Understanding Car Insurance - Minimums, Liability, Comprehensive, and Full Coverage

“Earth, wind, air, and fire.” “Emceeing, DJing, breaking, and graff.” “Liability, medical payments, uninsured motorists, and damage to your auto.” Somehow the four elements of car insurance don’t have the same ring to them as the four elements of hip-hop. Then again, maybe people would learn more about car insurance if there were a show like “Wild & Out” for insurance agents. I can see it now: Two insurance men take the stage and “battle” to give the judge the best rates. Surely, the essential thing for any freestyle insurance champion would be to understand the four elements, as outlined below.

Part A - Liability Coverage

The first and most important car insurance coverage is liability. Liability coverage protects the “insured” against lawsuits from people and property injured by his or her actions. For example, if you ran a red light and hit an old lady in a Cadillac, your liability coverage would pay for the lady’s bodily injuries, as well as the property damage to her Caddy.

There are normally “split limits” to liability coverage. For example, you could have liability coverage with a bodily injury limit of $100,000 / $300,000; and a property damage limit of $50,000. The $100,000 of bodily injury refers to the maximum amount payable to each person, and the $300,000 is for each accident. The property damage limit is for each accident. So, if the old lady with the Cadlliac had three passengers, and she and each of the passengers suffered $150,000 worth of damages, your car insurance company would only pay for the first $100,000 on three of the victims. You would be responsible for all of the rest.
Part B - Medical Payments Coverage

While liability coverage deals with other people, medical payments coverage is for you. It involves an agreement by the insurance company to pay medical, surgical, ambulance, hospital, nursing, and funeral expenses, up to a specified limit. Also unlike liability coverage, medical payments coverage protects the insured and his or her family members without regard to fault.

Part C - Uninsured Motorists Coverage

This coverage insures against losses caused by uninsured or unidentified motorists. For example, if instead it was the old lady who ran the light in her Caddy and hit you, and come to find out, Grandma was uninsured and living on Social Security, uninsured motorists (UM) coverage would be necessary in order to collect damages from your own insurance. UM also protects you against the Halle Berrys of the world who cause an accident and flee the scene of the crime. If hit-and-run perps are never identified, who can you hold accountable? No one. Which is why UM coverage kicks in.

Part D - Coverage for Damage to Your Automobile

This is the coverage that protects you against damages sustained to your own car. It is split into two categories: Collision coverage, and other-than-collision coverage (also known as “OTC” or “comprehensive” coverage). Obviously, collision coverage insures against collisions (duh!). OTC covers loss due to fire, theft, explosion, earthquake, flood, vandalism, and animal accidents (which are literally “collisions,” but not in the world of insurance).

Epilogue - You’d Better Shop Around!

Far too many people fail to view car insurance as a financial product, and instead, view it simply as something that they have to have, by law. People with this view are essentially throwing their premium dollars out the window. Since you have to have car insurance, why not insist on the best value for your money? Not having enough coverage is one sin, but having too much (or the wrong kinds) is almost equally bad. The best thing you can do to ensure you’re getting value for your monthly premiums is to shop around, and with the internet, it has never been easier. Get informed on the ins-and-outs of car insurance terminology and decide on what types of coverages (and what limits) make sense for you. A small investment of time and energy can save you thousands of dollars over the course of a lifetime.