Car Insurance Coverage Terms and Definitions

Car Insurance Coverage Terms and Definitions

Car insurance coverage can be categorized into different types. If you are unsure what coverage is right for you, understanding some terms associated with car insurance will help you customize the best car insurance that will protect you and your family in case you will have an accident including the other people involved in the accident.

What is Liability coverage?

There are two types of liability coverage. These are Bodily Injury Liability and Property Damage Liability.

Bodily Injury Liability (BI)- This coverage will pay for bodily injuries or death if you are the at fault driver. This will also cover costs for your legal defense in the event that the other party involved will file for a lawsuit against you. This can be advantageous on your part since your other assets are protected especially if the jury rules out an amount that is beyond your capacity to pay. You avoid the risk of having to jeopardize your assets in case of a lawsuit. BI will not cover for you or the other people included in your policy. Obtaining such coverage is mandatory in most states. You are protected depending on the maximum amount per person stated in your policy. This means that you could still be in the risk of losing your other assets if you have selected a limit that is too low. If the jury rules out an amount that is higher than what is stated in your policy, then you will have to pay for the rest of the amount out from your own pocket. You might end up being force to liquidate your properties. Purchase a limit that will account for your current assets and your future net worth.

Property Damage Liability (PD)- This will cover for the damages inflicted on someone else’s property. This is usually the car of the other driver, but it can also cover for other properties like fences, houses or any property destroyed or damaged during the accident. The coverage will be limited according to the terms and conditions stated in the policy. The conditions of the limits are similar to that of bodily injury. Set the limit too low and you can find yourself facing a financial ruin.

Two Different Types of Physical Damage Coverage

Collision coverage– This will pay for the damage to your car when you hit another car or if you were hit by another vehicle. This will also have you covered if you bumped into an object which rendered your car damaged. This type of insurance can be expensive. To keep the costs down, choose a higher deductible since this can lower the rate of your premiums. Select only a deductible that you know you can really pay for in the future. If your car is old, you can drop this coverage altogether since the coverage is normally limited to the cash value of the car. This type of insurance is optional, but it is very much recommended to owners of high end vehicles.

What is the significance of the deductible? For example, you have a deductible of $500 and the total damage costs $800, you will have to pay for the $500 and the $300 will be handled by the insurance company.

Comprehensive Coverage– This will cover for damages as a result of other incidents other than collision. If your car was stolen, damaged by flood, vandalized by irresponsible people, damaged by animals, then you have the right to file for a claim. The principle on deductible is also applicable in this type of coverage. The limitations of the circumstances will be stated in the policy. There are companies that will charge extra for flood while others will not. Several factors will be taken into consideration to determine the rate of the coverage. You will notice that insurance companies charge higher rates to places that have high crime rates and risky weather conditions.

 

What is Underinsured/Uninsured Motorist Coverage?

This type of coverage can pay for injuries to you and your passengers and there are some locations that offer coverage for damages to your property. This coverage will come in handy if you are not the at fault driver while the other driver does not have insurance or does not have enough coverage to pay for the damages.

An uninsured driver can be a problem to deal with since he does not have any insurance including the mandated minimum requirement by the state. If you are a victim of a hit-and-run driver, the policy will also consider this as an uninsured motorist.

An under-insured motorist on the other hand may have met the minimum requirement for insurance, but his limits are not enough to cover for all the damages. Note that uninsured and under-insured motorist protections are separate, but they are usually purchased together in many states.