Three Types of Auto Coverage That Most Often Confuse

The lowdown on liability, UM/UIM, and rental reimbursement

If you’re overwhelmed with all the coverage options on your auto insurance, you’re not alone. In fact, you might be tempted to just buy the minimum insurance required by law. But unless you own little more than the clothes on your back, that may be a bad idea. 

Why? Because the legal minimum liability limits may not be enough to cover injuries or damage to other people and property due to an accident. And if the costs of a crash you cause exceed your policy limits, the other driver can sue you for anything of value you own. An insurance policy has two main purposes: 1) to cover the damages you cause to other persons and property (liability coverage), and 2) to protect you and your insured vehicle (other optional coverages). 

What you need depends on your financial situation, your risk tolerance level, and other factors. To help you make informed decisions, we explain three types of coverage that most often confuse people. If you have questions about coverage limits or other types of coverage, such as collision and comprehensive or umbrella policies, talk to your insurance agent. You may also want to consult a certified financial planner, attorney, and/or estate planner to help you decide how much insurance is right for you. 

Liability coverage

Liability insurance is required by law to cover bodily injury and property damage that you cause to other people and property while driving your insured vehicle. This coverage is usually stated as three numbers that indicate, in order, 1) the amount your policy will pay for bodily injuries you are liable for per person if you are at fault, 2) the total amount it will pay for injuries you are liable for per accident, and 3) the total amount it will pay for property damage that you cause while driving. For example, a 100/300/100 policy will pay each person injured in a crash that you cause while driving up to $100,000, with a maximum limit of $300,000 for the accident, and up to $100,000 to repair damage to the other person’s vehicle and/or property.

Uninsured/underinsured motorist coverage

If someone who has inadequate or no insurance hits your car and is at fault, and you are legally entitled to recover damages, this coverage protects you and your passengers against related bodily injury or property damage, up to the limits available. This coverage is not required in some states, but without it, your other options may be unappealing: try to collect from the other driver for damages, and, if unsuccessful, possibly file a lawsuit for compensation. 

Rental reimbursement

If you’re involved in a crash and your car needs extensive repairs, this coverage will pay for the rental car while your vehicle is in the shop, up to the rental limits on your policy. It will also pay for a rental vehicle for a specified period if your vehicle is totaled and you need transportation while you’re shopping for a new car. If you can’t easily borrow a car, it can be a smart investment, since rental car costs can add up quickly.

Photo (top): Eric Van Eyke

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