Automobile Insurance Explained

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When looking to buy automobile insurance, seeing all the different options can make life a little confusing. With several different companies offering several different products each, how are you supposed to know which policy best suits your needs? What’s bodily injury liability coverage? Do you need collision coverage? Today, we’re going to answer some of the most common questions regarding automobile insurance and how you can choose a policy that’ll suit your needs both now and long into the future.

What Is Bodily Injury Liability Coverage?

Although we trust in our abilities as a driver, all it takes is one lapse of concentration and an accident can be caused. With bodily injury liability coverage, this is a feature in an insurance plan that pays out when you’re responsible for injuries caused by an accident. Not only will it pay for expenses that lead from the accident, it should also step in with legal defense if the other driver decides to sue for damages.

Depending on the extent of the accident, the coverage should provide money for legal fees, medical expenses, funeral costs, loss of income, and pain and suffering (in any accident where you accept responsibility). When looking at the finer details of any policy, the bodily injury liability coverage is normally displayed as two amounts; for example, this might be ‘$50,000/$100,000’.

For the first $50,000, this shows the limit of coverage if a single person is injured. If one person is injured in the accident, your coverage would help with anything up to $50,000 and you would then be responsible for anything over this amount. For the second amount, $100,000 in this example, this is the total coverage where an accident causes an injury to more than one person. Once again, you will be responsible for any damages over the limit. While a larger coverage will be beneficial in the event of an accident, the policy will generally be more expensive.

Why should you ensure this feature is on your policy? First and foremost, most states now have a minimum amount required on all policies. However, we recommend assessing this minimum and potentially investing in further coverage to protect future earnings and assets. The lower your bodily injury liability coverage, the more risk to your personal finances after an accident.

What Is Property Damage Liability Coverage?

While the previous coverage is designed for personal injuries, this coverage is for the property of others after an accident. After you’re responsible for an accident, property damage liability coverage will pay out a certain amount to repair the other person’s car (or any other type of property). As before, this addition is required in most states and it actually includes things like house fronts and fences. Since it’s designed for the property of the victim, the amount shown on your policy will not cover your own vehicle.

Just to keep things confusing, the minimum amounts required by law changes from one state to the next. While Texas require all drivers to have $25,000 of property damage liability coverage, this reduces right down to $5,000 for California; in Florida, this amount is $10,000. Regardless of where you are in the US, the feature works the same and it jumps into action after an accident. The first $x will be covered by the insurance and you will be responsible for the rest. For those who already have a policy and now wish to extend their property damage liability coverage, this should be an option if you get in contact with your agent. As long as you’re willing to pay slightly more in your premiums, this should be a simple adjustment and it adds an additional layer of protection for your personal finances.

What Is Medical Payments Coverage?

Next, we have a policy feature that can help to pay your medical expenses after an accident (regardless of who is to blame). Compared to others we have on this list, this one is entirely optional yet we do recommend some level of coverage so you aren’t left having to fork out hundreds or even thousands of your own money after an accident.

If you choose to add this to your policy, you’ll be covered for surgery, doctor/hospital visits, health insurance co-pays and deductibles, x-rays, professional nursing services, and ambulance/emergency service fees. Without this protection, these will be fees you’ll have to pay from your savings or any other source; this can cripple a family or individual financially for many years.

If you’re currently asking the difference between so-called ‘MedPay’ and PIP (Personal Injury Protection), this is a great question and there are three main differences. Firstly, there are certain restrictions depending on whether your state is or isn’t a ‘no fault’ state. For medical payments coverage, this is only available when the state doesn’t have PIP.

Elsewhere, medical payments insurance will always be optional (across the US) while the law on PIP is different from one state to the next. Finally, medical payments insurance is designed to cover just medical expenses and the other expenses listed above. On the other hand, PIP can often step in and cover child care, lost wages, and other personal expenses.

When buying your automobile insurance, you need to talk with the agent and discuss carefully what limit you wish to implement. Remember, any expenses that exceed the limit will be your responsibility. After a simple discussion with the agent, they will inform you average fees after an accident, what you can expect to pay, and what they recommend for coverage limits.

What Is Comprehensive Coverage?

When researching car insurance, you’ve probably seen that comprehensive coverage is the most expensive (as well as the one that’s required by leasing companies). As the name suggests, comprehensive coverage is an all-inclusive insurance type that protects automobile owners against theft, fire, natural disasters, vandalism, falling objects, civil disturbances, and even damage caused by animals. Despite popular belief, there are expenses not covered by comprehensive cover including; medical expenses (for you or another driver), collision damage, and damage to another car after a collision.

As you choose an insurance plan, you’ll be asked to select a ‘deductible’ and this is the money you pay towards a particular claim. For example, a $250 deductible would see you pay $250 of the $1,000 repair job after an accident (the insurance company would cover the rest). Of course, there’s a limit to what the policy will pay and this is normally the ACV (actual cash value) of your car; this means they’ll never pay more than the car’s worth to have it repaired.

Unfortunately, your car may be stolen and the policy would step in here to provide an amount that would allow you to buy a similar replacement. If you want a newer model than the one stolen, it would be up to you to cover the difference.

Whether or not you buy comprehensive coverage is an interesting dilemma but there are some important considerations to keep in mind. Firstly, you should be thinking about the age and value of your car. If the car is fairly new, or has value, comprehensive insurance would prevent having to pay too much out-of-pocket when something goes wrong. If it’s an old car with not much value, you might be happier to pay from your own money.

Secondly, for those who are leasing the vehicle, comprehensive coverage might be a prerequisite from the company (until the outstanding loan has been paid). Some companies want to protect their vehicles as much as possible, and this may mean a comprehensive form of insurance.

What Is Collision Coverage?

Finally, this wouldn’t be an extensive guide to automobile insurance if we didn’t mention collision insurance. If your car collides with another car, or with something else entirely, collision insurance will provide funds to repair it (or replace it, if necessary!). Just like comprehensive insurance, this is sometimes a necessity for companies for anybody leasing a vehicle.

Generally speaking, collision coverage will cover collisions with other vehicles as well as collisions with trees, poles, fences, etc. However, there are some areas not covered by collision insurance; the repair or replacement of another vehicle (like the other person in the collision), medical bills (belonging to anybody involved), and any vehicle damage not caused by driving (such as theft).

In terms of the finer details, there’s also a deductible with this feature and this suggests how much you would pay before the insurance company takes over. For minor scratches, for example, totalling $100, you would pay this from your own pocket. Once again, the ACV of your vehicle is likely to be the limit allowed by the insurance company.

Should you have collision insurance for your vehicle? Assuming you aren’t leasing and therefore aren’t required to choose collision insurance, the question of whether you need it comes down to what we’ve been discussing throughout this guide. How much would it cost to replace or repair your vehicle? For those with a newer car and who wouldn’t be able to afford large repairs, having collision coverage gives that peace of mind just in case the worst were to happen.

Summary

Although we do recommend talking with friends and assessing what prices they’re paying for different types of coverage, the policy you need will ultimately come down to your own needs. With this guide, you should be in a better position to decide whether or not you need bodily injury liability coverage, property damage liability coverage, medical payments coverage, comprehensive coverage, and/or collision coverage. As long as you talk with an agent (and the leasing company, if applicable), you can move forward with the right policy and confidence in the coverage!

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