When we interview a potential new client, we inquire about their auto insurance. But, when the response is “I have full coverage,” I cringe! Why? Because there is no such thing as “full coverage.” It’s simply a phrase without substance.
Every car insurance policy is different because every policy is tailored toward the policyholder (i.e. the driver), depending on the driver’s needs, risk assessment, and affordability.
Based on those factors, an insurance policy offers a range of coverages, which we will describe below so you can better understand your policy and your coverages:
Liability Coverage
Under California law, all drivers must carry liability coverage. This coverage is for your protection when you get into an auto accident; the accident is your fault, and the other party is injured.
How? If you get into an accident and it’s your fault, your insurance company will hire an attorney to defend you if you are sued by the other driver. Your insurance company will also compensate the party that was injured (i.e. the other driver, passenger, or pedestrian involved in the accident) for his/her medical bills, legal fees, lost income, property repairs, and pain and suffering
In California, you must carry a minimum of $15,000 in liability coverage. This means that if you carry the minimum policy limit required ($15,000), and you get sued because of an accident, your insurance company will only pay up to $15,000 to cover the injured party’s medical bills, legal fees, lost income, property repairs, and pain and suffering.
So, depending on your risk assessment, carrying the minimum policy may be too low because $15,000 will only cover more minor accidents as opposed to more severe accidents. If you do not have sufficient coverage above $15,000, you could expose yourself to lawsuits and pay out of pocket for an accident.
Collision Coverage
This coverage pays for repairing or replacing your vehicle if your vehicle is damaged in an auto accident or strikes an object, regardless of who is at fault for the collision.
Oftentimes, drivers will forgo this coverage because they believe that if they are in an accident, the insurance for the other driver will pay for their repair costs. This is a “mistake.”
First, if you are at fault for an accident and you don’t carry this coverage, you will have to pay out of pocket for your own repairs or for replacing your car.
Second, there is no guarantee that the other driver will be insured. If the other driver is not insured, you will have to pay out of pocket for your own repairs or for replacing your car.
Third, if you are struck by a driver who flees the scene (i.e. a hit-and-run accident), there is no other insurance except your own. So, you will have to pay out of pocket for your own repairs or for replacing your car.
Fourth, if there is a dispute as to who caused the accident, e.g. a light dispute between two drivers with both claiming that the other ran the red light, the insurance company for the other driver will not pay to repair or replace your vehicle. So, you will have to pay out of pocket for your own repairs or for replacing your car.
Fifth, if the accident involves multiple vehicles and the accident was caused by one driver, the driver at fault may not carry sufficient insurance to pay for everyone’s property damage. For example, in a three-car accident, the at-fault party will have to pay for damages caused to the other two vehicles, but if he/she carries a low insurance policy limit, it may not cover everyone’s damage. In such a case, you will have to pay out of pocket for your own repairs or for replacing your car.
Collision coverage may or may not include “rental coverage.” For the same reasons described above, rental coverage is important to carry.
Medical Payment (MedPay) Coverage
This coverage will help pay for your own medical treatment, in case of a car accident. It can cover ambulance bills, Urgent Care or Emergency Room visits, chiropractic visits, physical therapy, and medical doctors including orthopedists, depending on your “limit”, i.e. the dollar amount of your MedPay Coverage. MedPay is available to add to your auto policy in varying amounts.
There are two important reasons to carry this coverage: (1) you can use MedPay regardless of fault. So, if you are at fault for a car accident, you can still use MedPay to pay for your medical treatment; and (2) it does not count against you and your insurance premium cannot be increased due to using this coverage.
MedPay is generally inexpensive to add to an auto policy. It can be of great help and should be added to any insurance policy.
Uninsured (Underinsured) Motorist Coverage
This coverage protects you in three different ways:
- It will cover you in an accident where the other driver is not insured and the accident is not your fault;
- It will cover you if you are struck by a driver who flees the scene, i.e. a hit-and-run accident. However, you cannot be at fault for the accident, you must make a report with law enforcement, and must report the accident to your insurance company within a specific time frame;
- It will cover you if you are not at fault, and the other driver does not have enough insurance to cover your medical bills, loss of income, and pain and suffering. This is particularly important in an accident involving multiple vehicles.
Never rely on the fact that the other driver (1) has insurance and (2) has sufficient to cover your injuries. Protect yourself by adding this coverage to your policy.
Comprehensive Coverage
This coverage comes into play when your vehicle is stolen or damaged because of fire, falling objects, vandalism, or a natural disaster.
Gap Coverage
If you finance your vehicle, this coverage applies to you. If your vehicle is involved in a major collision and is totaled, your car is worth fair market value, regardless of how much you still owe on your car loan.
Unfortunately, sometimes, the fair market value is less than you owe on the remainder of your car loan. This coverage fills in the gap between the two. So, if you owe more than what your car is worth, gap insurance will pay off the rest of the loan after you receive the replacement cost for your vehicle.
This article is intended to help you better understand your car insurance policy and help you make decisions that better fit you, your family, and your finances. It is not intended as legal advice. We always recommend that you obtain insurance through an insurance agent, and never purchase insurance online!