Auto Insurance Explained in Simple Terms

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You probably know that the minimum auto insurance required by most states is liability insurance but do you actually understand what it is and the salient features of this particular type of insurance?

Liability insurance pays for your liabilities towards other drivers, or pedestrians, or even inanimate objects such as gates, fences, posts, and anything under the sun. It is so required by the state through the Department of Motor Vehicles because they want to make sure that innocent motorists or pedestrians, and just about everybody else, will be protected financially from errant drivers (just in case).

As with any insurance policy, there are limits to what liability insurance will pay for, and these are called liability limits. Liability limits vary from one policy to another, and it is a direct function of the premiums a policy holder pays for – the higher the premiums are, the higher the liability limits will be. There are three types of limits and every liability insurance policy is defined by these limits, and these limits will be expressed in a manner similar to these: 20/40/10. These numbers are the liability numbers, and they are meant to be read as multiples of thousands of dollars. The first number is the limit for bodily injury per person, and in this case, it is twenty thousand dollars. A car which you have collided into may have more than one passenger, including the driver, and $20,000 is the limit you have for their individual bodily injuries and these would normally be hospital bills and medications. The second number is the limit for bodily injury per accident and it can limit the first number sometimes. To make this clearer, let us assume that the car you have collided into has four passengers, including the driver. Now all four of them needed to be hospitalized and obviously you are accountable for all of them. You have a $20,000 limit for bodily injury per person and using this number, it would seem that you actually have $80,000 in total for bodily injuries for the four passengers of the car. However, the second number says that at any given time, you only have $40,000 maximum for all bodily injuries. So you have to wish that the four passengers of the car will only incur expenses no greater than $40,000 otherwise it will be your problem where to find the amount excessive of $40,000. The third and final number is less complicated and more straight-forward. It is the limit to what you can pay for property damages, and in this particular example, the property damages will refer to the damages made to the car. You have $10,000 to pay for the damages of the car, and this can not be converted to be used for bodily injuries.

Do not be ashamed to ask your local insurer about these many things and you can ask even more basic questions. Never, ever, sign anything you don’t completely understand and you should ask another person, preferably a lawyer, to read the contract you will sign before finalizing it. Insurance agents exist to make the insurance application process as easy as possible to potential buyers and it is also to their best interest that you understand their product better than the next insurance company. No one was born with built-in knowledge about auto insurance and feel free to ask anything you want, no matter how petty or silly it may seem. What would be really stupid is to end up with an auto insurance policy you don’t fully understand, and you will not even benefit from because you don’t know how to use it properly.

There is a good reason why auto insurance is required by the state, and you should believe that it is to everybody’s benefit that you follow this law. Again, the important thing is that you get something you understand, and something you are comfortable with.

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