You got a new car—or a “new” used car. Now you have to figure out your car insurance. Here’s what you need to know about the most common types of auto coverage: liability and coverage for damage to your auto (comprehensive and collision). 

 

Liability Coverage – What is it?

If you cause an accident, you are liable (responsible) for damages. Liability coverage is used to pay for those damages that you caused. Importantly, it does not cover any damage to your own vehicle; that’s covered by collision. It also does not cover injury to you and your family; it only covers the people in the other car. Liability coverage is required by law in most states.

There are two types of liability coverage: 

    • Bodily injury coverage helps pay for medical expenses, lost wages, and pain and suffering for the driver and passengers in the other vehicle.
    • Property damage coverage helps pay for repairs for the other vehicle or for repair/replacement of property, such as a fence, damaged or destroyed in the collision. 

We say “helps pay” because it depends on how much coverage you choose. The costs of an accident can be more than your insurance policy limit.

 

You choose a coverage limit. 

Each state sets a minimum amount. The main goal of liability insurance is to protect your assets, and so you may choose a higher limit than the state specifies. You’ll want to take into account the amount of medical expenses that could be incurred in an accident. You could be responsible for lost wages for the driver. Even if he or she dies, you could be providing lost wages for the driver’s family.

 Your insurance will only pay for the amount that you’ve designated. The rest comes from your pocket. 

Example: Let’s say your liability limit is $50,000 per person. The driver of the car you hit has $40,000 in medical expenses. His passenger has $60,000. You would be responsible for paying $10,000 of medical costs for the passenger.

California Casualty offers a Package Discount where you may actually pay a bit less for carrying above state minimums and a discount if you carried 100/300 with your prior carrier.  It doesn’t always cost a lot to bump up your coverage.

Most auto policies have three liability limits: 

    • Bodily injury liability limit per person
    • Bodily injury liability limit per accident
    • Property damage liability limit per accident

Limits are usually listed as follows: 30/60/15 describing $30,000, $60,000, and $15,000 of coverage respectively for bodily injury per person, per accident, and property damage. Some insurers offer a combined single liability limit that covers both bodily injury and property damage.

 

Liability coverage can protect you in a lawsuit.

The driver of the other car may decide to sue you. If that’s the case, your home and savings could be at risk. Liability insurance could help protect these assets by covering the cost of the lawsuit, lawyer’s fees and court costs.

 

Collision Coverage – What is it?

Collision coverage helps to pay to repair your vehicle or get one of equivalent cash value if yours is totaled. This applies both to accidents with other drivers and collisions with objects such as a fence or mailbox. It also covers vehicle rollovers. Unlike liability insurance, collision coverage is not usually required—unless you’re leasing a car or paying off a loan on a vehicle. However, it may be good to have.

    • If you’re in a crash with another driver, and they were totally at fault, their property damage liability insurance will pay for your car’s repair or replacement. 
    • Your collision insurance kicks in if the other driver does not have enough property damage insurance—and if you don’t have underinsured (UI) or uninsured motorist (UIM) coverage. 
    • UI and UIM coverages are for injuries that you sustain if hit by an at-fault uninsured or underinsured motorist. You would either need to carry collision or uninsured motorist property damage (UMPD) coverage. This coverage often has a maximum limit (for example, $3,500).  Most people carry one or the other but not both.  
    • If you were at fault in an accident, your collision insurance will cover the costs of your repairs.

 

Your coverage limit is the value of your car. 

The maximum amount your insurance company will pay is the actual cash value of your car. If you total a used car, you’ll receive a total loss settlement that will go toward replacing your car. 

With collision coverage, you will have a deductible. This is the amount that you have to pay out-of-pocket before your insurance kicks in. Choosing a higher deductible is one way to lower your insurance premiums. In most cases, you can’t buy collision-only coverage; you have to buy comprehensive coverage, too.

 

Comprehensive Coverage – What is it?

Comprehensive coverage is for damage to your vehicle other than collisions. Therefore, it’s not for accidents. It is for natural disasters, fires, vandalism, theft, and animals that damage your vehicle. Think of it as “bad luck coverage.” Comprehensive coverage is not usually required unless you’re leasing a vehicle or paying a car loan.

 

As with collision, your coverage limit is the actual cash value of your car.

Comprehensive coverage pays as much as the total value of your car—but not more. It makes sense to cover a new car. If your car is old and has little value, you may opt not to have comprehensive coverage. Just make sure if you do, that you have the funds available to repair or replace your car. With comprehensive coverage, you usually have a deductible. California Casualty does offer a policy with a zero deductible. 

 

Do I really need comprehensive coverage?

Let’s say you have an old car, paid in full, that isn’t worth much. Car and Driver offers the following formula to determine If you need comprehensive insurance.

    • Calculate your vehicle’s value.
    • Subtract the deductible on your insurance policy.
    • Subtract the cost of a six-month policy for comprehensive coverage.
    • If you get a negative amount, it’s probably not worth it to continue to pay for this coverage.

 

Where you live may influence your decision.

If you live in a high-crime area, a wooded area with lots of deer, or a place with severe weather or flooding, you will want comprehensive insurance. It offers additional peace of mind for some likely scenarios.

Liability, collision, and comprehensive coverage are the main parts of a vehicle insurance policy. You can check the declarations page of your vehicle policy to see how much you are paying for each. For an overview of the car insurance you need, contact your insurance agent. 

 

 

This article is furnished by California Casualty, providing auto and home insurance to educators, law enforcement officers, firefighters, and nurses. Get a quote at 1.866.704.8614 or www.calcas.com.

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