Perhaps you are the parent or guardian of a new driver looking to purchase auto insurance. Or maybe you are a driver looking to change your auto insurance policy to provide more coverage. Whatever your situation, initially it can be a bit confusing trying to decipher the different parts of auto insurance and what you as the policyholder need to purchase to provide good protection. We offer a few general tips that may guide you towards your decision, possibly helping you see other options that you haven’t before considered.
State Law Requirement
Some new drivers may not realize that almost every state in our country requires — by law — that all drivers obtain and maintain an auto insurance policy. Failure to do so will result in consequences that may include pricy fines. Consequences also include the suspension of the vehicle’s registration and the suspension of the driver’s license, both of which will be reinstated by the owner by paying a hefty reinstatement fee. A repeat offender could find themselves being charged with time in jail simply for not maintaining auto insurance.
Each state specifically requires drivers to carry what’s known as financial responsibility, or the ability to pay for damages that may be caused by the driver. Because the most popular form of financial responsibility is auto insurance, each state has given specific requirements regarding what type of auto insurance coverage should be carried and the minimum dollar amount that should be purchased. Every Department of Transportation or Department of Motor Vehicles will be able to inform drivers of the state’s requirements.
These requirements revolve around bodily injury liability and property damage liability. Bodily injury liability is set on two factors: one, it is a coverage for the other driver and passenger’s bodily injuries as individuals that were sustained when you crashed into them; and two, it is a combined maximum amount for the total cost of bodily injuries. For instance, if an amount of $15,000 was purchased for bodily injury per person, and $30,000 per accident, the insurance company will pay up to $15,000 for the cost of the medical injuries of each person as a result of the accident. The combined cost for all injuries of the driver and passengers in the other vehicle cannot exceed $30,000, as this is the amount purchased.
Property damage liability is just as it sounds; it covers the cost of repairing the property that was damaged in your accident. This property can be another vehicle, a pole, fence, building, the traffic light pole, or any other structure you negligently ran into and subsequently damaged. If an amount of $10,000 was purchased, the insurance company would pay up to $10,000 to restore the damaged property to its original condition.
As with any recommended auto insurance coverage purchased, the insurer will only pay up to the specific amount purchased by the policyholder. Experts agree that many of the minimum requirements are not enough to pay for major accidents where a large amount of damage takes place. Medical bills and property repairs are becoming more expensive, and often the state required amounts do not rise with those costs. Policyholders should compare the minimum purchased amounts with current repair/medical bill costs and evaluate if they are carrying enough.
When the amount of repairs exceeds the amount of insurance, the policyholder is then left wondering how to pay the balance. As an example, a policyholder purchased $5,000 in property damage liability. The policyholder’s 17-year-old son was talking on his cell phone with the radio on and wasn’t paying attention to the child in the parking lot. To avoid a collision with the child, the 17-year-old swerved and ended up through the wall of the store. The total damage of the store was $17,000, which left the policyholder (and the son) financially responsible for $12,000 after the insurance paid for their $5,000.
Experts suggest carrying a policy of 100/300/100, or $100,000 for bodily injury liability per person, $300,000 for bodily injury per accident, and $100,000 for property damage liability, despite what the minimum state requirements are. And no, these coverage options do not apply to your vehicle or medical injuries. Other coverage options are needed for that.
Other Possible State Requirements
Beyond bodily injury and property damage liability coverage, some states also require the purchase of additional auto insurance coverage while other states leave the decision to the driver. Uninsured or underinsured motorist liability protects policyholders (and members of their policy) by agreeing to pay for — up to the purchased amount — any damages that occur to them from drivers with little or no auto insurance. Because those drivers do not have the financial means to pay for their own damages, the policyholder’s insurance can pay for those damages.
Another coverage that may be required by your state is personal injury protection. This coverage works much like a health insurance policy, where the medical bills of you and your passengers will be covered by the auto insurance company, up to the amount purchased. If this coverage is not required in your state, but you regularly drive a carpool, you may want to consider adding this coverage option to your policy as it provides compensation for your passengers.
Again, check with your state transportation or motor vehicle departments to know what coverage you need to have to be considered legal to operate a vehicle.
Drivers with Little to No Health Insurance
Drivers who do not have access to quality health insurance may want to consider personal injury protection (discussed above) or the option known as medical payments. Medical payments also covers the medical expenses of the policyholder and can be used in conjunction with health insurance or on its own.
Other Options
To be able to pay for your own vehicle’s damage you will need to purchase options like collision and comprehensive coverage. If you do not own your vehicle but are making payments, your loan or lease company will probably require you to purchase those options.
Conclusion
Basically, when choosing the type of coverage within an auto insurance policy, be thorough. Think of different situations you or members of your policy may encounter and evaluate the cost that would come from those mistakes. It’s understandably stressful to think of accident conditions, but more stress will come if those accidents happen without having adequate auto insurance.
