What is Auto Insurance?
While it’s not necessary to have as much automobile insurance knowledge as an insurance agent, you should, at a minimum, understand the basic coverage options. Anyone that purchases automobile insurance likely purchases liability coverage. That’s because the laws in most states require that drivers provide proof of their ability to pay for damage they may cause in a motor vehicle accident. Most people satisfy this requirement with automobile insurance.
Liability coverage
Liability coverage protects you against claims for damage to other people and property in the event you’re determined at fault (liable) in an accident. If you’re not the driver of the insured vehicle, but a family member or someone that had your permission to use your vehicle is the at fault driver, your insurance company typically pays liability claims under those scenarios, too.
Commonly expressed as a sequence of three numbers, these numbers correspond to the maximum amounts your insurer will pay towards liability claims. Let’s use the numbers 25/50/15 as an example.
Bodily Injury liability
The first two numbers (in this example, 25 and 50) always corresponds to Bodily Injury (BI) liability. The third number (15) always corresponds to Property Damage (PD) liability. All numbers correspond to “thousand” as in $25,000/$50,000/$15,000.
Bodily injury liability covers things like medical bills, funeral expenses (in the event of death), pain and suffering, and lost wages suffered by other passengers in your vehicle, and other people involved in your at fault accident, including passengers and pedestrians. The first number in the sequence (25) indicates that your insurer will pay BI claims up to a limit of $25,000 per person, and $50,000 per accident (combined BI claims when multiple victims are involved).
Property Damage liability
Property damage liability covers the cost to repair or replace property damaged by your at fault accident. Other property includes, but is not limited to the other driver’s vehicle, guardrails, utility poles, buildings, glass storefronts, mailboxes, signs, etc. In the example, the insurer will pay a maximum of $15,000 towards claims for property damage.
How much coverage do you need?
The amount of auto insurance liability protection you need depends on several factors. Most states have laws regarding minimum liability limits, so you have to at least purchase these minimum amounts. But most people need more protection. How much more depends on your personal financial situation and also on how much coverage you can afford to purchase.
Other types of automobile insurance coverage are available, at an additional cost. Some of the other coverage is considered an optional purchase, and some of it is required under your state’s laws. Click here to learn your state’s requirements. If you finance or lease a car, your lender or lessor likely has automobile insurance requirements you’ll have to satisfy before your vehicle loan or lease will be approved.