Auto insurance is a contractual agreement between you and
your insurance company. To acquire an insurance policy, you must pay an what is
called a yearly “premium” to your insurance comp…

Auto insurance is a contractual agreement between you and
your insurance company. To acquire an insurance policy, you must pay an what is
called a yearly “premium” to your insurance company. In exchange for
the premium, the insurance company agrees to pay for certain types of financial
losses when you are involved in an auto accident while driving your car. These financial
losses include items such as property damage, medical coverage, and legal fees.

Driving without auto insurance is not only risky; it is
against the law. If you are caught driving without auto insurance, you may have
your license suspended, face severe fines, or – in the case of an auto accident,
you can potentially go to jail if your car is not properly insured at the time
of the accident. Car insurance is a necessary evil, and although we may get
frustrated with having to pay for it, the fact is we need it. Auto insurance is
a “cost of driving” that simply cannot be avoided.

The absolute minimum auto insurance coverage you are
required to carry varies from state to state. This minimum coverage is
generally referred to as “liability insurance”. This insurance covers
bodily injury and property damage.

When quoting or discussing liability insurance, there are
three numbers that are used to describe the policy limits. The first number
refers to bodily injury limits, the second refers to total medical liability coverage,
and the third number refers to property damage limits. For example, a 15/50/20
liability policy is defined as: fifteen thousand for personal medical liability per person, fifty thousand
maximum medical liability coverage, and twenty thousand maximum property damage
liability.

Bodily Injury Liability covers injuries that occur to you or
any other person involved in an accident when it has been determined that you
are the “at fault” driver. Typically, this also covers you while you
are driving another person’s car (with their permission of course) or when someone
else is driving your car (with your permission).

Property Damage Liability covers the cost of damage you
cause (or a person driving your car with your permission) to someone else’s
property in an accident when it has been determined that you are the “at
fault” driver. This refers to damage caused directly to someone else’s car
and also covers damage to city property (light posts, telephone poles, fences,
etc) and other structures such as houses, apartment buildings, etc.

The minimum liability limits set by your state are low. It
is highly recommended that you purchase a liability limit that is much higher
than the state minimum in case a third party sues you for amounts above and beyond
your insurance policy’s maximum coverage. Although purchasing your state’s
minimum liability insurance allows you to legally register and operate your
car, it is recommended that you acquire at least five times the minimum
liability limits set by your state. This helps protect your assets such as your
personal savings, your home equity, your personal property, etc. Depending on
your total assets, you may wish to purchase even higher liability limits. You should
check with a licensed insurance agent to determine the proper liability limits
for your insurance policy. He or she can help you determine limits based on
your assets and lifestyle.

Liability insurance can be costly for young drivers or
for drivers with a poor driving record (accidents, speeding tickets, etc.) When
acquiring insurance for a teenage driver or for someone with a poor driving
record, you should check with your state’s Department of Insurance. They might
have programs to help drivers purchase liability insurance at a discounted
rate. For example, at the time of this writing, the State of California’s Department of Insurance has a
low-income, liability insurance program that can be purchased for approximately
$400 per year.

Article Tags:
Auto Insurance, Insurance Company, Property Damage, Liability Insurance, Bodily Injury, Medical Liability, Minimum Liability, Liability Limits

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