What Does My Auto Policy Actually Cover?

Although we are all required to have auto insurance coverage in most states throughout the country, that doesn’t necessarily mean that we understand what those coverages mean.  It is important that you understand what coverages are actually a part of your policy and what is likely to be covered in the event of an accident. This article will focus on the four main coverages that are a part of your property damage coverages, in other words damage to vehicles, fixed or personal property: liability coverage; collision coverage; comprehensive coverage; and rental coverage.

Liability Coverage

The one type of coverage afforded by every auto insurance policy is liability coverage.  Liability coverage applies to damage that you cause to another party’s vehicle or other types of property in cases where you are found liable, or at fault, for the accident. It also covers a rental vehicle for the other party in cases where their vehicle has to be repaired. It is a required coverage in almost every state, and you will only have the option of deciding how much coverage you add to your policy.  As of the date of this article, the lowest state minimum is $5000[1] and your coverage can go up from there, in some cases $500,000 or higher for personal auto insurance polices (commercial policies often have different options from personal auto policies).

Because liability coverage is the coverage that protects you financially in cases where you are found at fault for an accident (either partially or fully), it is an important coverage to consider. Keep in mind there is no deductible due from you for liability coverage so there will normally not be any out of pocket expense for you where this coverage is concerned.

If you cause damage that is beyond the amount of your coverage, there are instances where you would be personally responsible for any additional damage caused.  An example is where you are found at fault for an accident, cause approximately $10,000 in damage but your policy only covers the state minimum of $5000. Your insurance company would pay the $5000 covered by your policy.  Although there may be instances where you insurance company can negotiate a full settlement for the amount of your coverage (i.e. the claim is settled with any further money required from you out of pocket although your coverage didn’t cover the full amount of the other party’s claim), there are cases where you become personally liable for the differences.  This means that in the example above, you would owe $5000 to settle the claim.  If you are unable to make the full payment, then the claim is referred to a collections agency which will then make a payment plan with you directly and following up on amounts owed.

Collision Coverage

Although an optional coverage,[2] collision coverage is the most important coverage in terms of getting your own vehicle repaired in case of a collision.  This could be a collision with another vehicle or multiple vehicles or any sort of object like a pole or a fence.  Without this coverage, your insurance company will not cover repairs to your vehicle in the case of a collision.  You will normally choose a deductible amount you will pay out of pocket for every claim ranging from $50 to $1000 or more and your insurance company pays the amounts over that deductible for covered repairs. Note that collision coverage will cover repairs to your vehicle whether you are at fault for an accident or not and will top out covering your vehicle if it is declared a total loss.  

Comprehensive Coverage

Comprehensive coverage, also an optional coverage, covers your vehicle in cases where your vehicle is involved in certain non-collision situations. These include, floods & fires, flying objects impacting your vehicle, collisions with animals and other similar scenarios normally outlined in your policy. Similar to collision coverage, your comprehensive coverage will also have a deductible that you pay out of pocket with your insurance company paying for covered repairs above that deductible amount. Much like collision coverage, your comprehensive coverage will cover your vehicle up to the amount of a total loss.

Rental Coverage

Rental coverage applies where you have a covered claim and your vehicle is going into the shop for repairs.  It normally pairs with either your collision or comprehensive coverage depending on what type of claim you have. Each insurance company manages rental coverage differently, with some setting up direct billing with car rental companies and others reimbursing you once you have submitted your rental receipt.  Other options include a daily amount that is covered for your rental, for example $45 per day for 30 days, or a maximum amount of coverage, for example $1000.  With some insurance companies you also have the option to have the insurance cover a percentage of the rental, for example 80% while you pay the remaining 20% out of pocket. There are many different configurations and options available for this coverage, so you want to make sure you go over coverage with your insurance carefully so  you understand what coverage you actually have.

That being said, there are certain commonalities that will apply to rental coverage at most insurance companies.  First, insurance companies do not cover any additional insurance when you pick up a rental vehicle related to a claim. Check with your insurance company to confirm what coverage their provide with respect to your rental confirm what coverages you will have. Secondly, most rental companies will require a deposit in order for you to pick up a rental vehicle. This varies by insurance company and rental company but note that insurance companies do not cover this deposit.  You will have to cover this expense out of pocket in cases where you need a rental vehicle.

Conclusion

Although there are many other optional coverages available to personalize your policy, these four coverages are the main types you will see across most insurance companies.  As with most financial decisions, you should investigate each determining what coverages are best for you in your particular circumstances.

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This content is for educational purposes only and does not constitute legal or insurance advice.