Automobile Insurance Basics
If you own a car, you need to know some basic insurance information to protect you and your family. There are a number of coverages available, and insurance companies exclude coverage for many different circumstances. This article will cover some of these basics. However, different companies have different forms, and you should not use the information in this article as a substitute for actually reading your policy.
Liability Coverage. This is insurance that pays if you cause an accident by negligent use of an automobile. For instance, if you rear-end someone at a stoplight, you are negligently operating your motor vehicle. The insurance company will pay up to the limits of this coverage and will generally provide a defense if you are sued, meaning that the insurance company will pay for a lawyer to represent you. There are two types of limits, single and split. A single limit policy pays out up to the limits regardless of the number of people injured. A split limit policy divides coverage between people and accidents. As an example, a split limit policy with 50/100 coverage will pay one person up to $50,000 for their injuries but no more than $100,000 total no matter how many people got hurt.
If you cause an accident where the damages are greater than the limits of your liability policy, the injured people can go after your assets to satisfy a judgment. You should review your limits to see if you have adequate coverage. You should also make sure that you do not have a “pay and walk” policy. This is a policy where the insurance company has the option of paying the limits of the liability coverage and then not providing a defense.
Liability coverage excludes certain activities. For instance, if you are involved in a road rage incident and intentionally run your car into someone else, your insurance company will not pay for the damages you cause. Another example of an exclusion is punitive damages. Most liability policies exclude coverage for punitive damages. For instance, if you have a previous OWI and cause an accident by driving drunk, the injured person may sue you for punitive damages. These are money damages designed to punish you for driving drunk. This list is by no means a complete list of all the things excluded by your insurance company. See the first paragraph of this blog.
Medical Payments. This is coverage designed to pay medical expenses regardless of who was at fault in the accident. The limits on this coverage range from $1,000 up to $25,000. Medical payments coverage can be very helpful if you do not have health insurance, or if you have high deductibles or co-pays. If you do not have any health insurance, you can submit your medical expenses to the insurance company and they will pay up to the limits for the medical care related to your accident injuries. This can be a great benefit and can keep your accounts from going to collections. If you have health insurance, you can use the medical payments coverage to pay your co-pays and deductibles. This way you do not have to spend money out of your pocket paying medical expenses.
Unisured Motorist Coverage This is insurance to protect you if someone hurts you by the negligent use of an automobile and has no liability insurance. If you are ever injured by an uninsured driver, your insurance company will pay up to the limits of your uninsured motorist policy for things such as medical expenses, lost wages, skilled nursing care, medications, and pain, suffering, and disability. If you have a limit of $50,000 on your uninsured motorist policy, that is the most they will pay no matter how serious your injuries are. It is a good idea to talk to your agent and see how much more the premium is if you increase your uninsured coverage.
Underinsured Motorist Coverage. This is coverage for you if the person who negligently caused the accident has a little insurance, but not enough to pay all the damages. For instance, if the at fault driver has $25,000 in liability coverage, and you have $100,000 in damages, then you can look to your insurance company to pay the difference. There are many landmines and aspects of underinsured motorist coverage that make no sense. For instance, if you have $100,000 in underinsured motorist coverage and the person who injured you by the negligent use of her automobile has a $100,000 liability policy, you cannot collect anything under your policy no matter how badly you are hurt. This is because the liability limit equals the underinsured limit. If you purchased $250,000 worth of underinsured motorist coverage and you were injured by a driver with $100,000 in liability limits, you could collect up to $150,000 in underinsured motorist coverage. This is true even though you paid a premium for the $250,000 in coverage.
Now that I have laid out the basics, I have to go into a little lawyer speak. Each policy is different and contains specific terms and conditions. You should read the policy carefully and review any questions with the agent or an attorney.