What are Coverages and Limits in Auto Insurance

Apr 14, 2021
5 min read

What are Insurance Coverages?

Insurance coverage is protection and refers to the type of risk or liability that is covered for an individual in the event of an unforeseen occurrence. There are three types of coverages offered to drivers in the event that physical or property damage occurs: Liability, Comprehensive, and Collision.

What is liability coverage?

Liability coverage is protection for personal injury and property damage caused to the other vehicle in the event you are found at fault for an accident. In other words, this is your protection against any legal, medical or repair bills that the other driver might claim you are responsible for because you hit them. Liability coverage is mandatory and has minimums set by each State.

What is collision coverage?

Collision coverage is designed to help you pay for the cost of any repairs to your automobile if you’re hit by another vehicle or if you hit a vehicle or object and can be used whether you are at fault or not. Collision coverage has no limits and is equal to the cash cost of replacing your vehicle. Several damages are not covered under collision, which include theft, vandalism, floods, fire or hitting an animal. To protect yourself against these types of damages you can buy Comprehensive coverage.

What is comprehensive coverage?

Comprehensive coverage is an optional coverage you can purchase to protect your vehicle from any damages that may occur from all other reasons other than a collision. Comprehensive covers damages from theft, weather, vandalism or hitting an animal, has no limits and is equal to the cash cost of replacing your vehicle. 

Other types of coverages

What is uninsured/underinsured motorist coverage?

Uninsured or underinsured coverage is protection for you and the people in your car in the event that you are involved in an accident with a driver who is uninsured or underinsured and is found at fault. This type of coverage will pay for all medical bills, lost wages and pain and suffering caused by the accident in the case that the other driver’s insurance or lack of insurance cannot cover the expenses.

What is personal injury protection (PIP)?

Personal injury protection is designed to cover the healthcare cost of the policyholder(driver) and their passengers for injuries sustained in an automobile accident. PIP pays for the medical bills of the driver and the passengers regardless of fault(who caused the accident). Policies have minimum coverage amounts and a per-person maximum coverage limit.

What is full coverage?

Exactly how it sounds, full coverage includes liability, comprehensive and collision all in one policy and is usually required by your lender if you finance or lease. If you own the car outright you are not required to have full coverage but if you have a new car or one that still has notable value, full coverage may be worth extra investment to protect you against high costs after an accident.

What are Limits in Auto insurance?

Limits are the maximum cash amounts your insurer will pay per coverage type in the event of an accident. Each coverage type has its own specific limit that you can purchase less or more of with a certain minimum set by the state.

What are liability coverage limits?

As explained above, Liability covers you in the event you cause an accident that results in someone being injured or property being damaged. Similarly, limits are broken down into two parts: Bodily Injury and Property Damage and they usually appear in this format: 25/50/25. These numbers represent the limits that are covered per incident and are broken down as the following: bodily injury limit per person / bodily injury limit for total accident / property damage limit per accident.

For example, with liability coverage limits of 25/50/25 you are covered for a total of $25,000 of medical bills per person per incident, for a total of $50,000 per accident. In other words, if you get into an accident that you caused and the driver’s medical bills total $15,000 plus $15,000 for each of their two passengers, for a total of $45,000, you are under your limit and are fully covered. However, if there were three passengers in the vehicle, and each had $15,000 in medical bills for a total of $60,000 you would have to come out of pocket the extra $10,000.

What are collision & comprehensive coverage limits?

In many states collision minimum limits are low — just $5,000 or $10,000. A driver with only the state-required property damage limits wouldn’t have enough coverage to pay or replace a newer vehicle if totaled. So if your car is totaled in an accident that you had no fault for and the driver who caused the accident does not have enough liability insurance to pay to replace your vehicle then your collision coverage would kick in. The coverage limit is the cash value of your car or the cost to replace it.

Comprehensive is for any incident that causes damage to your vehicle that was not a result of a collision or fender-bender, such as, vandalism, theft, natural disaster or damage from fire or falling objects. In this case, you are not at fault but neither is anyone else and therefore there is no one liable for the damages. Comprehensive coverage is for these non-entity risks; has no limit and is equal to the cash value of replacing your vehicle.

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