What Does Auto Insurance Cover?

There are a number of different types of auto insurance policy available; some of them are a legal requirement in some states. (Read on for more details on state requirements ...)

Liability

Liability coverage, which pays for things such as legal defense costs, lost wages, medical bills, and repairing or replacing another person's vehicle, is required by most states, with each state requiring different minimum required amounts. This type of insurance covers you for the damage you do to others, including bodily and property damage.

It is available either as a combined single limit policy or as a split limit policy. A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, if someone with this type of coverage hits another vehicle and injures the driver and the passenger, the policy would pay for the damages to the other driver's car, along with any injury claims for the driver and passenger.

In contrast, a split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage. The bodily injury liability coverage is normally split into a maximum payment per person and a maximum payment per accident.

For example, a person with a 100/300/25 split policy means that they have:

• $100,000 for bodily injury coverage per person
• $300,000 in bodily injury coverage per accident (when more than one person is injured)
• $25,000 in property damage coverage per accident

Collision

Collision coverage is an optional type of cover that pays to repair or replace your vehicle, subject to a deductible. It is known as Collision Damage Waiver (CDW) in auto rental agreements, and is usually the most expensive portion of any vehicle insurance premium. After an accident, the company assesses the damage and decides whether it makes more economical to repair or replace the vehicle. If the vehicle is totaled (destroyed heavily or damaged), they may pay the actual cash value (ACV) of the car, which is calculated by taking the replacement cost of the vehicle and subtracting the amount of depreciation.

Comprehensive

Comprehensive coverage pays for damages (subject to a deductible) that were not caused by an accident; for example, fire, theft, vandalism, or impacts with animals. In genral, consumers should look at the value of the vehicle to decide how much comprehensive coverage to buy. It may not be cost effective to have comprehensive coverages on vehicles worth less than $1,000 as any claim would not normally substantially exceed the annual cost and deductible amounts.

Personal Injury Protection (PIP)

Personal Injury Protection provides medical expense coverage if the driver (or another individual covered under the policy) is injured in an automobile accident. This type of policy is often called no-fault coverage as it pays medical expenses no matter who caused the accident. The policy will not only pay for the cost of hospitals, doctors and other medical providers for treatment of injuries from an accident, but will also pay for any medical equipment that may be needed as a result of the crash.

Uninsured / Underinsured Motorists (UM/UIM)

This type of coverage pays for the cost of treating your injuries (and possibly property damage) if you are in an accident with someone who either does not have adequate insurance or who flees the scene after hitting you. Some states require all drivers to have this type of insurance.

Supplemental Cover

Other supplemental cover includes towing, repair or car rental reimbursement and may normally be added to a basic auto insurance policy for a small additional cost.