5 Types of Coverage in an Auto Insurance Policy

Auto Insurance Policy

As auto insurance policies include various kinds of coverage, the protection provided by a particular policy depends on which kinds of coverage it contains.  Who, what and how much your auto policy covers all depend on the particular combination and the resulting differences between policies often result in outcomes policyholders neither expect nor want.

To ensure your auto policy has adequate protection, every policyholder living in Florida needs to understand the types of coverage included in an auto insurance policy.  Most people consider the proper measure of a policy, as “full coverage”.  This is hardly a technical term and can be used by unscrupulous insurance agents to obscure actual coverage. You need more than ambiguous lay terms to properly judge a policy.  Once you understand the following five kinds of coverage in auto insurance, you will be more confident when choosing your next auto policy.

Liability Insurance

Liability insurance covers injuries and damage that an insured driver inflicts on other people and their property in an accident.  Accordingly, this kind of coverage pays only when the policyholder causes an accident.  Although it can pay entirely for losses inflicted on other people, liability coverage pays nothing for typical losses incurred by the policyholder.  However, in some cases, a policyholder’s legal expenses may be covered.

All but a few states require drivers to maintain some minimum level of liability coverage. Although the amount of required coverage varies, the minimum level relates to the maximum benefits a policy can pay.  The declarations page in an auto policy lists these maximums, using either split limits or a single limit.

As their name implies, split-limit policies split benefits into separate maximums represented as a trio of numerical values in a policy.  The first value in the trio states the maximum benefit payable for injuries of a single person; the second, for injuries of all people combined; and the third, for damage to other people’s property.

As you might expect, a policy with a single limit has only a single limitation on benefits, all liabilities being paid from one pool.  Although split limits are often cheaper than a single limit, the savings result from a benefits partition that constraints insurer liabilities by shifting them onto policyholders. With split-limits coverage, the additional limitations provide additional chances to exceed a policy’s benefits.

Consider the following hypothetical policies: one with a $30,000 maximum benefit and another with three separate maximums of $10,000 each. At first, you might consider the policies equally valuable, but they differ significantly in practice. The one with the single benefit can, without issue, pay a qualified $30,000 liability; however, the one with three separate benefits can pay the total only when it is equally distributed across the separate maximums. If on the other hand, the liability relates to a single maximum, the policyholder has to pay the remaining $20,000.  Therefore, you should consider the additional risk of split limits before buying such a policy to save on your premium.

Medical Payments

Medical payments insurance covers medical and funerary expenses incurred by any occupant of an insured vehicle for up to three years following an accident, regardless of fault.  The primary insured and immediate family members are also covered if they are hit, as pedestrians, by a vehicle designed for use on public streets.  Additionally, this type of insurance also covers people transitioning into or out of the vehicle and/or people on its exterior.

Uninsured and Underinsured Motorists

In Florida specifically in Palm Beach County, there are a staggering number of uninsured motorists driving down I95 and the Turnpike every day.  Uninsured-motorists and underinsured-motorists insurance cover the cost of injuries incurred by you, the insured person when hit by one of these types of motorists.  This coverage applies to the primary insured, immediate family members, other occupants of the vehicle, and/or any other person owed damages resulting from a legal judgment.  “Uninsured motorists” refers to any liable person without insurance, any liable person fleeing an accident, and/or any liable person whose insurer becomes insolvent; and “underinsured motorists,” to any liable person with coverage insufficient to pay a claim.  This is a very important type of insurance you should pay very close attention to, as it can be difficult to understand.  Always consult with an experienced insurance agent like myself when you have questions.  It is better to be safe than sorry when it comes to having the appropriate auto insurance coverage.

Collision Coverage

Collision insurance covers damage to a policyholder’s vehicle in most normal collisions, regardless of fault.  In addition to the repair and/or replacement of the vehicles, peripheral costs such as those of towing and vehicle rental are sometimes covered.  It is important to note that collision coverage seldom applies to impacts with animals.

Although all collision policies can potentially replace a vehicle, they determine the maximum benefits using two different methods.  Policies using actual cash value determine benefits according to the cost of replacing an insured vehicle with a similar used vehicle; and policies using replacement cost value, determine benefits according to the cost of a similar new vehicle.  Because replacement cost value can pay a larger benefit, policies using this value are generally more expensive.

Comprehensive Coverage

Comprehensive insurance covers damage to a policyholder’s vehicle in cases other than collision including theft, vandalism, and/or the weather.  A policyholder can purchase comprehensive coverage only when collision coverage is also being purchased.  To protect their investments, financial institutions usually require both collision and comprehensive coverage on all financed and leased vehicles.  Like collision coverage, comprehensive coverage uses either actual cash value or replacement cost value to determine maximum benefits.

Conclusion

Auto insurance is a composite instrument consisting of various types of coverage, which I have reviewed above.  The composition of any person’s policy should accurately reflect that person’s actual needs.  Therefore, you should choose an auto insurance policy based not on how little it costs, but on how well it covers your exposure to loss.  If you need help assessing your true exposure, I strongly recommend consulting with an experienced licensed insurance agent.

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