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In auto insurance terms, “full coverage” doesn’t actually exist. Seriously, there’s no such thing. When people ask for full coverage, it usually means a combination of liability, collision, and comprehensive insurance, which should protect you in most circumstances.
Just having those three doesn’t mean you’re fully covered though, and without a deeper understanding of what each coverage does and how much you need, you could be in for some sticker shock after an accident.
Basic liability insurance is required to operate a vehicle in most states. Like it sounds, liability insurance covers damages you cause, and comes in two forms: bodily injury and property damage.
Bodily injury (BI)
If you’re at fault in an accident, your bodily injury liability insurance pays for the other driver’s medical bills, along with any passengers in his or her vehicle. You’ll most often see it written as two numbers separated by a slash, such as 15/30 or 50/100. The first number is the most your insurance will cover for one person’s medical bills, and the second is the most they’ll pay total.
For example, let’s say you have bodily injury coverage in the amount of 20/40, or $20,000 for one and $40,000 total. You run a stop sign, hitting a car with three passengers, and all are injured. The driver’s medical bills come to $25,000, the first passenger’s bills are $15,000, and the second passenger’s bills are $5,000, for a grand total of $45,000.
How much would you owe out of pocket? The 20 in 20/40 means your insurance will cover at most $20,000 for one person, and the 40 means $40,000 total. So in this case, you would owe $5,000 for the driver’s injuries and another $5,000 because the total exceeded your $40,000 maximum. That’s $10,000 you’re on the hook for, and we haven’t even gotten to pain and suffering or lost work yet. If you can afford it at all, we’d recommend carrying more than the state minimum for bodily injury liability. That’s especially true if you own a home or have significant assets, which can be wiped out in a lawsuit.
One thing to note: in some states with no-fault insurance, such as Florida, drivers aren’t required to carry bodily injury liability, but need PIP instead. That means in the event of an accident, your own insurance company will pay your medical bills up to the policy limits, regardless of who was at fault. You can check out our post on the minimum car insurance in each state to see what’s required where you live.
Property damage (PD)
Property damage is the other half of liability coverage. Just like bodily injury covers the other driver’s medical bills, PD pays for damages you cause to someone else’s property, not your own. The minimum amount is somewhere between $5,000 and $25,000 in most states, but you should carry more if possible. The average new car costs over $30,000, and if you cause a multi-car pileup or happen to hit a luxury vehicle, having just the minimum coverage won’t cut it. Property damage also covers more than just cars, including buildings and guard rails, which are more expensive than you’d think. (Just ask this unlucky driver who paid $200 per bolt.)
Physical damage insurance
If you want your own property to be covered, you’ll need physical damage insurance, including comprehensive and collision. Physical damage isn’t mandated by any states, but unless you own your car outright, the leasing or finance company will require you carry it. (They can’t repo scrap metal.) There are two kinds, collision and comprehensive, which are usually purchased in tandem.
The first half of physical damage insurance is collision. Like it sounds, this covers damage caused by an accident, whether it involves several cars or just you and a pothole. Basically almost anything that happens as a result of a car in motion.
Where collision covers damage from a moving vehicle, comprehensive covers pretty much everything else. It’s intended for circumstances that are out of the driver’s control, and which didn’t involve other vehicles. Think hurricanes, theft, broken glass, falling pianos, or freak stampedes. That sort of thing. If the vehicle isn’t moving, it’s probably a comprehensive claim.
You’ll need to choose a deductible when purchasing comprehensive and collision, which is the amount of money you have to pay out of pocket before insurance kicks in. Put simply, if your deductible is $500 and your car has $800 in damage, your insurance would only pay $300. Deductibles are usually between $250 and $1,000 (the highest finance companies allow), and the higher the deductible, the lower your premium.
The most your physical damage insurance will pay is the car’s Actual Cash Value, as determined by the Kelley Blue Book, and doesn’t include any aftermarket work you do. If the cost of repair is higher than the ACV, it’s considered a total loss. Since it wouldn’t make financial sense to repair, the vehicle is scrapped and you’ll receive a check for the value instead (minus the deductible).
Gap insurance isn’t typically included when thinking of “full coverage,” but if you’re financing a new vehicle, you should definitely consider adding it. Cars lose about 20% of their ACV in the first year. That means the $30,000 car you just financed may only be worth $24,000 if it’s totaled, leaving you owing the lender $6,000. In the event of an accident, gap coverage pays the difference between the car’s ACV and what you owe.
There’s a good chance you were offered gap insurance by the dealership, but check with your insurance company first. They offer the exact same coverage, and usually for a lot less money.
There are many more types of insurance than those listed above that would add additional protection, but this combination is usually what’s meant by full coverage. If you have questions or would like more details, we’d be happy to review your unique situation and discuss the level of coverage appropriate for you. You can reach a licensed agent by calling 877-357-5692, or visit goji.com to schedule an appointment.
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