QuestionI extremely appreciate the lengthy response. i just have a few more questions for you.
you said:
"Let's say you rear end a $20,000 Honda which is totaled when it is pushed into a Toyota that ends up with $6,000 worth of damage after it is pushed into a Chevy that ends up needing a $1600 rear end repair. That $25,000 may seem like protection on paper, but now you're personally on the hook for $7,600. That number is low enough that those third parties will pursue you until every cent is collected. This happens every day."
you mean i am on the hook for $2600? my insurance paid all of them the max of $25,000 of my policy and i am responsible for the remaining balance. where did $7600 come from?
you said:
"Some companies may offer a lower deductible for a higher premium and vice versa."
and that's on a per accident basis?
but i still dont understand why you have to pay a deductible, to reduce fraud? so if i crash my car the insurance may think i did it on purpose and then they would have to pay for the whole thing? so a deductible forces me to pay for some of it?
i also got an insurance quote, it said this:
"This section covers damage to your vehicle due to a collision or upset which exceeds the amount of the deductible you have chosen."
so if i have collision insurance, and i chose the deductible amount of $300, and i crash my car and it costs $1000 to fix, i pay $300 and my insurance pays $700?
but how could i have a fixed deductible amount when earlier you said it's on a per accident basis.
i am confused!
thank you for your help!
sk
Answer -
Great questions SK!
Time for a little auto insurance 101
There are three "parties" that are referred to in insurance language. The first party is the person who purchases and pays for the insurance policy. The second party is the insurance company and the third party is any party that makes a liability claim against you and/or your insurance company.
I will discuss the type of insurance programs that are used in my state, which utilizes traditional insurance.
Liability insurance covers your (the first party) financial responsibility for non-intentional acts that damage a third party, up to the policy dollar limits that you have purchased. The key phrase here is "up to". If you have a 2 million dollar liability policy, that full amount would only be awarded if you actually caused that much damage to the third party. This type of award would generally be limited to a fatality involving a DUI as generally, it is only "punitive damages" that would reach into such numbers. A DUI is one of the rare circumstances in which punitive are allowed in an accident award.
Most auto accidents where third parties are injured result in "actual damages", ie. medical bills, wages, loss of consortium (I'll let you look that one up for kicks)etc, in addition to "pain and suffering" which is a very subjective figure that varies from jury to jury and state to state. Now, if a first party did cause permanent damage or a fatality involving, say, a person who earns a six figure salary, then a claim could reach into those high numbers that you mentioned.
This rarely happens though for two reasons. First, most auto insurers do not offer coverage that high and second, most claimants (the third party) will agree to the existing policy limits to avoid a trial that would only result in a larger award that the first party would never be able to pay. However, policy limits offers are still usually reserved for high exposure losses such as a DUI causing serious injury or death.
Liability insurance is also what covers the damage to a third party's property up to the policy's property liability limits. If you carry $25,000 in property damage liability insurance (often the state minimum), then your insurer will pay up to that amount per loss. That is a total so if you run into a new $65,000 Lexus and it's totaled, that Lexus owner (or his insurance company) can pursue you personally for the other $40,000. That particular scenario doesn't happen that often but what does is the policy limit being exhausted in a multi-car collision. Let's say you rear end a $20,000 Honda which is totaled when it is pushed into a Toyota that ends up with $6,000 worth of damage after it is pushed into a Chevy that ends up needing a $1600 rear end repair. That $25,000 may seem like protection on paper, but now you're personally on the hook for $7,600. That number is low enough that those third parties will pursue you until every cent is collected. This happens every day.
AnswerYou wrote
you mean i am on the hook for $2600? my insurance paid all of them the max of $25,000 of my policy and i am responsible for the remaining balance. where did $7600 come from?
That was a typo. I meant $2600
You wrote
but i still dont understand why you have to pay a deductible, to reduce fraud? so if i crash my car the insurance may think i did it on purpose and then they would have to pay for the whole thing? so a deductible forces me to pay for some of it?
Auto insurance is designed to cover the losses that one could not cover on their own.
If not for deductibles, car owners could literally claim every single dent, scratch, tear, chip etc. as they occur which is really just wear and tear. The insurance companies would go from insuring risk to the auto restoration business overnight and all of our premiums would likely quadruple. Same thing with any other type of insurance. Deductibles keep rates from being higher.
They have nothing to do with fault. We pay deductibles on health insurance, right? It may not necessarily be your fault for getting sick, but you still pay a deductible.
If a tornado destroys your house, you'll still pay a deductible though no one can cause a tornado.
All auto and home policies that I'm aware of have a deductible on a per occurrence basis and the amount of that deductible is decided when the policy is purchased. The deducible do not generally apply on liability claims so if you damage another person or their property (only), you will not pay a deductible. Some commercial liability policies do require the insured to pay a deductible but that's another discussion.
Sorry it took me so long to get back to this one.
