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INSURANCE LIMITS AND WHAT THEY MEAN
If you are like most people, the numbers on your auto insurance declarations page are not going to make much sense. Many people just want to know how much coverage they have if they cause damage to someone else’s car or how much coverage they have if they damage their own car. But car insurance coverage can be more complicated than that because different types of coverage insure against different types of harms. Here, we will explain these different coverages and limits, giving examples of when they are most likely to come into play.
Bodily injury coverage applies when you have caused an injury to another person. California requires drivers to carry a $15,000/$30,000 policy. This coverage affords payments of up to $15,000 if a single person is injured and a total of $30,000 if more than one person is injured. “Injuries” include claims for medical bills and lost wages, but also pain and suffering.
When evaluating your insurance needs, bodily injury should be considered the area where you are most vulnerable. Even a low speed car collision can lead to a very large hospital bill. Where there is a large hospital bill, there is likely to be a large pain and suffering recovery. This is why insurance can give up to $1,000,000 policy limits for bodily injury. Not everyone will need that much, but if you own property or have assets, the higher coverage will not only protect your assets but will save you from the hassle of any legal proceedings required for the other party to obtain them.
These two numbers are the low and the high. Most people are going to best fit with a number somewhere between. Finding that number requires valuing your property, but it also requires placing a value on your sense of security. Higher limits will always come with a higher premium.
Property damage coverage is also required by law in California, but the minimum limit is much lower than bodily injury, at $5,000. This covers the damage done to another person’s car. Although less frequent, it also covers damage done to buildings or objects that you hit with your car.
In 2019, the average selling price of a used car in the United States was a little over $21,000.[i] Because you would remain liable for any costs of replacement that exceed the minimum coverage, it is likely in your interest to obtain coverage beyond the minimum. Property damage coverage can be as high as $100,000. Again, not every accident will lead to $100,000 in damage. But what you’re insuring for is not really the likelihood of damage done to another’s property, but the protection of your assets and a sense of security.
MED-PAY or PERSONAL INJURY PROTECTION (PIP)
Medical payments coverage (Med-Pay or Personal Injury Protection) will cover medical expenses for you and your family members no matter whose fault the accident was. Med-Pay coverage is particularly beneficial because it also affords coverage when you’re in another person’s vehicle, walking down the street, or even using public transit. Coverage is generally granted as long as a vehicle was involved in an accident.
Med-Pay coverage can range between $500 and $100,000 per person injured. Obtaining coverage is optional in California. But even those individuals with exceptional health insurance could stand to benefit from Med-Pay coverage. A low policy limit can be an affordable option to cover any medical insurance deductibles. Policies can also be used to cover any medical expense related to your injury, such as a chiropractor or massage therapist.
Collision coverage covers damage to your vehicle as a result of an accident. Coverage occurs whether you or the other driver are at fault, so even if the at-fault driver is uninsured your car can be repaired. This coverage is almost certainly required when you lease or purchase your car with a loan. It is not required by the state. Continuing collision coverage after a loan payoff can make sense when the car is of a high value, or where you wouldn’t be able to afford replacement were there to be an accident. If you can afford replacement, a good rule of thumb is to drop coverage when your yearly premium is 15% of the value of the car. Be sure to consider your deductible when calculating whether to keep or drop collision coverage.
Comprehensive coverage insures against damages to your car not resulting from a collision. It also insures against theft. As a sort of flip-side to collision coverage, it is almost always required when leasing or purchasing with a loan, and is not required by the state. Comprehensive coverage is usually more affordable than collision coverage, but applying the same principles discussed in collision coverage can still help you figure out whether or not you should keep it.
UNINSURED and UNDERINSURED MOTORIST
Uninsured and underinsured motorist (UIM) coverage protects you against drivers who fail to carry insurance or have insurance with premiums below the damage they caused in an accident. While comprehensive and collision coverage apply to damage done to your vehicle, UIM coverage applies to bodily injury incurred as a result of an accident, as well as damage done to your vehicle or property. Typically, premiums for UIM will be much lower than those for standard bodily injury and property damage.
As with bodily injury coverage, an injury you receive as a result of an accident can easily add up to hundreds of thousands of dollars. The average hospital bill as a result of a car accident is about $60,000. UIM policy limits can go up to $1,000,000. What happens if a defendant doesn’t have enough insurance?