When I first meet a client who have been injured through no fault of their own, one of my first questions is: "How much insurance do you have?" Most clients answer, "I have full coverage." However, when we review their declaration page and policy, the clients are surprised to learn that they have minimal insurance coverage on their vehicles. The confusion comes from a misunderstanding of what the terms "full coverage", liability coverage and "amount of coverage" actually mean.
The situation becomes more difficult when we learn that the person that injured the client either doesn't have insurance or doesn't have enough insurance. The high cost of new automobiles, automobile repair work and health care often means the minimal limit required under the Commonwealth of Virginia laws ($25,000/$50,000/$20,000) is not enough money to cover the clients' damages and pain and suffering.1
Although you can never be certain that a driver who injures you will have insurance or enough insurance, your ability to buy additional uninsured (UM) and underinsured (UIM) motorist coverage gives you control over your own financial security. The amount of UM/UIM coverage you purchase will equal the amount of liability coverage unless you specifically request a lower amount.
UM/UIM coverage protects you in the event you are injured by a driver who does not have insurance, a driver with liability coverage less than your total uninsured motorist coverage, a driver whose liability limits are not enough to cover your losses or a John Doe (hit-and-run unknown driver). If you can afford more than the minimum required limits, you should buy more insurance to protect yourself against others you may injure or those that may injure you.
Liability Only Car Insurance
Within the auto insurance field, the terms "full coverage", liability coverage and "amount of coverage" mean different things and there are many levels between "full coverage" and "liability only". Automobile insurance can best understood by first fully comprehending the differences between "full coverage" and liability only coverage.
Liability coverage is insurance that covers damage you cause to other people and their property. As suggested above, it may be wise to carry coverage in excess of the minimum limits. For example, if in Virginia you were in an accident that caused $100,000 in bodily injury damages to another motorist, your insurance would only cover the first $25,000. For the other $75,000 the injured motorist could come after you personally! But we often see the flip side - if you were injured person with over $100,000 in bodily injury damages and the motorist who caused the accident only had a 25/50/25 policy; if you also had minimum limits you would not be fully compensated for your loss because you could only get the $25,000 limit from the at fault motorist's insurance company. However if you had a $100,000 UM/UIM policy, you could collect $75,000 from your insurance company for your damages; or if you had $50,000 a UM/UIM policy, you could collect $50, 000 from your insurance company.2
In Virginia, the required minimum insurance limits by law are liability coverage for bodily injury or death of one person in the amount of $25,000; bodily injury or death of two or more persons of $50,000; and property damage coverage of $20,000.3 When referring to liability limits, the insurance industry uses an abbreviation that can be confusing. The required minimum limits are designed as $25,000 / $50,000 / $20,000 or 25/50/20; these designations refer to the maximum amount that an insurance company will pay out under the three basic liability coverages. Some policies have a single limit of liability where some insurance companies sell a policy that covers bodily injury liability per person, bodily injury liability per accident, and property damage liability but does not have separate limits. The single limit must be at least $70,000 to satisfy the financial responsibility laws although limits up to $1,000,000 can be purchased. This limit of liability applies to all bodily injury and property damage liability losses that occur as a result of any one accident for which the insured is legally liable. Full Coverage
The term "full coverage" can be misleading because there are a number of optional coverages - in addition to liability coverage - that you can buy. Generally "full coverage" includes collision coverage and comprehensive coverage. Collision coverage is an optional add-on to comprehensive - although it isn't optional if you still owe money on your car because the finance company or bank usually requires this coverage. Collision coverage can be a required part of your car insurance coverage if your vehicle is financed or leased.
Finance companies require borrowers to carry full car insurance coverage on their vehicles- collision and comprehensive - because they want to be assured that if the car is damaged or destroyed, they can recover their money back. Comprehensive insurance coverage help pays for damage to your vehicle not covered by collision. Examples include damage or loss due to theft, vandalism, falling objects, fire, storms, flood, and certain other natural disasters. Collision coverage helps pay for damage to your vehicle if you hit another vehicle, another vehicle hits you, or your vehicle rolls over. The insurance companies confuse the issue by including accidents with animals as part of comprehensive coverage, rather than collision.4
Uninsured or underinsured motorist coverage helps pay for damage to you and your vehicle if there is injury and property damage in an accident caused by an uninsured, underinsured, or unidentified driver.
Medical expense benefits pay for medical costs for you and your passengers in the event of an accident regardless of who is at fault.
Loss of income due to injuries from an automobile accident is important if you do not already have some short term or long term disability benefits.
Rental car reimbursement pays for rental car and other transportation such as a bus or subway if you car cannot be driven due to an at-fault accident or comprehensive claim.
Towing and labor reimburse for towing and roadside assistance charges if a vehicle with car insurance coverage is disabled. Typical services include battery jump starting, tire changing, and locksmith services.
How Much $$$ Should You Spend
So having "full coverage" may not be the same as having an amount of coverage which covers your potential risk. The amount of coverage you need is correlated to the amount of assets you have and the amount of money that you can afford to pay for coverage. But higher limits of coverage also protect you in case the driver who injures you does not have sufficient coverage to compensate you for your injuries and losses, because you can use your underinsured coverage when that happens. The key is to decide how much you can pay in the event of an accident without causing financial hardship.
If you do not have insurance, anything of value that you own including your home, savings, future wages and other assets, may be taken to pay for those losses. Liability insurance will protect you so this does not happen. Liability insurance pays for a lawyer to defend you against any claim or lawsuit.
You should purchase auto insurance in case you cause an automobile accident and you may be responsible for losses of other people involved. A claim may be made or a lawsuit filed against you for those losses. You may have to pay not only for the property damage you cause, but also for the medical expenses, lost wages, pain and suffering, and other losses you cause to someone else. The amount of money you may have to be pay could be substantial.
You should also purchase auto insurance to cover your injuries or damages to your vehicle. These optional coverages will pay you for your losses whether or not you caused the accident.5
1 - Editor's Note: The required limits for insurance coverage has not changed since at least 1988. Even then, these limits were not seen as adequate. See newspaper article stating that "A serious bodily injury requiring some hospitalization could easily exceed $25,000, thus a $100,000, $300,000 bodily injury liability limit may be the sensible choice. The same is true for property damage liability limits. A new car today rarely costs less than $10,000 and automobile repair bills can run into the thousands of dollars." at http://pqasb.pqarchiver.com/timesdispatch/access/619072581.html?dids=619072581:619072581&FMT=ABS&FMTS=ABS:FT&type=current&date=Mar+04%2C+1988&author=Susan+C.+Blackford&pub=Richmond+Times+-+Dispatch&desc=DRIVING+RECORD+KEY+TO+INSURANCE&pqatl=google writers limit
2 - For more information, see blog articles "Auto Insurance - The Coverages You Should Have BEFORE You Are Involved In An Accident " at http://www.allenandallen.com/blog/auto-insurance.html, and "Look Out For The Other Guy - Uninsured and Under Insured Motorist Coverage' at http://www.allenandallen.com/blog/look-out-for-the-other-guy-uninsured-and-under-insured-motorist-coverage.html.
3 - See Va. Code sec. 46.2-472 at http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+46.2-472.
4 - For a fuller explanation of what these coverages are, see blog article "Auto Insurance - The Coverages You Should Have BEFORE You Are Involved In An Accident" at http://www.allenandallen.com/blog/chris-guedri-auto-insurance.html.
5 - See also blog article "How Much Insurance Coverage Should You Buy?" at http://www.allenandallen.com/blog/how-much-auto-insurance-should-you-buy.html.