Car Insurance Coverage Options in Plain English
A plain-English look at different kinds of coverage, and how your claim might be affected.
Understanding the different types of car insurance coverage can be challenging. In this article, we'll break down your coverage options in plain English.
Liability insurance, which is required in virtually all states, pays other people for injuries and property damage which you have caused. Often, this car insurance coverage is listed on your policy's 'Declarations Page' something like this: "100/300/50." If there are 3 numbers, the first number represents the maximum pay-out per person for injuries that you cause, the second number is the maximum pay-out per occurrence (accident) and the last number is the maximum that your insurance company can be required to pay for property damage that you cause.
So, if you have 100/300/50 coverage and you cause an accident that injures 5 people, none of the five can be paid more than $100,000 and the total pay-outs for all 5 cannot exceed $300,000. Some insurance companies offer a single limit liability car insurance coverage. This means that the insurance company cannot be required to pay more than the limit per occurrence, but there are no per person limits. If you are obligated to pay more than the limit of your liability car insurance coverage, you are personally responsible for the amount that is not covered by insurance.
Personal Injury Protection (PIP)
PIP insurance is required in no-fault insurance states and is offered in many others (but not all). In the fault states where this coverage is offered, it is still a no-fault coverage, which means that it pays you and your passengers regardless of who caused the accident. PIP pays medical bills and (usually) lost income, up to the policy limit, for you and any of your passengers. Each person is entitled to recover up to the policy limit for each accident. Rules vary from state-to-state on the question of whether you have to repay your insurance company (called subrogation) for the PIP benefits that it paid if you recover damages from the driver who caused your accident.
Uninsured Motorist (UM)
UM insurance pays you if you are injured in a car accident caused by a driver who did not have (liability) car insurance coverage. Even though liability insurance is required virtually everywhere, you'd be amazed how many uninsured motorists are driving on our highways. UM coverage also applies if you are injured by a hit-and-run driver. Basically, UM coverage pays you the amount the other driver would have paid you had she been insured, up to your policy limit. In essence, your insurance company acts like it insured the other driver. It defends against the claim as it wold any other claim(and cuts you no slack even though you are its customer) and it pays whatever you are determined to be owed. UM coverage is usually expressed with a per person/per occurrence limit, such as 100/300, but some insurance companies offer a single limit policy. A single limit is the maximum amount that your insurance company can be required to pay, but there are no per person limits. Learn more about uninsured motorist coverage.
Underinsured Motorist (UIM)
UIM coverage pays you if you are injured in a car accident caused by a driver who does not have enough (liability) car insurance coverage to pay you fully for your injuries. Your UIM coverage pays the difference between the full amount that you are entitled to recover and the policy limit that you collected from the other driver. If you recover under your UM coverage, you may be able to also collect under your UIM coverage, too. This is called "stacking," and it is allowed in some states but not in others. In case you're wondering, the uninsured or underinsured motorist is not off the hook when your insurance company pays you. Your insurance company can go after that at-fault driver to recover the amount that it paid you. Get more information on underinsured motorist coverage.
Medical Payments (Med-Pay)
Medical payments coverage is also a form of no-fault car insurance coverage. It pays you, and your passengers, up to the policy limit, for medical expenses incurred as a result of an accident. Whether this car insurance coverage is primary (pays first) or secondary (pays after some other coverage is exhausted), whether your insurance company gets paid back if you recover from another driver (called subrogation), exactly who is covered and under what circumstances are all questions that vary from state-to-state and from insurance company to insurance company. You should get answers to these questions before you buy a policy.
Collision coverage pays you for vehicle damage resulting from a collision. For example, if you car is damaged in a one car accident, or in an accident you caused, collision car insurance coverage is what you use to have your vehicle repaired. If your car is damaged in a car accident that was caused by another driver, you have a choice: you can use your collision car insurance coverage to have your car repaired, or you can make a claim against the other driver's property damage liability coverage.
Collision coverage always has an amount, called the deductible, which is deducted from what you are entitled to recover. Collision car insurance coverage usually pays up to a maximum of the actual cash value (ACV) of your vehicle although some insurance companies offer a replacement cash value (RCV) coverage. RCV pays up to the cost of a comparable replacement vehicle, but that coverage costs more than ACV insurance.
Comprehensive coverage pays you for loss or damage to your vehicle resulting from something other than a collision, such as fire, theft, vandalism, flood or glass breakage. Comprehensive car insurance coverage always has a deductible amount. Comprehensive coverage usually pays up to a maximum of the actual cash value (ACV) of your car although some insurance companies offer a replacement cash value (RCV) coverage. RCV pays up to the cost of a comparable replacement vehicle, but that coverage costs more than ACV insurance. For a higher premium, most insurance companies offer comprehensive coverage with zero deductible on Safety Glass Breakage (windshields).
Towing insurance covers you for towing costs. Your policy will reimburse you, or may make a direct payment, for the cost of towing your vehicle from the place where it broke down to the nearest appropriate service facility. Most policies have a maximum amount that they will pay for towing claims. Most insurance companies will only offer Towing and Rental Reimbursement Coverage if you have Collision and Comprehensive coverages with that same company.
If your vehicle is disabled because of a loss that is covered under your Collision or Comprehensive coverages, Rental Reimbursement coverage will reimburse you for the cost of renting a temporary substitute vehicle while your insured vehicle is out of service. Most Rental Reimbursement coverages have a maximum amount that will be paid per day and a maximum amount that will be paid per occurrence, and these limits vary from company-to-company. If you exceed the limits, you pay.