Over the next few weeks, we’ll revisit our multi-part series on risk management and the basics of different insurance plans! Over the next two weeks, we’ll discuss auto insurance.
While we’ve all probably heard of car insurance, do we all know what it entails? Is it required by law? Does our policy cover the damage to our car in an accident? What if we crash into tree? Does it cover us for things like theft and vandalism? What about damage from wind or hail?
To begin answering some of these questions, let’s start by discussing automobile liability insurance. Liability insurance covers you for accidents you’re responsible for – it pays for the bodily injury and property damage to others caused by accidents that you’re at fault for, and is currently required by law in the majority of states. It is important to note that automobile liability insurance will not pay for bodily injuries suffered by yourself or property damage to your vehicle. If you want to cover your own car, you’ll need additional insurance, which we’ll discuss next week.
Liability insurance is often quoted as three number separated by slashes. The first number is the per-person bodily injury limit – the limit, in thousands of dollars, of how much your insurance will pay for a single person injured. The second numbered is the per-accident bodily injury limit. This is the limit of how much your insurance will pay in total for all persons who are injured in that accident. The last number is the maximum amount your insurance will pay for any property damage your accident causes.
Each state has its own requirement for minimum liability coverage. In Virginia, the minimum liability coverage for policy holders is 25/50/20. Virginia is also one of the few states where a driver can legally drive uninsured, if they pay an Uninsured Motor Vehicle Fee with the DMV. With that said, while having state minimum or even no insurance may be cheaper, it leaves the driver at a significant risk. Accidents can easily result in personal injuries above $25,000, or $50,000 for the entire accident, and a couple newer cars involved in the collision can easily double or triple the $20,000 property damage liability. Any injuries or damages above the liability limit becomes the responsibility of the driver at fault. For this reason, many experts recommended liability coverage of at least 100/300/100.
There also exists the risk that you’re in an accident caused by another person and they are either uninsured or underinsured. To cover yourself, you can also have uninsured or underinsured motorist insurance which can cover you, your passengers, and property damage loss that occurs as a result of another driver with insufficient insurance coverage. In fact, in the state of Virginia, policyholders are required to have a minimum of 25/50/20 uninsured and underinsured motorist coverage, and it’s often recommended to carry uninsured and underinsured motorist insurance at the same limits as your liability insurance.
Next week, we’ll return and wrap up our discussion on auto insurance.
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