Car Insurance and Auto Accidents - Are You Covered?

There are endless options when it comes to purchasing auto insurance. While insurance requirements vary from state to state, it is fair to say that in every area there are various levels of coverage available. Most states have laws outlining minimum amounts of insurance every driver must carry, but it is important to note that while minimum coverage may satisfy the letter of the law, it may not offer the degree of protection you need should you be involved in a serious bodily injury accident.

Liability Insurance - The Basics

As a matter of law, nearly every state requires motorists to carry some degree of liability insurance. States have determined that it is in the public interest to require insurance that will cover property damage and expenses related to personal injuries sustained by others if you cause an accident. Each policy carries its own set of limits, usually subject to state statutory minimum amounts. Often, the insurance coverage you purchase will provide for legal representation in the event you are sued, which could save you thousands of dollars. Another section of your policy will likely refer to bodily injury coverage, which will be used to pay for medical and other related expenses. Property damage coverage will cover expenses related to the repair or replacement of vehicles, or any other property damage (See Collision, below). Policies will also include coverage that pays for lost wages. Nearly every state requires motorists to carry at least a minimum amount of liability insurance. For more information, refer to your state’s insurance department.

Damage to Your Vehicle? Enter Collision Insurance

Irrespective of the party assigned car accident fault, collision coverage will more often than not cover any damage to your vehicle, once you pay a contractual deductible. Normally, your own insurance company will analyze the damage to your vehicle and decide whether to pay for repairs or deem the damage a “total loss,” meaning that instead of embarking upon extensive and expensive repairs, the insurance company will pay you the total value of your vehicle and scrap the damaged car. In some states, you can also file a claim with the insurance company of the other party or parties involved in the accident, and seek reimbursement from them. This usually requires you to file a claim with their insurance company, which may have the added benefit of bypassing your deductible. In the case of a total loss, it is important to note that you will likely receive the actual cash value (ACV) of your vehicle, as opposed to what you owe on or paid for the car. As a result, a total loss could result in you owing money on your car note with no car to show for it. People often assume that they will receive the replacement cost of their vehicle, meaning enough money to replace the vehicle with the same or similar type, without regard for depreciation. This is a rare occurrence, as insurance companies almost always account for depreciation (reduction in value as a result of wear and tear). Collision coverage is often very expensive. Often, choosing a policy with a higher deductible allows for a lower overall premium.

Comprehensive Insurance: Beyond the Accident

Comprehensive coverage covers losses not related to accidents. Examples include loss due to natural disasters, fire, theft and vandalism. Comprehensive coverage, like most types of auto policies, usually includes a deductible that you are responsible for. Furthermore, it is unlikely that comprehensive policies will pay out anything other than ACV or Kelley Blue Book value. Before you obtain comprehensive coverage, determine whether your car is worth the cost. If you drive an old vehicle or a vehicle with minimal value, comprehensive coverage may be a waste of money.

No-Fault, Personal Injury Protection (PIP) and Medical Coverage

Medical payments coverage is a type of policy designed to reimburse or pay outright any medical expenses you or a passenger may incur as a result of an accident, usually without regard to fault. This type of coverage is personal, and carries over regardless of whether you are driving your car or that of another. It also may cover any injuries you or a family member may sustain if injured by another’s vehicle as pedestrians. Keep in mind that medical payments coverage policies often have a requirement that you reimburse the insurance company in the event you receive payments from another source, including the offending driver or their insurance company.

Many people have health insurance that will cover the medical costs of a car accident. Do you need medical payments coverage if you carry private health insurance?  It depends. While PIP coverage and no-fault coverages can offer added protection, they may very well be redundant depending upon your health insurance. Keep in mind—some plans include coverage for childcare or lost income or wages. However, many states have mandatory insurance requirements that include PIP/no-fault coverage. Others give drivers the option. 

Uninsured/Underinsured Motorist Coverage

Uninsured/Underinsured coverage are either additional policy riders or separate insurance policies designed to provide coverage in the event your are involved in an auto accident with a motorist who is either uninsured or carries the state minimum amount of auto insurance. If you suffer catastrophic injuries in an auto accident, uninsured/underinsured coverage can provide for your continuing care in the event you exhaust the policy limits of the at-fault driver. Some states require this type of coverage, others don’t even require insurance companies to offer it.

Supplemental Insurance or Umbrella Policy

Umbrella policies—also known as supplemental insurance—are policies designed to cover everything that your regular policies do not. Usually added on to your regular coverage, supplemental insurance is available for things such as towing, car rental or other hidden expenses that may not be covered by your main auto insurance policy. The availability and necessity of this type of insurance varies from state to state.