What Does Car Insurance Cover? – Part 1


There can be several types of coverage included in your car insurance. Most people use the terms “Liability” and “Full Coverage” when talking about car insurance. Do you know all the types of coverage you have? Do you know what they mean? Can you believe that most people do not know what the coverages mean, and how it protects them?! It is important that you understand what they mean, so you have the appropriate coverage levels, and can be prepared when an accident does occur! Today we will break down the different coverages available in auto policies, and what they mean.

But first let’s talk about Deductibles vs. Premiums. Deductibles are the amount that you have to pay out of pocket at the time of a claim before the insurance kicks in. Premium is the annual, biannual, or monthly expenses you pay to the insurance company to keep you covered. As a general rule: the higher the deductible, the lower the premium; and vice versa. Keep in mind when choosing limits/premiums for your policy that your insurance company will pay up to the limits in your policy. If expenses go above those, then you are responsible for the remaining amount.

Let’s start with a scenario to help explain the coverages. Mr. and Mrs. Jones and their children Billy and Sally are driving to church on a Sunday morning. Then out of nowhere, Mr. Doe runs a stop sign, T-boning the family in the middle of the intersection. It has been determined that Mr. Doe is at fault in the accident.

 

Liability

When people use the term “Liability” in regards to car insurance, it would include Bodily Injury and Property Damage. Liability is expressed as three numbers (250/500/100).   Most people that want “Just Liability” have a vehicle that is not very valuable, such as older vehicles with higher miles. If you have a collision coverage (“full coverage”) deductible of $500 and your car is only worth $1000, you would have to pay $500 to get up to $500 back from your insurance company, essentially making it a wash. Most people in this scenario would just get liability to have protection for others and their property.

  • Bodily Injury

Bodily Injury pays for medical expenses of other people who are injured. In this example you would have $250,000 of Bodily Injury coverage for each person with a maximum of $500,000 per accident. In our scenario, Mr. Doe’s Bodily Injury coverage would pay for Sally’s broken arm, and Mr. Jones’ whiplash expenses.

  • Property Damage

Property Damage pays for repairs or replacement of other people’s cars or property. (signs, buildings, light posts, fences, etc.)  In this example you would have $100,000 of Property Damage coverage. In our scenario, Mr. Doe’s Property Damage coverage would pay to replace/fix the Jones Family’s car, as it has been damaged.

In addition to the above, Medical Payments and Uninsured/Underinsured Motorist are often included when someone says “Liability”.

  • Medical Payments

Medical payments covers any medical bills or funeral costs you or your passengers may have as a result of the car accident. These coverages are expressed similar to above. Medical Payments are expressed as an amount per person, for example: $10,000 each person. In our scenario, Mr. Doe’s Med Pay will cover his broken leg expenses that he incurred from the accident.

  • Uninsured/Underinsured Motorist

Uninsured/Underinsured Motorist covers up to your limits (for example $250,000 each person/$500,000 each accident) after the uninsured/underinsured motorist’s limits are reached for medical expenses.  In our scenario, the Jones’ medical bills exceed $100,000.  Mr. Doe only has state minimum requirements for his liability insurance! Luckily the Jones’ carry adequate insurance and their Underinsured Motorist coverage will help cover the bills!

Even though here at CWIA we make sure that our clients are adequately covered within their policies; other insurance agencies will not in order to get their clients the lowest premium possible! To comply with the law; currently state minimum coverages in Wisconsin are 25/50/10! In our opinion, that is not enough to keep you protected! Not to mention those drivers out there that don’t carry insurance! This is where Uninsured/Underinsured Motorist comes into play.

Come back next week, and we will go over the term “Full Coverage” and what it means for you!