Understanding Car Insurance Coverages
While minimum amounts of coverage vary by State, all car insurance is sold in "packages'. That is, there are some coverages you are required to have by law and some are "add ons". In this article, we'll go over Liability coverage, Physical damage coverage and Uninsured Motorist coverage.
Liability Coverage
Bodily Injury Liability (BI):
Otherwise known as "BI", this covers other people's bodily injuries or death in the event of an accident which you are at-fault for. Your Bodily Injury limit is the amount your insurance company will pay a third party in a civil case. Claims for bodily injury may be for such things as medical bills, loss of income and/or pain and suffering. Bodily injury liability covers the damage done to the "third party", not your vehicle or you or other people on your policy. Most states of liability coverage minimums which is the lowest amount of bodily injury coverage a driver may have by law.
However, these liability limits set by the state, maybe too low, and in the event of accident may put you at severe financial risk in a civil suit. For instance, if either you or a driver covered by your policy causes an injury to a third party where damages go above your limits, you will be held responsible for the amount above your limits. So if your liability limit is $15,000 and you are held responsible for $1 million, you are going to have to cover the difference. To make that payment, you could be forced to liquidate property, savings, and other assets, or have your wages garnished. By purchasing adequate liability limits that take into account your net worth, you can avoid such financial ruin.
Property Damage Liability (PD):
Otherwise known as "PD", this covers the costs you or a driver on your policy inflicts on another person's property. In most cases, it will cover the repair bill of the third party car you hit, but it covers the cost of repair to any kind of property, whether it is a fence, a curb, or even a house. Just as your "BI" coverage had a limit, so does your "PD" coverage.
Physical Damage Coverage (COMP and COLL)
Comprehensive Coverage:
Otherwise, known as "Comp", this covers your automobile, and sometimes other vehicles you may be driving for losses resulting from incidents other than a car accident. For instance, comprehensive insurance covers damage to your car if it is stolen; or damaged by flood, fire, or animals. This coverage is not required by state, but mostly new car owners get it, to insure their vehicle is covered against any of the aforementioned perils.
Having comprehensive coverage, usually means you are going to have some kind of deductible to pay in the event of a claim. A deductible is the amount you will pay, regardless of fault, for the damage done to your car. Deductibles can range from $250 to $1000 and higher depending on the value and make of your vehicle. You can even set your deductible to your liking; however, a higher deductible can lower the cost of insurance premium, as you are taking on more of the costs in the event of a claim.
Should you buy Comprehensive coverage?
* If your car is financed or leased, having comprehensive coverage is usually required as a condition of lease.
* If you have a newer vehicle or one in good condition, you may need this coverage to pay for the varying perils that may occur.
* If you have an older car or one in poor condition, opting for this coverage may not be such a good idea and may be even denied by your insurance company.
Collision Coverage:
Is the coverage that pays for the physical damage done to your car when you are at-fault for an accident. Like comprehensive coverage, collision coverage also comes with a deductible which you pay in order for your insurance company to pay for the rest of the costs of your accident. Deductibles can range from $250 to $1000 and higher depending on the value and make of your vehicle. You can even set your deductible to your liking; however, a higher deductible can lower the cost of insurance premium, as you are taking on more of the costs in the event of a claim.
Should you buy Collision coverage?
* If your car is financed or leased, having comprehensive coverage is usually required as a condition of lease.
* If you have a newer vehicle or one in good condition, you may need this coverage to pay for the varying perils that may occur.
* If you have an older car or one in poor condition, opting for this coverage may not be such a good idea and may be even denied by your insurance company.
Uninsured and Underinsured Motorist Coverage (UM)
Underinsured Motorist Property Damage (UNDPD):
This coverage covers the property damage caused by a third party whose insurance coverage is not enough to pay for the damages to your property.
Uninsured Property Damage (UMPD):
This coverage pays for the costs to your property damage when the person responsible for the damage does not even have insurance.
Underinsured Motorist Bodily Injury (UNDUM):
This coverage covers you, the insured members of your household and your passengers for injuries, damages or death caused by the negligence of a person with inadequate insurance. If you have an accident with a person whose coverage is unable to pay for your damages, the coverage will make up the difference -up to the limit of liability listed on your policy.
Who Does UNDUM cover?
* Policyholder
* Other drivers covered by the policy
* Passengers
Uninsured Motorist Bodily Injury (UM):
This coverage covers you, the insured members of your household and your passengers for bodily injuries, damages or death caused by an at-fault uninsured or hit-and-run driver. If you are involved in an accident where the other driver is at fault but has no insurance, your policy will cover your medical expenses, up to the limit on your policy.
Who's covered?
* Policyholder
* Other drivers covered by the policy
* Passengers
Liability Coverage
Bodily Injury Liability (BI):
Otherwise known as "BI", this covers other people's bodily injuries or death in the event of an accident which you are at-fault for. Your Bodily Injury limit is the amount your insurance company will pay a third party in a civil case. Claims for bodily injury may be for such things as medical bills, loss of income and/or pain and suffering. Bodily injury liability covers the damage done to the "third party", not your vehicle or you or other people on your policy. Most states of liability coverage minimums which is the lowest amount of bodily injury coverage a driver may have by law.
However, these liability limits set by the state, maybe too low, and in the event of accident may put you at severe financial risk in a civil suit. For instance, if either you or a driver covered by your policy causes an injury to a third party where damages go above your limits, you will be held responsible for the amount above your limits. So if your liability limit is $15,000 and you are held responsible for $1 million, you are going to have to cover the difference. To make that payment, you could be forced to liquidate property, savings, and other assets, or have your wages garnished. By purchasing adequate liability limits that take into account your net worth, you can avoid such financial ruin.
Property Damage Liability (PD):
Otherwise known as "PD", this covers the costs you or a driver on your policy inflicts on another person's property. In most cases, it will cover the repair bill of the third party car you hit, but it covers the cost of repair to any kind of property, whether it is a fence, a curb, or even a house. Just as your "BI" coverage had a limit, so does your "PD" coverage.
Physical Damage Coverage (COMP and COLL)
Comprehensive Coverage:
Otherwise, known as "Comp", this covers your automobile, and sometimes other vehicles you may be driving for losses resulting from incidents other than a car accident. For instance, comprehensive insurance covers damage to your car if it is stolen; or damaged by flood, fire, or animals. This coverage is not required by state, but mostly new car owners get it, to insure their vehicle is covered against any of the aforementioned perils.
Having comprehensive coverage, usually means you are going to have some kind of deductible to pay in the event of a claim. A deductible is the amount you will pay, regardless of fault, for the damage done to your car. Deductibles can range from $250 to $1000 and higher depending on the value and make of your vehicle. You can even set your deductible to your liking; however, a higher deductible can lower the cost of insurance premium, as you are taking on more of the costs in the event of a claim.
Should you buy Comprehensive coverage?
* If your car is financed or leased, having comprehensive coverage is usually required as a condition of lease.
* If you have a newer vehicle or one in good condition, you may need this coverage to pay for the varying perils that may occur.
* If you have an older car or one in poor condition, opting for this coverage may not be such a good idea and may be even denied by your insurance company.
Collision Coverage:
Is the coverage that pays for the physical damage done to your car when you are at-fault for an accident. Like comprehensive coverage, collision coverage also comes with a deductible which you pay in order for your insurance company to pay for the rest of the costs of your accident. Deductibles can range from $250 to $1000 and higher depending on the value and make of your vehicle. You can even set your deductible to your liking; however, a higher deductible can lower the cost of insurance premium, as you are taking on more of the costs in the event of a claim.
Should you buy Collision coverage?
* If your car is financed or leased, having comprehensive coverage is usually required as a condition of lease.
* If you have a newer vehicle or one in good condition, you may need this coverage to pay for the varying perils that may occur.
* If you have an older car or one in poor condition, opting for this coverage may not be such a good idea and may be even denied by your insurance company.
Uninsured and Underinsured Motorist Coverage (UM)
Underinsured Motorist Property Damage (UNDPD):
This coverage covers the property damage caused by a third party whose insurance coverage is not enough to pay for the damages to your property.
Uninsured Property Damage (UMPD):
This coverage pays for the costs to your property damage when the person responsible for the damage does not even have insurance.
Underinsured Motorist Bodily Injury (UNDUM):
This coverage covers you, the insured members of your household and your passengers for injuries, damages or death caused by the negligence of a person with inadequate insurance. If you have an accident with a person whose coverage is unable to pay for your damages, the coverage will make up the difference -up to the limit of liability listed on your policy.
Who Does UNDUM cover?
* Policyholder
* Other drivers covered by the policy
* Passengers
Uninsured Motorist Bodily Injury (UM):
This coverage covers you, the insured members of your household and your passengers for bodily injuries, damages or death caused by an at-fault uninsured or hit-and-run driver. If you are involved in an accident where the other driver is at fault but has no insurance, your policy will cover your medical expenses, up to the limit on your policy.
Who's covered?
* Policyholder
* Other drivers covered by the policy
* Passengers
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