Deep Dives
Auto Insurance Basics

If your only experience with auto insurance is what you inherited from your parents, you may not be familiar with all the coverages and limits on your policy. Actually, even if you’ve carried your own coverage for a few years, you still may not understand the coverages and limits (it’s ok, I’ve been there). We’ll go through the most common coverages to ensure you’re properly covered out there on the road.

Auto Insurance Basics
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July 5, 2022

If your only experience with auto insurance is what you inherited from your parents, you may not be familiar with all the coverages and limits on your policy. Actually, even if you’ve carried your own coverage for a few years, you still may not understand the coverages and limits (it’s ok, I’ve been there). We’ll go through the most common coverages to ensure you’re properly covered out there on the road.

Descriptions of different types of auto coverage

Liability Coverages

Liability coverage refers to coverage for a third party. This coverage is required in all states except for two. If you get in an accident and are at fault, liability coverage will pay for the amount for which you’re liable for injury and damage sustained up to your policy limits. The main two types of liability coverage are Bodily Injury Liability and Property Damage Liability.

Bodily Injury Liability pays for medical bills if you injure someone with your car. This limit can be two limits (per person/per accident) or one limit.

Property Damage pays for the cost to repair damage to property you caused with your car. This is expressed as one limit, or can be combined with Bodily Injury as a total limit (also known as Combined Single Limit or CSL).

Generally, you should carry more than the state minimum limits as they are insufficient coverage. We recommend that you carry at least $50,000/$100,000 for bodily injury and $50,000 for property damage.

Uninsured/Underinsured Motorist

Have you ever gone to the store, picked out your things, gotten to the checkout and realized you forgot your wallet? Uninsured Motorist coverage is kinda like that, only it’s not you who forgot your wallet, it’s someone else. And instead of forgetting their wallet, they purposely didn’t bring it so someone else would pay. Pretty crappy, right? Unfortunately it happens and you don’t want to be stuck with the bill if it does. Uninsured/Underinsured Motorist coverage protects you in case you’re in an accident and the person at fault has little or no insurance. The limits for Uninsured/Underinsured Motorist coverage usually match your Bodily Injury limits. It’s cheap coverage and worth carrying for peace of mind.

Physical Damage

Physical Damage coverage covers your car in case it is damaged. There are two types of Physical Damage coverage – Collision and Comprehensive. Collision cover your vehicle if it collides with another object. Comprehensive covers damage caused by factors besides collisions (in fact, it’s sometimes referred to as “other than collision”). These factors include: natural disasters, fire, theft, falling objects, animals and vandalism. Instead of a limit for comprehensive and collision, both coverages cover your car at Actual Cash Value (ACV), as defined by your policy. Also unlike other coverages, comprehensive and collision coverage are subject to a deductible. The deductible is the amount you must pay towards a loss before the insurance company will pay. The deductibles (especially collision) are probably what affects the premium the most. The higher the deductible, the lower the premium. These coverages are also optional, but we recommend you carry them in most cases. Sometimes people with old cars opt to carry liability coverage only. This is a personal decision. The car cannot be financed (physical damage coverage is required when financing or leasing) and you have to be willing/able to pay out of pocket for all damage (or walk away) should you get in an accident.

Additional Coverages

There are several other coverages that are nice to have, but not required. Each insurance carrier defines these differently, so check with your company to know what is covered.

Additional Auto Coverage Chart

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Jodie Williams