Understanding Your Car Insurance Policy

Every automobile insurance policy has a deductible, which is the amount you pay out of pocket when a claim is made under your insurance policy. Typically, you pay the deductible first, before your insurance company pays any money toward the claim.

The higher your deductible, the lower your car insurance premium will be, but if a claim arises, you will need to pay more up front. Conversely, if you have a low deductible, your car insurance premium will be higher, but you will pay less out of pocket if you have a claim.

Liability insurance coverage is mandatory in every state, but each state has its own minimum limits that must be maintained (see “Policy Limits” below). If you drive a car without car insurance, you could be subject to a number of legal penalties, including traffic tickets, fines, and suspension of your driver’s license, depending on your state.

Liability insurance covers damages or injuries sustained by another person as a result of an accident you cause (or an accident someone else driving your vehicle causes, if that person had your permission to drive the vehicle). Your liability insurance policy will include coverage for both property damage liability (for damages to another person’s vehicle or property) and bodily injury liability (for injuries sustained to another person).

Liability insurance does not cover damages to your own vehicle or property or injuries you sustain. Depending on your state, these damages may be covered by other aspects of your insurance policy, or, if another person is at fault for the accident, you may have to sue to recover for those damages from the other driver’s insurance company.

Collision coverage is the part of your automobile insurance policy that covers you for damage to your vehicle. This coverage will help you pay for damages to your car whether the damage or accident was due to your own fault or someone else’s fault. 

Collision coverage will pay for repairs to your vehicle no matter who was driving the car when the damage occurred. If your car is considered a total loss as a result of an accident, collision coverage will pay you the value of your car.

If you are in an accident and the driver of the other vehicle was at fault for the accident, your collision coverage from your insurance policy will pay for the repairs to your vehicle, and your insurance company may seek reimbursement from the other driver’s insurance company.

Collision coverage is not required by the government, but without collision coverage, you will have to pay for all repairs and damage to your vehicle yourself. If your car is leased, or if you have a car loan, the leasing or finance company will often require you to carry collision coverage. Notably, in many states, you cannot purchase collision coverage without comprehensive coverage.

Comprehensive coverage refers to coverage that covers your car if it is damaged from something other than a collision. For example, if your car is damaged in a fire or hailstorm, if a tree falls on it, or if it is stolen or vandalized, your comprehensive coverage would pay for it. Comprehensive coverage also covers damage to your vehicle if you hit an animal, such as a deer. Like collision, comprehensive coverage is not required, but your leasing or finance company will most likely require that you maintain this coverage on your car.

The policy limits on your car insurance policy establish the maximum amount your insurance company will pay out for damages to the vehicle or other property, or for injuries to you or others as the result of an accident with your vehicle. The different types of coverage included in your policy may have different limits. 

In addition, your policy will include a limit for bodily injury, both per person and per accident. The maximum amount that your insurance company will pay one person for their injuries as a result of an accident you cause is the “per person bodily injury limit,” but there is also a “per accident bodily injury limit” that will not be exceeded in each accident, regardless of the value of the individual injuries and the number of people injured.

For example, if you have a policy with bodily injury liability limits of $100,000 per person and $300,000 per accident, and you cause an accident in which five people are injured – two passengers in your vehicle and a driver, and two passengers in the other vehicle, your insurance company will pay a maximum of $300,000 to compensate all five injured parties, even if each injured person has sustained injuries worth more than $100,000.

Once your insurance policy limits have been exhausted, the injured parties may be able to come after you personally for additional compensation, potentially putting your home or other assets in jeopardy, so it is important to think carefully about the policy limits you choose to ensure that you have sufficient insurance coverage.

If your car insurance company has denied a valid claim or if you have questions about your insurance coverages, you can find a qualified insurance lawyer on Legal Services Link to discuss these issues with you.