Auto Insurance Coverage: The Basics

If you are about to purchase your first auto insurance policy or you haven’t bothered to read through the policy you have had for years, here is a guide to help you understand what all that insurance lingo means.  Policies typically offer two general categories of coverage, first party and third party.  First party coverage pays for damage to your car and injuries to you and your passengers.  Third party coverage pays for damage you cause to someone else’s car or other property, and injury to their body.  Sounds pretty easy, so far, right?  Let’s get into the specifics.

First Party Coverages

Your Car:
Collision
Collision coverage pays for damage to your car after an auto accident.  Most people carry a deductible, which means you, the insured, pay a portion of the repairs to your vehicle before the insurance kicks in.  The typical deductible is $100, $200, $500 or $1000.  The lower the deductible, the higher the premium. 

Comprehensive
Comprehensive coverage pays for damage to your car caused by something other than a collision, such as a cracked windshield, vandalism or storm damage.  It also covers you if your vehicle is stolen.  As with Collision, most of us carry a deductible, but Comprehensive deductibles are typically a bit lower, such as $50, $100, and $200. Again, the lower the deductible, the higher the premium.

Your Body:
Medical Payments
Medical Payments coverage pays your medical bills if you or your passengers are injured in an auto accident.  Your policy might refer to it as “Med Pay”.  Although there is no deductible for Med Pay, there is a limit which you select when you purchase the policy.  You may choose $1,000, $2,000, $5,000, $10,000, $25,000 or more per person.  This does not take the place of your health insurance and is available to you and your passengers regardless of fault.  The higher the limit, the higher the premium.

Uninsured Motorist/Underinsured Motorist
If you have an accident with a driver who is uninsured or has insufficient insurance, this coverage will protect you if that driver was at fault for the accident.  In essence, your insurance company steps in and takes the place of the other driver’s insurance company.  In most states, uninsured motorist/underinsured motorist coverage pays only for expenses related to your injuries, but some states include coverage for damage to your property, as well.  Many states have minimum limits of $15,000 per person, $30,000 per occurrence or $25,000 per person, $50,000 per occurrence.  These will be noted on your policy as 15/30 or 25/50.  Higher limits are recommended.

Third Party Coverages (Liability)*

Property Damage
If an accident was your fault, Property Damage coverage will pay for damage you cause to someone else’s car or other property up to the limits you select.  Typical Property Damage limits are $10,000, $25,000, $50,000 or $100,000 per occurrence.  The higher the limits, the higher the premium.

Bodily Injury
If you injure another person or persons in an accident which is your fault, your bodily injury coverage will pay for their medical care and related expenses, lost wages, plus additional money for their pain and suffering, up to the limits you select.  Typical Bodily Injury limits are 25/50, which means $25,000 per person and $50,000 per occurrence, 50/100 100/300, 500/500, 500/1 mil.  Most states have a required minimum level of liability insurance.  Again, the higher the limits, the higher the premium.

It is a good idea to become familiar with all of the different coverages and limits available before purchasing a policy.  If you already have a policy, spend a little time reviewing your coverage and determine if it is at the appropriate level for you.

*This information applies if you live in a state with fault-based auto insurance.  The states that currently have no-fault auto insurance are Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah.  The liability coverages set out in this article do not apply to these states.