Most people avoid so much as glancing at their auto insurance policy statements simply because the terminology employed by the auto insurance industry is so confusing, and who has the time to sit down and decipher it.
But simply trusting that all is well with the driver’s auto insurance can be a mistake that could cost the driver significant amounts of money. That’s why understanding auto insurance is not only important, it could also lead to monthly savings.
Understanding Auto Insurance: Areas of Coverage
Auto insurance is broken down into three overarching areas of coverage:
- Protection for the driver’s liability to others (liability coverage) when in an auto accident
- Protection for the driver’s property and passengers when in an auto accident
- Protection for the driver’s vehicle when in an auto accident, act of God, theft, or other circumstances
Understanding Auto Insurance: Liability Coverage
Liability simply means the driver’s legal obligation to pay for damages when at fault in an auto accident. The driver’s auto insurance pays up to the amount set by the driver as reflected in the auto insurance policy. Types of liability coverage include
- Bodily injury: pays medical expenses for the other driver’s injuries
- Property damage liability: pays expenses for the other driver’s car repair costs
Most states require liability coverage at minimum, which covers the driver’s legal responsibility to pay for medical expenses and damage done to other vehicles when at fault in an auto accident. Liability coverage cannot be eliminated, however it can be reduced to save the driver money on auto insurance.
Understanding Auto Insurance: Property and Passenger Coverage
Property and passenger coverage protects not simply the car and driver, but passengers as well in the event of an auto accident. Types of property and passenger coverage include
- Personal injury protection: pays medical, disability, or lost income expenses for driver and/or passengers regardless of fault
- Uninsured/underinsured motorist bodily injury: pays medical expenses for driver and/or passengers if injured by another driver with insufficient auto insurance or none at all
- Uninsured/underinsured motorist property damage: pays for damage to driver’s vehicle if another driver with insufficient auto insurance or none at all is at fault
- Medical payments: pays for medical expenses for driver and/or passengers regardless of fault
Understanding Auto Insurance: Vehicle Coverage
Vehicle coverage protects the vehicle itself in the event of fire, theft, broken windshields, damage from an auto accident, and damage from acts of God. Types of vehicle coverage include
- Collision: covers the cost to repair vehicle in the case of an auto accident regardless of fault (e.g., body work)
- Comprehensive: covers damage due to theft, fire, vandalism, hail, and acts of God
- Towing and labor: covers cost of towing if the vehicle is stranded
- Rental reimbursement: covers cost of rental car in the case that the driver’s vehicle is being repaired
For many drivers, auto insurance can be confusing, even intimidating. But taking the time to understand the underlying areas of auto insurance such as liability coverage, property and passenger coverage, and vehicle coverage can potentially save drivers money on their auto insurance rates.
See related articles, “ How to Reduce Auto Insurance Rates and Save,” "Understanding Auto Insurance Liability," and "Auto Insurance: Is Collision Coverage Necessary?"
Daniel Gansle - Daniel J. Gansle is the author of 2012: Day of Reckoning, graduate of Anthropological Studies and expert in ancient Mayan culture.
