Most states require that every registered vehicle carry some sort of auto insurance. But even if there were no such requirements, all drivers would be wise to think carefully about how much and what kind of insurance coverage they need. According to the U.S. Department of Transportation, 6.9 million vehicle crashes were reported to police in 2004. Before you buy insurance, learn about the basics so you get what you need.
If you are at fault in a car accident, liability insurance pays for the damages that you cause to someone else. It does not pay for your own damages. There are two kinds of liability insurance: bodily injury and property damage. Bodily injury expenses include medical bills, rehabilitation expenses, and lost wages. Property damage expenses include the repair or replacement of any items belonging to another person that you damage or destroy.
Liability insurance usually covers the following people:
- Named insured. This is the person or people named in the policy, no matter what car they are driving.
- Spouse. Even if the spouse of the named insured is not named on a policy, liability insurance almost always covers him or her, unless the couple does not live together.
- Other relative. This is anyone related to the insured by blood, marriage, or adoption and who also lives in the household. Usually legal wards and foster children are also covered.
- Anyone driving the insured vehicle with permission. Someone who steals the car is not covered.
The following vehicles are usually covered by liability insurance:
- Named vehicles. This includes vehicles listed on the insurance policy. An accident in a non-named vehicle is covered only if a named insured (see above) was driving.
- Added vehicles. This includes any vehicle that the named insured uses to replace the original named vehicle, and any additional vehicle that the named insured owns during the policy period (you may be required to notify the company of the new or different vehicle within 30 days after you acquire it).
- Temporary vehicles. A temporary vehicle is any vehicle, including a rental vehicle, that substitutes for an insured vehicle that is out of use because it needs repair or service or has been destroyed.
Collision insurance pays for property damage to your own vehicle resulting from a collision.
Comprehensive coverage pays for property damage to your vehicle resulting from anything other than a collision, such as theft, a break-in, or malicious mischief.
Uninsured Motorist Coverage
Uninsured or underinsured motorist (UM) coverage pays for your injuries if you are struck by a hit-and-run driver or by someone who does not have adequate insurance -- either because they have no coverage or because they do not have enough coverage to pay for your injuries. Normally, this type of coverage is limited to bodily injury and does not cover property damage to your vehicle. Vehicle damage would be covered by the collision coverage of your own policy.
No-Fault Automobile Insurance
Under no-fault coverage insurance, each person's own insurance company pays for his or her medical bills and lost wages -- up to a certain dollar amount -- regardless of who was at fault.
About half the states have some form of no-fault law, often referred to in policies as personal injury protection (PIP). The advantage of no-fault insurance is prompt payment of medical bills and lost wages without any arguments about who caused the accident. But most no-fault insurance provides extremely limited coverage:
- No-fault coverage pays benefits for medical bills and lost income only. It provides no compensation for pain and suffering, emotional distress, inconvenience, or lost opportunities.
- No-fault coverage does not pay for medical bills and lost income higher than the PIP limits of each person's policy. PIP benefits often fail to reimburse victims fully for medical bills and lost income.
- No-fault coverage often does not apply to vehicle damage; those claims are paid under the liability insurance of the person at fault or by your own collision insurance if you carry it.
All no-fault laws permit an injured driver to file a liability claim, and lawsuit if necessary, against another driver who was at fault in an accident. The liability claim lets an injured driver get compensated for medical and income losses above what the PIP benefits have paid, as well as compensation for pain and suffering and other general damages.
Whether and when you can file a liability claim for further damages against the person at fault in your accident depends on the no-fault law in your state. In some states, you can always file a liability claim for all damages in excess of your PIP benefits. In others, you must meet a monetary threshold, a serious injury threshold, or both, before you can file a liability claim.
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