What do auto insurance coverages mean?

What do auto insurance coverages mean?

Here is a tutorial for you to review before you purchase auto insurance.  It is a good idea to know how your choice of policy limits will affect your insurance coverage and your policy premiums. Generally, you want to choose the most coverage that you can afford.


Every auto policy has designated limits that you choose at the time of your application for auto insurance.  The limit you choose will be the maximum payout that the insurer will pay for on a loss or claim.  The higher the limit chosen, the more the premium will be.  You will have to assess your personal financial status with the risk you will take should you be in an accident. Let’s say you are in an accident and you have medical payment coverage of $10,000 in your policy.  The insurance company would pay your medical expenses up to this amount should you require treatment.  This is the maximum, and you would be personally responsible to come up with the balance in excess of the $10,000.

Ouch!  I’ve been in an accident…I have no money saved!

Before you purchase a policy, you want to make sure your personal finances are reviewed to make sure that if you do have an unfortunate accident, you are not put in a bad position financially. If you have a lot of money in the bank and would like to assume more risk, you can probably reduce your premium by selecting lower limits.  Most people are not fortunate enough to have a big bank roll, and would want to limit this risk.  This group would pay higher premiums with enhanced coverage.   You do not want to lay awake nights worried about not having enough money to pay the bills after an auto accident.  Review your personal situation to ensure you are covered properly.

HELP!  I don’t understand all these limits and choices!

So many people are in a hurry to purchase an auto policy, whether it’s their first or their 20th vehicle.  Sometimes there are mandatory limits; and sometimes you can choose what works best for you.  Some coverages are defined by State law.  Let us explain a few so that you will have a better understanding, and not feel blinded by limits and numbers thrown at you while you are hurrying to get your policy in force so that you can take that shiny new car home!

LIABILITY INSURANCE – Paying for damages and injuries YOU cause in an accident…

Every state sets minimum and maximum limits.  Most states require liability insurance.  You might be familiar with seeing this displayed as 3 numbers, i.e., 25/50/15.  These numbers represent the liability coverage that a particular state will mandate as the minimum limit that you mush have on your policy.  The first (25 in this example) means that an insurer will pay each person up to $25,000 for injury related expenses.  The second number (50 in this example) would represent the total amount your insurance company would pay ($50,000) toward the injury expenses per accident.  The last number (15 in this example) means that $15,000 is the maximum dollar amount payable for property damage for each accident.

It’s a good idea to familiarize yourself with your state minimum limits and know that if you are not comfortable with these minimum requirements, you should consider setting the limits higher.  As an example of how an accident loss can add up, let’s say you are out shopping for the holidays…it is slippery…you have to slam you brakes to avoid a dog, rear end an expensive car and swerve into an electronics store front.  Add it up…all these expenses can exceed your coverage limits, especially if you had chosen the state minimum coverage.  Seriously consider additional coverage for peace of mind.   


The more your car is worth the more it will cost you to recover from a loss. Comprehensive and collision insurance should be considered to recover your loss. When you add this coverage to your policy, your limits will be equal to the actual cash value (ACV) of your vehicle. This represents the most that each coverage can pay to replace your vehicle if you encounter a total loss.


It is an excellent idea to add Med Pay coverage to your policy to help pay for medical expenses you incur as a result of an accident. In New York, for example, some companies offer customers coverage limits between $500 and $10,000 per person, per incident.

Uninsured/underinsured motorist coverages

Some states require this insurance, some do not. Unfortunately, you have no control over the insurance, or lack thereof that others may carry. This insurance will give you financial protection from at-fault drivers who do not carry liability coverage. Premiums for this coverage are reasonable and are a smart choice for the savvy insured. You can also add some of these extra options to your policy at any time.

Do you have any custom “add-ons” that would be expensive to replace?

Some insurers offer special customized parts and equipment coverage that will pay to repair or replace those special custom wheels, stereo equipment etc.  Generally there is a limit on this feature and premiums are generally low.

Everyone is different…choose the features that work best for you!

As we have discussed, you want the peace of mind and financial protection that works best for you.  When you add additional coverage or options, your premium normally goes up.  You will see that many optional coverage packages provide great benefits at affordable premiums.  You are taking the personal financial risk out of the equation as you add more coverage.  Always ask you insurance representative what your options are, and make good, not rushed decisions in your efforts to protect yourself and your family.  

By Craig Bruno

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