage Liability will cover damage up to the stated amount. In other words, if you have caused $10,000 in Property Damage Liability, your insurer will pay $10,000 towards damages. You must pay any remaining amount owed.
As with Bodily Image Liability, it is best to purchase enough Property Damage Liability to protect your assets. If your net worth is $150,000, you would ideally purchase Property Damage Liability to cover this amount. That way, if you fall asleep at the wheel, you won’t lose everything you own.
Note that if you’ve purchased Property Damage Liability, your insurer will often cover the cost of an attorney to defend you in court. Automobile dealerships often require you to purchase Property Damage Liability as part of a lease agreement.
Collision
Collision coverage covers damage to your car if you’re at fault in an accident. (If the other driver is at fault, the other driver must pay for damage to your car.) You should only purchase Collision coverage if your car is worth a fair amount of money. If you’re driving a ‘clunker,’ you shouldn’t spend money on collision insurance. For example, it’s probably not worth buying collision insurance to cover a car that’s only worth $3,000. You’ll probably pay hundreds of dollars to buy the insurance over time, and if there were an accident, you’d also likely pay hundreds of dollars in deductible payments. Rather than pay this amount of money, it’s smarter just to plan on buying another car in the event of a collision.
Without Collision coverage, if a court finds you responsible for an accident, your policy will likely cover damage to someone else’s car, but not to your own.
While most car insurance quotes protects you from against damage caused by a collision, comprehensive coverage protects your car from damage that occurs as a result of theft, fire, flood, or a falling tree limb. For example, if someone breaks your windshield and steals your stereo, your insurance company will only reimburse you if you’ve purchased comprehensive auto insurance.
Emergency Road Services
Emergency Road Services provide help if your car breaks down on the road. Emergency Road services cover a flat tire, dead battery, or payment for a tow truck to take you to a repair shop. Don’t buy this coverage if you belong to the American Automobile Association (AAA) or if emergency roadside assistance is included in the services offered by the manufacturer of your vehicle.
If you can’t drive your vehicle for a time due to an accident, your insurer will pay for your car rental while you wait to purchase a new car or for your original car to be repaired.