Introduction To Car Insurance Coverages
Be honest now. Do you know what all of the coverages listed on your car insurance policy mean? Do you know the difference between collision and comprehensive insurance? Do you know which of your coverages have deductibles?
Most people don’t know the answers to these questions.
But don’t worry, I’m going to explain the different coverages in plain English, not in the confusing language that the insurance policies often use.
Ready? Let’s get started.
If you cause an accident, Liability Insurance pays other people for the injuries and property damage you caused.
There is a limit to how much your insurance company will pay. To find out the limit of your liability insurance, go to the “Declarations Page” of your policy. That is the page that list the coverages, the limits of each coverage and, perhaps, the cost of each coverage.
The liability coverage may be stated in this format: bodily injury limit per person/bodily injury limit per accident/property damage limit.
Here’s an example: 100,000/300,000/25,000 (which may also be stated “100/300/25″). That means that you insurance company will pay anyone injured in an accident that you caused up to $100,000, will pay all persons injured in an accident as much as a total of $300,000 and will pay up to $25,000 for the other person’s property damage.
Alternatively, you may have a “single limit” policy of, say, $300,000. That means that your insurance company will pay up to the limit without per person limitations.
Personal Injury Protection Insurance
Personal Injury Protection Insurance is usually called PIP, which rhymes with “sip.”
PIP is required in these no-fault insurance states:
- New Jersey*
- New York
- North Dakota
The 3 states with asterisks are “choice states,” which means that you could have either fault (tort) insurance coverage or no-fault coverage, depending on what you chose when you purchased your insurance.
In these states which have fault car insurance systems, you can purchase “add-on no-fault” PIP coverage:
- New Hampshire
- South Dakota
PIP pays you and your passengers (and pedestrians) for your medical bills and (usually) your lost income – up to the policy limit, of course.
Each claimant can recover up to the policy limit. For example, if you have a PIP limit of $10,000 and you and 3 passengers are injured in an accident, you can each recover up to $10,000 for your covered losses.
Uninsured Motorists Insurance
Uninsured Motorists Insurance is commonly called “UM.”
UM pays you and your passengers if you are injured in an accident caused by a driver who did not have liability insurance. And, yes, there are a surprising number of motorists who do not have the liability insurance that the law of virtually every state requires!
UM also covers you if your accident was caused by a hit-and-run or “phantom driver” who cannot be identified.
In essence, your UM insurance acts as if it were the liability insurance of the at-fault driver. It pays you and your passengers for your injuries and losses, up to your policy limit.
The policy limit may be limited in the per person and per occurrence manner, or it may be a single limit.
Underinsured Motorists Insurance
Underinsured Motorists Insurance is commonly called “UIM.”
UIM pays you and your passengers if you are injured in an accident caused by a driver who has liability insurance but does not have enough liability insurance to fully compensate you for your injuries and losses.
Your UIM coverage pays the difference between the full amount that you are entitled to recover and the policy limit that you collected from the at-fault driver.
If you recover under your UM coverage, you may be able to also collect under your UIM coverage. This is called “stacking,” and it is allowed in some states but not in others.
Medical Payments Insurance
Medical Payments Insurance is often called Med-Pay.
Med-Pay is another no-fault coverage which pays you and your passengers, up to the policy limit, for medical expenses that result from an accident.
Whether this coverage is primary (pays first) or secondary (only pays after some other coverage is exhausted), who is covered and under what circumstances they are covered vary from state to state.
Collision Insurance pays you for damage done to your car in a collision. That includes a one car accident or an accident that you caused. In these situations, you can get your car repaired (or, if it was totaled, recover its actual cash value) through your collision coverage.
Collision coverage usually pays up to a maximum of the actual cash value (ACV) of your vehicle although some insurance companies offer a replacement cash value (RCV) coverage. RCV pays the cost of a comparable replacement vehicle, but that coverage costs more than ACV insurance.
Normally, collision coverages have a deductible amount. That means that some amount, typically $0 to $1,000, of your damages are not paid by your insurance company. You have to pay that amount. The larger your deductible, the less expensive the coverage; and vice versa.
If you are in an accident caused by another driver, and you have collision coverage, you will have a choice between having your vehicle repaired under your collision coverage or the at-fault driver’s liability insurance. There are pros and cons to each option, and I will discuss those in another article.
Comprehensive Insurance pays you for loss or damage to your vehicle resulting from something other than a collision. This includes such things as fire, theft, vandalism, flood or glass breakage.
Comprehensive coverage usually pays up to a maximum of the actual cash value (ACV) of your car although some insurance companies offer a replacement cash value (RCV) coverage. RCV pays the cost of a comparable replacement vehicle, but that coverage costs more than ACV insurance.
Normally, Comprehensive Insurance has a deductible amount, similar to Collision coverage. And, also as with Collision coverage, the larger the deductible, the cheaper the coverage. For a higher premium, many insurance companies offer comprehensive coverage with zero deductible on Safety Glass Breakage (windshields).
Towing Insurance covers you if you break your toe.
Nah, I was just making sure you are paying attention.
Towing Insurance covers you if your vehicle has to be towed. Most policies have a maximum amount that will be paid.
Rental Reimbursement Insurance
Rental Reimbursement Insurance applies if your vehicle is disabled because of a loss that is covered by your Collision Insurance or your Comprehensive Insurance.
Most Rental Reimbursement Insurance policies have a maximum amount that will be paid per day and a maximum total amount that will be paid per occurrence.
Most insurance companies will only offer Towing and Rental Reimbursement coverage if you have Collision and Comprehensive coverages with that same company.
There you have it. A plain English explanation of the most common insurance coverages. I hope it helps!