If you are injured in a car accident, the term "auto insurance" gets bantered around a great deal. Most people think that they understand why they need auto insurance and what it actually covers. Nevertheless, in my experience, most people only have a very foggy understanding of auto insurance. Unfortunately, when people are injured in a motor vehicle accident and lack a healthy understanding of what we attorneys mean by "auto insurance," these victims might find themselves confused and might also miss out on opportunities to receive compensation or protect their personal assets.
The purpose of this article is to explain both the basic and complex aspects of auto insurance so that you can gain an understanding of insurance in case you or a loved one is involved in a motor vehicle collision.
UNDERSTANDING YOUR AUTO POLICY:
When I find out that a person has been involved in a car crash, I think of five different types of insurance coverage that may apply. These five insurance coverages are generically referred to as "auto insurance," but these coverages serve completely different functions. These coverages include: 1) liability coverage, 2) uninsured motorist coverage, 3) personal liability umbrella coverage, 4) Med Pay coverage, and 5) comprehensive coverage. Some of these coverages are mandatory and others are optional. In this article, I will only discuss the scope and utility of liability coverage. Nevertheless, I will discuss the other types of auto insurance coverage in future articles.
Simply said, liability coverage is insurance that you carry to protect the other guy. This insurance coverage does not pay for your injuries or fix your car if you are involved in an accident. Liability coverage protects you from having your house and bank account levied because you caused a motor vehicle accident.
Liability coverage includes two different types of coverage, bodily injury and property damage.
1) BODILY INJURY: If you cause a car accident and someone makes a claim against you, the part of liability insurance that pays for the victim's physical injury, pain, and wage loss is the bodily injury section of your liability coverage. Colorado drivers are legally obligated to carry a minimum of $25,000 per person hurt and a total of $50,000 per accident for this type of coverage. These are called 25/50 policies. Other very common levels of coverage which are optional for a driver to purchase can include 50/100 coverage, 100/300 coverage, or even 250/500 coverage. There are higher levels of coverage available, but probably less than 5% of Colorado drivers have anything that goes beyond 250/500.
2) PROPERTY DAMAGE: Property damage is the coverage that pays for the damage to the other person's car when you cause a collision. The typical liability policy will pay for damages caused by you to the car or cars you hit up to a total of $50,000. As you buy higher limits of coverage, insurance companies add higher limits to the property damage liability coverage you carry.
How much liability coverage you purchase should depend on your position in life. If you are just starting out in life and have no personal assets to protect, no bank accounts, and no family fortunes, then it is reasonable for you to purchase a policy with minimal limits. If you purchase such a policy, you can legally drive in Colorado. However, with such a small policy, you run the risk that people who you injure in a car accident will not be able to recover the full value of their claims by receiving the maximum payout from your policy.
Can you be sued for higher amounts than your level of coverage? The answer is yes. If you hit and hurt someone with your car and that person is not satisfied with the available policy limits of your coverage they have the right to sue you in court. When a person who you injured sues, they do not sue your insurance company, they sue you.
When awarding damages, the courts and juries do not limit themselves to the policy limits of your insurance coverage. If your case goes to trial, the jury will hear the evidence and then decide how much money you owe the victim to compensate him or her for the losses you caused.
If you have enough insurance to cover the loss, then no one with be able to take your house or garnish your bank accounts. But, if your coverage does not cover the loss, then your personal assets could be in jeopardy. That is why it is extremely important for you to understand that merely having insurance does not relieve you of personal liability if you injure someone. Liability insurance simply serves as a buffer to indemnify (protect you) up to the limits of your coverage.
Later in life, when you have a good job, buy a house, and have some money in the bank, it is important to consider increasing the limits of your liability coverage to protect your assets in case you accidentally hurt someone on the road who might sue you. So, if you have ever wondered why people voluntarily decide to pay high insurance premiums to gain higher levels of liability coverage, wonder no more. They carry higher limits to protect their personal assets from being reached in case they injure someone in a car accident.
Also, once you have assets to protect, you should consider increasing the limits of your property damage liability coverage as well. If you cause a chain reaction car crash, there could literally be hundreds of thousands of dollars worth of damage that would need to be paid out by you or your insurance policy. Additionally, if a commercial truck or semi-truck is involved in a car accident, the property damage can be tremendous. Property damage in those cases can not only include the expensive road clean up necessary, but also the loss of revenue from the out of commission vehicle until it is returned to use.
Generally, most car accidents do not require the payment of the upper limits of a person's bodily injury or property damage liability coverage. Nevertheless, some crashes can vastly exceed the available liability coverage limits. It is in those cases where a person can be exposed to personal liability above their coverage limits. So, if you have any assets to protect, make sure your liability coverage for both property damage and bodily injury are at sufficient levels to protect those personal assets.
At Anderson, Hemmat & McQuinn L.L.C., we want you to be the safest driver possible and we hope that you will never be the cause of an accident. But, whether you cause an accident or not, determining the right type and level of insurance coverage is vitally important. I hope that reading this article has given you the information that you need to make an informed decision about the liability coverage of your auto insurance policy. Contact our personal injury attorneys for further information.