Having auto insurance can help you cover damages following an auto accident. These damages are often significant. In 2020, an estimated 3.9 million people were injured in auto collisions. Another 38,680 people were killed in them. It's estimated that auto collisions cost the country nearly a trillion dollars each year in economic loss and societal harm. Auto insurance can help drivers pay for damage to others and their property as well as damage to the insured. So, what kind of coverage is right for you?
Minimum Insurance Requirements
Before getting to that, you should be aware that virtually every state requires its drivers to have a minimum amount of car insurance coverage. These insurance requirements are the minimum amount of liability coverage drivers need in order to legally drive. There are, however, some benefits to purchasing more coverage than is legally required.
Generally speaking, the higher your insurance premium, the more your policy will cover. If you get in a car accident, a minimum-coverage policy may only cover damages up to a certain amount. If the cost of the damage exceeds the amount covered by your policy, you may have to cover the additional cost with your own money.
For example, if you cause an accident and injure someone, you may be held liable for damages. If you have an insurance policy with $30,000 worth of coverage, that policy may seem like enough to cover those damages. However, if you have a $1,000,000 estate, the injured party may sue you for more than $30,000 for medical damages. If you lose the suit, your $1,000,000 estate may be fair game for the injured plaintiff to claim.
How much coverage you should purchase beyond the minimum is your decision. Most authorities recommend that a driver have an auto insurance policy covering more than the legal minimum. Purchasing a more extensive policy will cost more, and for many people that can be a significant expense. However, many insurance companies provide discounts, e.g. discounts for students with high grades, drivers with clean driving records, drivers who don't drive much, etc. If the time comes when you need your auto insurance, you may be glad to have a plan that covers more than the legal minimum.
Your typical insurance policy will cover damages up to a certain dollar amount. This amount is the liability limit and is further divided up between different types of damages.
Most insurance policies indicate the liability limit using three numbers. In the state of New York, for example, the minimum auto insurance coverage requirement numbers are 25/50/10. In California, the minimum coverage numbers are 15/30/5. These three numbers indicate the liability limit for an insurance policy as to,
- one individual's personal injury damages
- for all personal injury damages for one particular accident, and
- for all property damages for one accident. Different states often have different limits.
Here's an example. Suppose Al, who is a New York driver, is texting while driving and collides into a car containing Bert and Caroline. Both Bert and Caroline suffer serious injuries, and Bert's car is damaged. Al is liable for their damages, but fortunately, he has car insurance that meets New York's minimum coverage requirements. His policy will cover Bert's injuries up to $25,000 and Caroline's injuries up to $25,000. It will cover all personal injuries arising from that accident up to $50,000. Finally, Al's policy will cover damage to Bert's car and other property up to $10,000 for that accident.
Common Policy Coverage Categories
Insurance policies will cover different types, or categories, of damage up to a liability limit. Here are some common auto insurance policy coverage categories to help you make smart decisions next time you're shopping for auto insurance.
Bodily Injury Liability
This describes what the insurance company (insurer) will pay when other persons are injured or killed in an accident for which you (the insured) are at fault. This money is intended to cover medical expenses and any damages a deceased person's family may claim in a wrongful death suit.
Personal Injury Protection (PIP)
With this coverage, the insurer will pay for the insured's injuries and other related damages to the insured and to passengers in the insured's vehicle.
Property Damage Liability
The insurer will pay damages when the property of other persons has been harmed or destroyed by the insured's vehicle and the insured is at fault. This provision is not always limited to cars. For example, if you ran your car into a mailbox, this provision might cover the cost of replacing the mailbox.
The insurer will pay for damages to the insured's own vehicle, irrespective of whether the insured is at fault. If the insured's vehicle is financed, the lessor may require the insured to maintain collision coverage and/or gap insurance on the vehicle.
The insurer will pay for damages to the insured's automobile caused by fire, theft, vandalism, riots, and other random destructive acts. If a tree branch falls on your parked car, this provision will pay for repairs to the car. Just like collision coverage, many financers require comprehensive coverage on cars that aren't paid off yet.
Uninsured/Underinsured Motorist (UM/UIM) Coverage
The insurer will pay for injury or death to the insured and the insured's passengers if caused by another driver who doesn't have insurance (uninsured), whose insurance company pays too little (underinsured), or whose identity is unknown (as in a hit-and-run motorist, except in some states like California and Illinois). In some states, the insurer will also pay for damage to the insured's vehicle.
Discuss Your Automobile Insurance Policy Coverage Questions with a Lawyer
Dealing with your insurance company or the insurance company of the other driver can be a complicated process. If you're involved in a dispute with an insurer or you just want to get the most out of your policy, it's in your best interest to consult with an experienced car accident attorney near you. An attorney will be able to negotiate with the insurer on your behalf and advise you about the best course of action.