Coverages may vary from state to state and sometimes from policy to policy depending on the insurance company you have. The terms below are my own definitions based on what I know to be the most common types of coverage listed on personal automobile policies. An Insurance Agent will be able to help you pick the best coverages that fit your needs and your budget. I hope this gives you a better idea of the terms that get thrown around during the claims process and help make you a more informed consumer. I am going to list below whether the coverage is 1st party or 3rd party coverage. With regards to your insurance policy, you are the 1st party, your insurance company is the 2nd party, and anyone else that is making a claim against you for liability coverage is the 3rd party. The difference between 1st party coverage and 3rd party coverage is that 1st party coverage is intended to benefit the policy holder, and 3rd party coverage is meant to make the 3rd party whole for the fair and reasonable amount of the claim, up or up to the policy holder’s limits (whichever is less). This is designed so the 3rd party doesn’t sue the policy holder for negligent acts. Sometimes the 3rd party sues the policy holder anyway, most insurance companies will provide you a liability defense up to the liability limits on the policy if that happens. That is why you want to make sure your limits are enough to protect you and your assets.
Declarations Page:
This is the page that you receive when you start your auto policy with a company and every time your policy renew. It shows all of the coverages you selected when you purchased the policy and the coverages applied on your claim when you have an accident or a loss. It shows your deductibles and it usually will list your liability and uninsured motorist coverages in an abbreviated form. So if your declaration page (also referred to as a dec. sheet) is showing that you have 50/100 for BI coverage, that means your bodily injury coverage is $50,000 per person up to $100,000 per claim. See below for the explanation of bodily injury and other coverages.
Collision:
Collision coverage covers your vehicle damage to your car (1st party coverage) if you collide with another vehicle or another object that is stationary at the time of impact with the object. A flying object that is airborne at the time of impact is usually covered under Comprehensive coverage, not Collision. If that flying object lands on the ground and then you hit the object, that may be considered a Collision claim.
Comprehensive:
Comprehensive coverage is for your vehicle damage to your car (1st party) if the damage is caused by theft, vandalism, hitting an animal or an animal running into the side of your vehicle, hail, falling objects and some other scenarios that do not involve collision with another vehicle, or driving into a stationary object.
-Collision coverage and Comprehensive coverage will usually have a deductible. You are responsible for the deductible, and your insurance company would pay the amount of car damage that exceeds your deductible. You may be able to get a $0 deductible with some insurance companies but the price for that usually is too high to justify for most people.
Rental Reimbursement (or Loss of Use):
Most auto policies offer coverage that allows you to get reimbursed for the rental or transportation expense you incur (1st party)because your car is in the shop for repairs due to the auto accident. There are different options each insurance company offers when it comes to loss of use or rental reimbursement, so you can ask your agent when you set up your coverage what rental options you have and how much it adds to your insurance premiums.
Med Pay or Medical Payments Coverage:
This is coverage people can put on their own (1st party) policy to pay for medical bills that they or their passengers incur as a result of being injured in a car accident or while occupying or being struck by a motor vehicle. There will be a maximum limit you can obtain, and usually the higher the limit, the more it will cost in premiums. In my opinion, this is one of the most important coverages to put on the auto policy, and I would have an auto policy with out Med Pay, especially because I have a health insurance deductible. If I do get in a car accident and have to use my health insurance, I will be able to use the Med Pay coverage I have on the policy to help defray my out-of-pocket expenses for my health insurance deductible and copays. Unlike PIP coverage (see below), Med Pay is only used for medical expenses that are reasonable and necessary or customary and usual, depending on how the auto policy is written, and will usually not pay for wage loss due to the car accident.
PIP (Personal Injury Protection):
PIP is similar to Med Pay as it pays for medical expenses related to the loss for the 1st party, and unlike Med Pay, it can cover wage loss. The main difference between PIP and Med Pay is that usually PIP is required by the state in which you live. My home state used to be a PIP state, and at that time our insurance premiums were a lot higher than they are now. States choose to make PIP mandatory because they are trying to reduce the number of lawsuits filed for car accidents in that state. However, if a person cannot take someone to court in order to recuperate their medical expenses and wage loss due to a car accident, and the injured person’s automobile insurance has to pay for it under PIP. That usually makes the cost of the PIP coverage higher in order to offset those medical expenses. As a result, the auto insurance premiums in states that require PIP tend to be higher than the states that do not require PIP. (There are other reasons why auto insurance premiums are higher in certain states versus others, so I do not want to say the only reason is PIP).
Property Damage Liability:
If you are at fault for the car accident, then property damage coverage is used to pay for the other party’s vehicle damage (3rd party) or damage to their property, such as fences, bushes, mailboxes, the front of a house or other items that a vehicle may have come into contact with, owned by the other party. The other party can also claim loss of use of their property and this coverage will potentially pay for the rental car or transportation that the other party had to use because their car was being repaired after the accident. Also, if someone’s home is damaged from the car accident so bad that he cannot live in it, then loss of use may pay for the temporary housing that was needed while the home was being repaired.
Bodily Injury Liability:
In my definition of PIP, I indicated that the party that was hurt can go after the party that caused the accident. Bodily injury is coverage up to a certain limit to protect you and your assets if you cause an accident and cause injury to the other party (3rd party). Usually bodily injury is handled as a one time settlement/lump sum payment with the claimant. The bodily injury settlement is determined by the claims adjuster based on the medical bills and records of the claimant’s treatment related to the accident. Fair and reasonable pain and suffering gets evaluated into the bodily injury settlement as well and the insurance company offers to settle the claim with the claimant. If the claimant accepts the offer, he usually has to sign a release of claims form before the insurance company will pay the money. This is because the insurance company is trying to make sure the claimant cannot ever go back after the insurance company or the person they insured for the accident again.
Uninsured Motorist Injury:
Uninsured Motorist Injury coverage is coverage you put on your own policy to protect yourself in case you are hit by an uninsured motorist, or a hit and run driver (1st party). It is also usually handled as a one time settlement. However, you would be pursuing this claim with your own insurance company as you are unable to go after the at fault party’s insurance, since they are uninsured or you have no identification on them if it was a hit and run accident.
Underinsured Motorist Injury:
For this coverage, I’ll start off with an example. You carry Underinsured Motorist coverage of 100/300 (this is $100,000 per person up to $300,000 per claim), but the at fault party only has 25/50, ($25,000 per person up to $50,000 per claim), and your injury claim turns out to be worth $40,000. If you can settle for the at fault party’s bodily injury limits of $25,000, then you should be able to collect the rest of the claim against your own insurance company, for the remaining balance that the underinsured motorist could not cover because they did not have enough limits on their policy (1st party). When you look at your declaration sheet that shows your coverage and limits, you may see that your Uninsured Motorist Injury and Underinsured Motorist Injury limits are the same. That is how I have always seen it on a declaration sheet. To be clear, the value of the injury claim is normally assessed first by your claims adjuster, then that adjuster should figure out how much you already collected from the at-fault party’s insurance company. That adjuster would take that amount off of the total value of the claim and determine how much money you are still owed under your Underinsured Motorist coverage. If that value is under your limits, than the adjuster is going to probably offer that amount. If that value is over your limits, then the adjuster will probably offer you just the remaining balance of your limits and nothing more. The limit you put on your Underinsured Motorist coverage is the limit you can be compensated, so you won’t be able to collect anymore. That is why you would want to talk to your insurance agent and determine if you have enough limits to cover you for a detrimental injury claim.
Uninsured Motorist Property Damage:
Very similar to Uninsured Motorist Injury coverage, however it is for your vehicle’s damage caused by an uninsured motorist (1st party). Usually, you cannot usually get Uninsured Motorist Property Damage coverage if you have collision coverage. In most cases, you have to have identification on the uninsured motorist or identify the at fault vehicle by its license plate for this coverage to apply.
You are now probably asking, “So what coverages do I need to have?”
Most states have laws stating you must have liability coverage (3rd party), and each state has its own liability minimum limits that you must have while operating an automobile on the road in that state. If you have assets to protect, like your house and/or business, you might not want to get the minimum liability limits. Also, if you finance a car, your lien-holder (the finance company), may require under the terms and conditions of the loan, that you get what is known as “full coverage.” Full coverage as I have always heard it be referred, usually refers to liability coverage with Collision and Comprehensive coverage (1st party). What is coverages are missing from that?Med Pay, Rental Reimbursement and Uninsured/Underinsured Motorist coverage (1st party).
You should have your insurance agent be very specific when he or she goes over what coverages you are about to purchase, and probably not just accept it when they that you are getting “full coverage.” You can speak with your insurance agent and they will tell you what specific coverage you are electing and what you are denying, that way you know going into the accident, rather than finding out after the accident.
Again, please contact your agent or insurance sales profession to decide what coverages are going to be best for you. I hope these definitions help you understand how these coverages are used in the auto claims process.
*I am not an attorney. The information on this site is not legal advice and should not be taken as such by the reader. What I post on here are my own opinions based on my experience as an auto claims adjuster and a consumer of auto insurance.
mrhelper@bestcarwreckinfo.com
bestcarwreckinfo.com
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