Currently, car owners are required to carry 3rd party liability insurance in every state except New Hampshire. Without proof of liability coverage, your state will not allow you to register and tag your vehicle. Most states have stringent financial penalties if a vehicle owner is found to be driving without coverage or worse yet, have an at-fault accident without the minimum required 3rd party liability insurance.
The personal auto policy is designed to provide the various coverages you need in a package that contains mandatory and optional coverages. Knowing how each coverage can benefit you, the vehicle owner, is important so that you can reduce your risk of financial loss in the event of an accident, theft or even vandalism.
Bodily Injury Liability
Bodily Injury Liability is the 3rd party coverage that states require before they will register your vehicle or issue a tag. Each state has a mandatory minimum limit that may or may not be sufficient to protect you financially in the event of an at-fault accident. This coverage is intended to pay for injuries to a 3rd party (another driver, passenger or pedestrian) that you are liable for. Since this amount cannot be quantified in advance of an accident, it makes sense to purchase the highest limit that you can afford. Without the appropriate amount coverage, you can expect to pay out of pocket for 3rd party injuries you are liable for.
Property Damage Liability
Property Damage Liability is also a 3rd party coverage required in most states. This coverage pays to repair or replace the vehicle or property of a 3rd party that you are liable for in the event of an at-fault accident. Most consumers believe that purchasing limits high enough to cover the cost of replacing a vehicle are sufficient and rarely take into consideration that they could be liable for damage to more than one vehicle in an at-fault accident.
Typically, one of the most misunderstood coverages, medical payments coverage will pay medical expenses for the insured and passengers in the vehicle regardless of fault and can be one of the most inexpensive ways to reduce financial risk.
Uninsured Motorist Coverage
Recent report data from the Insurance Research Council indicates that about 14% of vehicle owners do not carry liability insurance. This is where Uninsured Motorist Coverage, although an optional coverage, becomes vital to every vehicle owner. Uninsured Motorist Coverage (UM) provides coverage for your injuries in the event that you are hit by an uninsured driver, an under-insured driver or a hit and run driver. Typically, UM will also pay damages for pain and suffering that is not covered under Bodily Injury Liability Coverage. Some states allow insurers to provide Uninsured Motorist Property Damage, which provides coverage for your vehicle under the same scenario.
Comprehensive (comp) coverage pays to repair or replace your vehicle when the damage is caused by an event other than a vehicle accident. Typical claims paid are for windshield damage, theft, vandalism or storm damage such as a tree falling on your car. Claims are paid subject to the deductible selected when the policy is purchased.
Collision coverage pays for repairs or replacement of your vehicle in the event of an at-fault accident or if your car is damaged in a hit and run accident. Although considered an optional coverage, most lenders will require this coverage if your vehicle is financed for the term of the loan. Claims are paid subject to the deductible selected.
Towing and Labor (Roadside Assistance) – Reimburses expenses for most any type of roadside assistance up to a limit selected.
Rental Reimbursement – Pays for rental expenses after an accident while your car is under repair subject to the per-day limit selected.
Gap Insurance – Pays the difference between the loan balance and actual cash value of a total loss vehicle.