May 24, 2012
Courtesy epSos.de via Flickr
Where There are Cars, There are Accidents
by Annah Mackin
And accidents are why people buy car insurance. We’ll dive deeper into our discussion of insurance by talking about 3 important types of automobile insurance: liability, collision, and comprehensive insurance.
When driving, not only do you put yourself in danger of being hurt, but also you risk causing injury and damage to other people and other people’s property. For this reason, most states, including South Carolina, require licensed drivers and vehicle owners to buy liability insurance, which helps you pay for the following expenses:
- Bodily Injury: If you cause an accident that injures other people
- Damage: If you cause an accident that damages someone else’s property
- Uninsured/Underinsured Motorist: If you are injured or your car is damaged in an accident, and the driver who caused the accident does not have enough insurance to pay for the expenses
How does liability insurance work?
Your liability insurance policy will not pay for all of the damages, but instead pays for damages up to a fixed dollar amount you set when you buy the policy. This fixed dollar amount is the amount of coverage you’re buying, and it is called a liability limit. The more coverage you buy, or the higher your liability limit, the more expensive your monthly insurance premium will be.
Your policy will have 3 liability limits:
- how much the insurance company will pay for bodily injuries for each person hurt in the accident;
- how much the company will pay for total bodily injuries per accident; and
- how much the company will pay toward property damage per accident.
Your liability limits must meet your state’s minimum requirement. In South Carolina, the minimum liability limits are:
- $25,000 for bodily injuries per individual;
- $50,000 for bodily injuries per accident; and
- $25,000 for property damage per accident.
You frequently see liability limits written this way: 25/50/25. You can set your limits higher than the state minimum, but your monthly premium will be higher as a result.
But what do liability limits mean in real life?
Let’s say you set the limits in your policy to meet South Carolina’s minimum requirement, 25/50/25, and then you cause an accident that injures 3 people. Your insurance company will cover the bodily injury costs up to $25,000 for each person injured, but they will not pay more than $50,000 toward the total cost of bodily injuries. If each person injured files a claim for $25,000, your insurance company will only pay for the first $50,000. In this case, because the bodily injuries from the accident total more than $50,000, you are responsible for all costs beyond $50,000. Similarly, if the accident caused more than $25,000 worth of property damage, you are responsible for all costs about $25,000.
Collision and Comprehensive Insurance
To help pay for the expenses of damaging your own vehicle, you can buy collision and comprehensive insurance. Collision insurance pays for damages that result from your car hitting a tree, a pole, a wall, or another car. Comprehensive insurance pays for damages that result from anything other than a collision. With comprehensive insurance, the insurance company will help you repair or replace your car if it is stolen, vandalized, or damaged in a disaster, like a flood or fire. When you use comprehensive or collision insurance, you must pay a deductible, and the insurance company will pay the remainder of the damage costs. If your vehicle is totaled or damaged beyond repair, the insurance company will pay you the cash value of your vehicle.
The law does not require you to buy these policies, but, depending on your situation, they can be a good investment. If you rely on your car to get to work, what would you do if your car was totaled? Unless you can borrow or rent another vehicle, or use public transportation, collision and comprehensive insurance might be worth the money.
Bodily Injury: Injuries other people suffer as a result of an accident you caused
Collision Insurance: Covers damage expenses that result from a collision between your vehicle and another object
Comprehensive Insurance: Covers damage expenses that result from events other than collisions, such as theft, vandalism, and disasters
Liability Insurance: Covers damage and injury expenses that result from an accident you caused
Liability Limit: The dollar amount your insurance company will cover under your liability insurance policy
Property Damage: Damage to other people’s property that results from an accident you caused
Uninsured/Underinsured Motorist Coverage: Pays for injuries you suffer in an accident someone else causes, if that person does not have enough liability insurance