Automobile and Motorcycle Insurance FAQ
Answers to frequently asked questions about car insurance.

What is liability insurance?
If you are at fault in a car accident, liability insurance pays for the damages that you cause to someone else. It does not pay for your own damages. There are two kinds of liability insurance: bodily injury and property damage. Bodily injury expenses include medical bills, rehabilitation expenses, and lost wages. Property damage expenses include the repair or replacement of any items belonging to another person that you damage or destroy.

Every state except Mississippi, New Hampshire, Tennessee and Wisconsin requires some level of liability coverage. To find out what your state requires, you can check with your state department of insurance, or you can refer to http://www.insure.com/auto/. There you can find information about minimum coverage requirements, along with links to websites maintained by each state's department of insurance.

Who is usually covered by automobile liability insurance?
Liability insurance usually covers the following people:
 

Which vehicles are normally covered under an auto insurance liability policy?
  What is uninsured or underinsured motorist coverage?
Uninsured or underinsured motorist coverage (UM coverage) pays for your injuries if you are struck by a hit-and-run driver or by someone who does not have adequate insurance -- either because they have no coverage or because they do not have enough coverage -- to pay for your injuries. Normally, this type of coverage is limited to bodily injury, and it will not pay for damage to your vehicle or for other types of property damage. To get that kind of coverage, you will have to add collision coverage to your policy.

Who is usually included in my uninsured/underinsured motorist coverage?

Most UM coverage will pay up to your policy's UM limits for injuries caused to:

What are the limits on my ability to collect under an uninsured/underinsured motorist provision?
UM coverage usually limits your ability to collect -- and the amount you receive -- as follows: What is collision coverage?
Collision coverage will pay for the repairs to your own vehicle if you are the one who is at fault in the accident. (Ideally, if the other party is at fault in the accident, their property damage liability insurance will pay for the repairs to your car.) Collision coverage is usually the most expensive type of auto insurance. Before choosing this kind of coverage, assess the value of your car to make sure it is worth the amount you will be paying in premiums. The insurance company will usually give you only the actual cash value of your car and not the amount that you will have to spend to replace your car. If you have an older car that does not have a very high actual value, it will probably not be worth it for you to carry this kind of coverage.

What is comprehensive coverage?
Comprehensive coverage pays for damage to your car that was caused by events other than a car accident. Covered events can include theft, fire, vandalism, natural disasters -- even hitting a deer. Comprehensive coverage, like collision coverage, usually insures only the actual value of your car and not the replacement value. Before choosing this kind of coverage, check the value of your car. If your car has an extremely low value, paying the high premiums of comprehensive coverage may not be the most fiscally responsible thing to do. You'd be better off taking that money and putting it into a savings account or mutual fund in case of car problems.

How do I determine the actual value of my car?
The actual value of your car is the amount that your car was worth at the time that it was damaged or destroyed. Unless your car is brand new or a collector's item, this value is usually less than the replacement value -- that is, what it would cost to repair damages to your vehicle with materials of similar kind and quality. You can find the actual value of your car by going to a library or bookstore and referring to a Kelley Blue Book. You can also find the value online at the Kelley website at http://www.kbb.com.

What is no-fault automobile insurance?
About half the states have some form of no-fault law that requires drivers to carry insurance that will pay for their medical bills and lost wages -- up to certain dollar amounts -- regardless of who was at fault in an accident. The intent of no-fault laws is to eliminate injury liability claims and lawsuits in small accidents. The advantage of no-fault insurance is prompt payment of medical bills and lost wages without any arguments about who caused the accident. But most no-fault insurance -- which is often referred to in policies as Personal Injury Protection (PIP) -- provides extremely limited coverage:

To find out whether your state is a no-fault state, you can check with your state department of insurance, or you can refer to http://www.insure.com/auto/, which has state-by-state explanations of insurance requirements in addition to links to websites maintained by each state's department of insurance.

When No-Fault Benefits Aren't Enough
All no-fault laws permit an injured driver to file a liability claim, and lawsuit if necessary, against another driver who was at fault in an accident. The liability claim permits an injured driver to obtain compensation for medical and income losses above what the PIP benefits have paid, as well as compensation for pain, suffering and other general damages.

Whether and when you can file a liability claim for further damages against the person at fault in your accident depends on the specifics of the no-fault law in your state. Some states have "add-on" no-fault laws that put no restrictions on your right to file a liability claim in addition to your PIP claim. In these states, you can always file a liability claim against the person at fault for all damages in excess of your PIP benefits.

Other no-fault states have different types of thresholds that an injured person must reach before being permitted to file a claim for full compensation against those at fault for an accident. Some states have a monetary threshold only, some a serious injury threshold only, and still others have both. States with both requirements permit a liability claim if an injured person meets either one.

My auto insurance rates seem to keep going up. How can I cut some of the cost?
Here are a few suggestions for ways to reduce your premiums: