Auto insurance basics

FAQs: Car Insurance Basics

Why do I need car insurance?

Two big reasons: 1) it is typically required by law, and 2) it protects you and your financial assets in the event of a costly accident. Insurance is a funny product – you buy it, but hope to never have to use it. However, it can be one of the best investments you ever make, but it’s only when you need it that you realize how valuable it is. That’s why it’s so important for you spend a few minutes really thinking about what insurance coverage you need. Don’t worry, we’re here to help.

For starters, let’s talk about limits. Most states have minimum liability limits that you’re legally required to carry. However, these minimum limits are typically not enough to protect your family should you get into a serious accident, because if you are at fault, you are responsible for paying for any damages that exceed your coverage amounts. That’s why it often makes sense to carry limits significantly above the minimum requirements, because they go so much further in protecting you when you really need it.

Still skeptical? We understand, there’s a ton of insurance jargon out there. See below for a translation of the most important coverage options to know and some useful examples of how each of them works.

Liability Coverage – Bodily Injury & Property Damage

Liability coverage is a third party coverage, which is legal jargon meaning it covers other people (i.e. not you) for their injuries and property damage if you cause an accident. Even though it technically covers ‘them,’ ultimately liability coverage protects you from being financially on the hook if you cause an accident.

Liability is broken into two main types – Bodily Injury & Property Damage.

Bodily Injury

Liability Bodily Injury (BI) covers medical bills, inconvenience, and lost wages of the other parties in an accident if you are at fault. BI is a bit confusing, in that limits are broken into two numbers (i.e. $25,000/$50,000); the first number is the maximum amount your insurance will pay out per person, and the second is the maximum amount your insurance will pay for injuries per incident.

An example – you’re stuck in stop-and-go traffic on the freeway, get distracted, and rear-end the vehicle in front of you, which had a driver and two passengers. All three occupants of the other vehicle go to the doctor for whiplash treatment, and each of their bills is $20,000. Your insurance, which carries $25,000/$50,000 BI limits, will pay out up to $25,000 for each occupant, with a combined payout ceiling maxing out at $50,000 for all injured parties.

If you’re looking at just the first number, you may think you’re covered since the amount insurance will pay out per person is greater than each individual’s bill. However, since the total amount owed is $60,000 and your insurance payout is capped at $50,000 for all injured parties per accident, you would likely be on the hook for $10,000.

This example highlights the importance of carrying higher limits because those medical bills can quickly add up.

Property Damage

Liability Property Damage (PD) coverage pays for the other party’s car to get repaired if you cause an accident, and is the third in the string of numbers you’ll hear agents say when they talk about coverage ($25,000/$50,000/$20,000). So in the above example, if the car you rear-ended went to the shop and cost $2,499 to repair, your property damage coverage will pay for that since it’s under your $20,000 limit.

What is Collision Coverage?

At last, an insurance term that is almost completely self-explanatory. Collision coverage pays for your car to be repaired after an accident, regardless of who caused it. In the above example, it will pay for your repairs after you rear-ended that other car. It also applies if you hit a stationary object (like a mailbox).

What about Comprehensive Coverage?

Often called “other than collision,” comprehensive coverage applies when your car is damaged as a result of falling objects, animals, fire, natural disasters, theft, or vandalism. So if there’s a windstorm and a tree branch lands on your windshield, comprehensive coverage will cover that cost. It also covers glass only claims.

What is Medical Payments Coverage (MedPay)?

Medical Payments coverage pays medical bills and/or funeral costs if you and/or passengers injured or killed while in your car. This coverage applies regardless of who caused an accident. You may not need medical payments coverage if you and your passengers are fully covered by health insurance, but this coverage can also pay for items which may not be covered by your health plan, such as dental treatment, professional nursing services, and prostheses.

What is Personal Injury Protection (PIP)?

PIP generally covers everything that Medical Payment covers, plus it reimburses you for lost wages and can also cover non-medical expenses related to your accident.

What is Uninsured Motorist and Underinsured Motorist Coverage?

Even though it’s illegal in most states, some people do drive without insurance. If one of these drivers hits you, Uninsured/Underinsured Motorist coverage steps in. Although the requirements differ by state, Uninsured/Underinsured Motorist coverage pays for medical expenses, lost wages, property damage, and other general damages when policyholders or passengers are injured in an accident caused by a driver who does not have car insurance or has insufficient coverage.

What about Rental Reimbursement?

Getting in an accident is bad enough – almost worse is being car-less for weeks while your car is being fixed. Rental Reimbursement coverage will provide you with a rental car so your life can go on as normally as possible while your claim is being processed.

What does Roadside Assistance do for me?

Roadside Assistance coverage saves you from being stranded on the side of the road when something goes wrong with your car. If you lock your keys in your car or you get a flat tire, you can call Roadside Assistance to get help as soon as possible. This is a 24/7 service that’s available nationwide.

Now that you know some basics about car insurance, find out how much coverage makes sense for you.

 

The above descriptions are informational in nature and are not meant to apply to any individual state, circumstance or specific contract of insurance.  Please refer to your insurance policy for specific information regarding your coverage or speak to a licensed insurance agent for more details.