Automobile Insurance (Personal)

This coverage has two parts. The first is the liability section of the policy. It covers your financial responsibility for injuring others and some coverage is required by most states.

The second part covers the car itself: comprehensive coverage reimburses losses from fire, theft or other perils; collision coverage pays to repair losses caused by an accident. Often this coverage is mandated by leasing companies or banks. There are also ancillary medical, car rental and other coverages which vary by state.

Utilizing high deductibles on the physical damage coverages can help reduce premiums. If you carry umbrella insurance, you must be sure that you carry the required amount of basic liability insurance to avoid a gap in coverage for a serious accident.

Frequently Asked Questions

What is no-fault insurance?

With no-fault insurance, the victims of an car accident are compensated by their own car insurance company, regardless of who caused the accident. This outcome is different from what occurs under the traditional tort system of compensating victims of an accident.

In the tort system, the party who is at fault is required to compensate the victims of the accident. The idea behind no-fault insurance is to keep small claims from being settled in our expensive legal system. To accomplish its purpose, no-fault insurance restricts the injured person’s right to sue the negligent driver in those instances where the loss falls below a certain threshold.

Two types of thresholds are typically used: verbal thresholds and dollar thresholds. A dollar threshold prescribes a dollar limit that a claim must reach before the injured party regains his or her tort rights, and therefore the ability to sue.

A verbal threshold uses a written description to determine when the injured person regains his or her tort rights. For example, a person might regain his or her tort rights when the accident caused a serious handicap, such as permanent loss of a bodily function.

Why is automobile insurance sometimes referred to as a “packaged policy?” What are the parts of the package?

Before the 1950s, if a person wanted to purchase all the coverage that the modern day automobile insurance policy provides, he or she would have had to purchase at least four separate policies. Changes in the laws that regulate the sale of insurance now allow the insurance industry to sell policies that combine the separate coverages into one all encompassing policy.

The main advantages of combining the various coverages are lower expenses, and therefore a lower cost to consumers, and the convenience of being able to purchase the property, automobile liability and other coverages in a single policy.

The standard private passenger automobile insurance policy can have up to four different coverages. Only the first coverage is standard – the remaining three coverages are optional.

Part A provides liability coverage that protects the insured from lawsuits arising from either the negligent operation or ownership of a covered automobile. There are two coverages provided in Part A – Bodily Injury Liability (BIL) and Property Damage Liability (PDL).

  1. BIL provides coverage for the bodily injury claims of people you negligently injure in an accident.
  2. PDL provides coverage for any third party property damage claims that the courts determine you are responsible to pay.

Part B provides medical payments to the policyowner and any other passengers in the car when there is an accident.

Part C provides uninsured motorist and underinsured motorist protection for the policyowner.

Both coverages are designed to compensate the injured policyowner when the negligent driver has an insufficient amount of liability insurance under his/her own policy. Typically, Part C covers only bodily injury losses, but property damage losses are included in some states.

Part D covers damages to your car when it is involved in an accident.

What is the difference between collision physical damage coverage and comprehensive physical damage coverage?

Both collision and comprehensive are Part D coverages.

Collision is defined as losses you incur when your automobile collides with another car or object. For example, if you hit a car in a parking lot, the damages to your car will be paid under your collision coverage.

Comprehensive provides coverage for most other direct physical damage losses you could incur. For example, damage to your car from a hailstorm will be covered under your comprehensive coverage.

It is important to know the differences between the collision and comprehensive coverages for a couple of reasons.

  • First, in order to make an informed purchasing decision about these optional coverages, you need to know the difference between them.
  • Second, the deductibles under the collision and comprehensive coverages are often different in amount.

Who is usually covered under an automobile insurance liability policy?

An automobile insurance liability policy usually covers the following people:

  • Named insured — the person or persons named in the policy, no matter what car they are driving
  • Spouse — even if the spouse of the named insured is not named on a policy, liability insurance almost always covers him or her, unless the couple does not live together
  • Other relative — anyone living in the household with the named insured related to the insured by blood, marriage or adoption, usually including a legal ward or foster child
  • Anyone driving the insured vehicle with permission — someone who steals the car is not covered

Why does the premium for my automobile insurance go up if I have an accident or if I get a ticket?

Actuaries and statisticians who have studied the claiming behavior of people involved in accidents have long known that people who have either had an accident or received a ticket recently are more likely to have another accident in the next couple of years than people whose recent driving record has been incident free.

Insurance companies use this information not to punish people who have had an accident, but to charge them the premium that most accurately reflects their likelihood of having an accident. People who are more likely to have accidents should reasonably be expected to pay higher premiums.

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