What Is Liability Insurance?
Liability insurance helps protect you and your assets if you
cause an injury to others or damage the property of others with
your vehicle and you are determined to be liable. Bodily injury
liability protects you in the event you are determined to be
responsible for an accident in which someone is hurt or killed.
Property damage liability covers the damage your vehicle causes
to someone else's property, such as their car, mailbox or a fence
on their land.
If you are judged to be legally liable for an accident, you
may be held responsible for property damage, hospital and medical
payments, rehabilitative care, lost income and even the pain and
suffering of the injured person. You can be sued for the full
cost of the damages. If the cost of this loss exceeds the amount
of your liability insurance coverage, you may have to pay the
rest. So, be sure you have sufficient liability coverage to
protect your assets.
Your insurance policy usually describes the amount of
liability coverage you have as split limits. Suppose your limits
of liability coverage reads 50,000/100,000/50,000. In this
example, $50,000 is the maximum the insurance company will pay
for bodily injuries to each person in the accident.
The maximum amount paid for all bodily injuries, no matter how
many people are hurt in the accident, is $100,000. The maximum
amount paid for damage to someone else's property in the accident
is $50,000. Your Bodily Injury and Property Damage Liability may
also be shown as a single limit, e.g., $100,000 Combined Single
Limit (CSL). Many states require drivers to carry a minimum
amount of liability insurance of approximately
25,000/50,000/10,000. That means there would be $25,000 to cover
injuries to any one person, $50,000 total for all injuries, and
$10,000 for property damage.
What Are Collision and Comprehensive Insurance?
Collision coverage pays for damage to your own car that
results from colliding with another vehicle or object, or from a
vehicle rollover. Your car is covered no matter who caused the
accident.
Comprehensive coverage pays for damage to your car caused by
something other than a collision. This includes theft and
vandalism, and disasters such as fire, flood and hail.
Collision and comprehensive coverage's usually do not pay for
the total loss. You generally have a deductible, an amount you
must pay out of your own pocket before your car insurance payment
takes effect. Suppose, for example, that you have a $250
deductible. On a loss of $1,000, you would pay the first $250 and
your insurance company would pay the remaining $750. Depreciation
will also affect the amount you recover for the damages done to
your car. As your car ages and its value declines, the amount you
would collect for a total loss declines as well. Your insurance
company reimburses you for the actual cash value of your car or
its parts, at the time of the loss. For example, if your car was
purchased for $20,000, you will get less than your original
purchase price to replace it due to the car's "natural"
depreciation in value. You can find out the current value of your
car by consulting the N.A.D.A. Official Used Car Guide, which is
in most public libraries and banks.
Sometimes it may not make financial sense to buy collision and
comprehensive insurance on an older car. Why? Generally,
speaking, cars depreciate as they age. The maximum amount that
will be paid under Collision coverage is the actual cash value of
your car minus the deductible. When making this decision, you
need to know, the "book" value of your car, your
deductible for each loss, the cost of coverage, and the amount
you would receive if your car was "totaled" (after
subtracting your deductible from the book value). Only you can
decide after considering everything whether the cost of insurance
is more economical than the cost of repairing or replacing the
car at your own expense.
What Are Medical Payments Coverage and Personal
Injury Protection Insurance?
Medical payments insurance covers the cost of doctors,
hospitals and funeral expenses of you and/or your passengers,
that result from an accident, regardless of who is at fault. This
coverage will protect you when you drive another person's car
(with permission) or if you or your family are struck by another
vehicle as pedestrians. The coverage is relatively inexpensive
and generally available with limits between $1,000 and $100,000.
It also provides for funeral expenses, when necessary. The
availability varies state by state. Personal injury protection
(PIP) is a form of no-fault insurance required in states with
no-fault laws. This coverage is a broader form of medical
payments insurance. It pays for medical care, lost wages and
replacement services for the injured party (for example, paying
for a baby-sitter for children while a mother is hospitalized).
It pays regardless of who is at fault in an accident. States with
no-fault laws usually limit the right to sue for non monetary
damages such as pain and suffering, but you still may be able to
sue in cases of incapacitating disability or death. This coverage
varies by state and is sometimes an optional offering in states
without no-fault laws. In your evaluation of coverage, remember
that Medical Payments and PIP also protects your passengers. If
you exceed your medical medical coverage on your car policy, then
Bodily Injury coverage may be needed. Before choosing medical
payments or no-fault protection, check with your state's
insurance department for details of no-fault coverage in your
state. Then review your other insurance policies. If you already
have good medical and disability insurance, you may not need to
purchase protection in addition to the minimum limits of your
state (if Medical Payments/PIP is a required coverage).
What Is Uninsured/Underinsured Motorist
Protection?
If you are involved in an accident with an uninsured driver,
you have very little chance of collecting payment for your
damages from that driver. Uninsured motorist (UM) coverage* pays
the cost of damages and injuries resulting from being hit by an
uninsured driver or by a hit-and-run driver.
Both you and your passengers are covered for medical expenses,
lost wages and other injury-related losses. You may also be able
to collect for pain and suffering.
Similarly, Underinsured motorist (UIM) coverage* will pay for
damages that exceed the amount of coverage carried by an
underinsured driver. You choose the amount of coverage when you
buy this protection.
Keep in mind that uninsured motorist coverage and underinsured
motorist coverage vary by state law.
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