Car insurance, you know you need it, the state requires it, but do you understand it?
Most people spend money every month on car insurance and do not take the time to understand what they are paying for. Many people do not even care what they have until it is time to use it.
You need to clear up the ins and outs of car insurance and be equipped to ask important questions when shopping for car insurance. Any good agent should walk you through this process. Also, some carriers will have different types of coverages or ways to get car insurance now and pay later car insurance.
Unfortunately, if you do not know what you have, you also do not know what you don’t have. The WORST time to find out what is NOT covered is when you need it. Let’s check the basics of Liability Coverage:
Liability coverage pays for the damage that you do to others. In Texas, liability coverage is required by law. The reason for this is that if you are found to be at fault for an accident that causes damage to another person or their property they will need to be compensated for that damage. Your liability coverage will provide that compensation. You will need at least state minimum liability limits to register your vehicle(s) in Texas.
Liability is written in three numbers, such as 30/60/25 (state minimum) or 250/500/250. You have probably seen these numbers many times, but we will break down what they represent. The first two figures refer to bodily injury liability, the third figure refers to property damage liability.
Bodily Injury Liability
Bodily injury liability pays for the medical expenses of the people in the other vehicle or vehicles involved in an accident that you are found to be at fault for.
The first number is 250, this represents $250,000 in coverage for any single person in the accident. If you are involved in an accident with a single vehicle and a single occupant this is the upper limit that your insurance will pay out for their medical expenses.
The second number is 500. The 500 represents $500,000 in coverage for medical expenses for everyone involved in the accident, except for you. If you hit one vehicle with three occupants, the total amount that your insurance will cover is $500,000 for all three occupants’ medical expenses.
Note, the $250,000 is still the limit for any single person. If there are three people and they each incur $100,000 in medical expenses, your insurance will cover all of it. If one person has $300,000 in expenses and the other has $200,000, the policy will pay out $250,000 to the first person and $200,000 to the second. Even though you still have another $50,000 available each person involved will be subject to the first number, $250,000.
Lastly, if you only have the state minimum coverage of 30/60 you will only have $30,000 per person and $60,000 per accident, total. If one person incurs expenses of $100,000, you become personally responsible for the additional $70,000. Most people do not keep that kind of money in the bank. If you cannot pay the difference at the time of the settlement you will likely end up in a legal battle for those funds.
In most cases the cost difference to go from state minimums to much higher coverage is minimal. Especially when you factor in the financial, mental, and emotional cost of a legal battle.
Property Damage Liability
The third number in the sequence (250/500/250) represents $250,000 in property damage liability. Property damage liability covers the repair or replacement of whatever you hit in an accident that you are found to be at fault for. This coverage pays to repair or replace other vehicles or structures such as mailboxes, fences, trees, etc.
Currently, in Texas, the state requirement for property damage liability is $25,000. This low limit could easily be exhausted by hitting just one other car.
Just like bodily injury liability, any damages above and beyond your limits become your personal responsibility. If you are found to be at fault for an accident with multiple vehicles or structures, the monetary damages could escalate very quickly.
Again, the monthly cost to increase these limits pales in comparison to the financial repercussions of a lawsuit. Getting in a car accident can make for a bad day. Getting sued for hundreds of thousands of dollars can be life-changing.
If you need to get a cheep auto insurance policy that includes liability insurance and other essential coverages, get and compare free quotes online.