WHAT IS AUTOMOBILE INSURANCE?
PURPOSE OF AUTOMOBILE INSURANCE
PERSONAL AUTO COVERAGE

AUTOMOBILE INSURANCE


WHAT IS AUTOMOBILE INSURANCE?

Auto insurance is one of the most important insurances that a consumer must think
about. It obviously falls under the category of property insurance, and one's automobile
is often the most expensive and necessary pieces of property that one owns.
It is estimated that there are between 40,000 & 50,000 deaths each year due to
automobile accidents. Then there are over 5 million additional injuries. These two
statistics stem from more than 30 million auto accidents each year. Then of course
there are the economic losses. This puts auto insurance in the # 1 position as the
largest form of Property & Casualty coverage.

PURPOSE OF AUTOMOBILE INSURANCE:

Personal auto insurance protects the insured and his or her family when operating or
riding in the automobile and covers any injury sustained in an auto accident.
• It pays for medical expenses and for lost work.
• Auto insurance protects the insured’s financial security in case of a lawsuit that
results from loss or injuries to other parties, following an accident involving a
member of the family, a friend or a relative that had been given permission, by
the insured or the insured’s spouse, to drive the car.

Important Points

• Most states now require proof of financial responsibility if one is involved in an
accident, ticketed, or renewing a license.
• Most states also require owners of automobiles to carry a minimum amount of
bodily injury and property damage liability insurance.

PERSONAL AUTO COVERAGE

The most common policy in force now is the personal auto policy. It breaks down the
insurance protection into four areas:
• Liability Coverage
• Medical Payments
• Uninsured Motorist Coverage
• Physical Damage to an Automobile

Liability Coverage

The liability portion of the auto insurance contract covers damages that the insured is
responsible for, by virtue of an accident. The policy will cover:
• The named insured
• Members of his or her family
• Any person using the covered auto

Automobile liability insurance is divided into two parts:

Bodily Injury Liability Insurance
The bodily injury liability insurance is in case the insured causes an accident in
which someone else is hurt or killed.
Property Damage Liability Insurance
The property damage liability insurance is if the insured damages someone
else’s property. Usually, of course, the damaged property is someone else’s car;
but other types of property like buildings, lampposts, garage doors, and others
are covered.
If the insured causes an accident which results in the death or injury of another,
monetary damages due to medical payments, lost wages, pain and suffering and
loss of consortium are covered.
One of the major decisions with regard to the purchase of insurance is the amount of
protection that you will buy. You may purchase insurance one of two ways: Single limit
and Split limit.

Important Points

• This coverage is mandatory in many states across the United States.
Each state sets the minimum amounts of coverage a vehicle should have
before it is allowed to operate on the road.
• The insurance company also agrees, in the policy, to defend the insured
individual in any litigation that results under the policy. But they also
reserve the right to settle any litigation without the insured’s permission.
Lawsuits are basically decided, not on the principle of who’s right, but
instead, are negotiated on the basis of dollars and cents.
Single Limit Coverage
The single limit coverage provides a one-limit of $400,000, $500,000, or
$600,000 protection for the insured for all bodily injury and property damage
losses suffered by the other party.

Split/ Dual Limit Coverage

A dual limit coverage provides a separate limit for bodily injury per person, a
separate limit for every bodily injury per accident, regardless of the number of
people injured or dead, and another limit for property damage in that accident.
The dual limits of $100,000 / $300,000 / $50,000 mean that the insurance
company will pay up to $100,000 to each injured, but no more than a total of
$300,000 to all injured people in that one accident. The insurance company will
also pay up to $50,000 for the repair or replacement of the other party’s property
damaged in that accident.

Important Point

In comparing benefit value of single and split limits, the circumstances of the
accident become very important. Also note that coverage is self-reinstating for
each accident.

PERSONAL AUTO COVERAGE:

Liability Exclusions

There are several liability exclusions that should be considered:
􀂃 Intentionally inflicted bodily injury or property damage is excluded. It
would be bad public policy to allow persons who deliberately cause
damage to be protected.
􀂃 Property owned by the insured, rented by the insured, or in the care and
custody of the insured is usually excluded, primarily because it ought to
be covered elsewhere (under a homeowner’s policy or under personal
property floaters).
􀂃 Business usage of the automobile is also usually excluded, including
renting the vehicle out for hire or in use by employees for business
reasons.
􀂃 The policy form excludes coverage for persons who use the car without
the belief that they were authorized to do so.
Medical Payments Coverage
Medical Payments Coverage pays hospital bills, doctors’ bills, funeral expenses and
other related medical cost to the insured or to family members following an auto
accident. It makes no difference if the accident was the insured’s fault or not, nor does it
matter whether the insured or the covered family members were struck while occupying
a vehicle or while walking, etc.
The policy’s basic unit of coverage is $1,000, but one can expand the coverage to
$10,000 for a reasonable premium increase. The policy covers:
􀂃 The insured and family members of the insured
􀂃 Injuries while occupying the covered auto, including getting into and out of
the car
􀂃 The insured and named family members while pedestrians
􀂃 Other persons while occupying the covered automobile
The exclusions are usually similar to the exclusions under the liability provisions,
especially auto for hire and autos operated without a reasonable belief that the user had
the authority.
Important Point
The additional benefit of medical coverage is that it provides coverage for funeral
expenses, which is not covered by health insurance provided either by employers
or through private coverage.