The extent of damages covered by your insurer after a car accident solely depends on the insurance coverage you buy. What your insurance policy covers after an accident is also determined by your insurance limit as stated in your policy. Different insurance coverages have separate insurance limits. A higher coverage limit comes with more expensive premiums.
How Do Car Insurance Limits Work?
A car insurance limit dictates the maximum amount of claim settlement an insurer will pay after a car accident. These insurance limits differ from country to country, each setting its required minimum amount of auto insurance coverage. When you receive a quote for a new insurance policy, it is crucial to go through it and understand its contents.
Some come with pre-selected coverage limits, which require you to make changes if the limits do not sit right with you. When selecting your car insurance limit, consider your budget and driving habits. Understanding your needs and typical risks is crucial for prioritizing the right policy.
Consider the insurance coverage you might need in the worst-case scenario before settling for a policy. Most policies are only sometimes enough to cover you financially in such cases. If more car damages are caused beyond what your insurance covers, your car insurance company will not cover additional car repair costs. You will be held liable and may lose more than what you would have paid for a higher coverage limit.
Types of Car Insurance Policy Limits
- Pre-occurrence limit. It is the maximum amount your insurer will pay for a single claim.
- Per-person limits. It is the maximum settlement amount paid by your insurer for a single person’s claim.
- Combined limits are a single limit that can several types of insurance coverages apply.
- Split limits combine pre-occurrence, per-person, and aggregate limits.
- Aggregate limits refer to the total amount of all claims that can be paid off in a specific time.
Types of Car Insurance Coverage
Insurance policy limits are equally as crucial as your car insurance coverage. Both determine what your car insurance company will cover after an accident. Each insurance coverage pays for specific car accident damages. Here is a guide on the available car insurance coverages and their coverage extent.
- Liability Insurance Policies
Liability insurance policies cover the cost of any car damages, injuries, or deaths due to an accident you cause. They pay third parties on behalf of the policyholders. Liability insurance has policy limits too, which are selected when buying one. Most countries demand all drivers purchase minimum liability insurance coverage.
However, there are circumstances under which your insurance company can deny the claim and fail to cover the damages after an accident. Before a claim to cover damages and injuries after a car accident is accepted, your insurance company conducts its investigations to be sure that the claim is viable. If they conclude that you caused the car accident intentionally, your insurance company will not cover you. Contractual liabilities are also not covered by a liability insurance policy.
There are two main types of liability insurance policies.
Bodily injury liability. Bodily injury liability covers the personal injury bills of the third party in a car accident. Additionally, it offers coverage of your legal defense costs if the victims sue you. Pain and suffering, loss of income, and funeral costs are also covered.
Property damage liability. Property liability helps to cover repair damages that you might have caused to the other car or any other property during a car accident.
2. Comprehensive Insurance Policies
Apart from vehicle collisions, events you cannot control, such as theft, vandalism, storms, falling trees, and animals, can cause damage to your car. A comprehensive insurance policy protects your vehicle from events within and out of your control. It protects you, your vehicle, and other third parties against all possible risks. A comprehensive insurance cover is optional, and the law does not require you to have one.
However, if you have leased a car, your leasing company will most likely demand that you purchase a comprehensive insurance policy. The same case applies if you have a car loan. In most cases, buying this insurance policy makes sense if your car is new. The value of your vehicle is also a key determinant of whether to go for a comprehensive insurance policy. Other factors that are likely to affect this decision include your financial status, how secure your locality is, and your personal preferences.
A comprehensive insurance policy comes with a deductible deducted from your claim’s check before your insurer pays. A higher deductible lowers your insurance premiums and vice versa. When choosing your insurance deductible, consider the amount you can afford to pay comfortably.
- Collision Insurance Policy
Just like a comprehensive insurance policy, a collision insurance policy is optional. A collision insurance policy covers your car’s repairs or replacement if damaged in an accident with another vehicle or an object, such as a tree. It covers these accidents regardless of who is at fault. A collision insurance policy is mandatory when dealing with car leasing companies or car loans. What does a collision car insurance policy not cover after an accident?
- Your medical bills and those of the other involved party.
- If the car damages were caused to the other party’s car.
- Your car damages that are not related to driving, such as theft.
Collision insurance policies, just like comprehensive insurance policies, have deductibles. You choose the amount of your collision deductible when buying your collision coverage. Selecting a higher deductible lowers the cost of your car insurance. To purchase a collision insurance policy, you must have a comprehensive one.
It is crucial to note that a collision insurance policy’s payout is up to the actual value of your car. Having a collision insurance policy may not be necessary. Still, it will give you some peace of mind, especially if you are not in a financial position to afford your car’s repairs or replacement costs.
- Personal Injury Protection Insurance Policy (PIP)
Also known as no-fault insurance, a personal injury protection insurance policy (PIP) covers your medical expenses and those of your passengers regardless of who is at fault for the car accident. A PIP also covers expenses beyond medical costs, such as loss of income, funeral costs, and survivor benefits. The medical expenses covered by a PIP are:
- Minor and major surgeries.
- Therapy and rehabilitation.
- Psychological and psychiatric care.
- Prosthetic devices.
- Speech services.
A PIP also covers the accident victims if their sustained injuries hinder normal operations like cleaning chores. A PIP is mandatory in some countries but optional in others. Countries that require you to have a PIP have a set minimum amount. You can choose the amount that best works for you in countries where it is not required.
A PIP does not cover expenses that are not directly related to personal injury. A PIP cannot cover any car or property damage after an accident. With PIP coverage, you do not have to be injured while driving to use it. You can also use it if you are hit by a car while walking or riding a bike. A PIP insurance does not also cover the following;
- Personal injuries to other drivers and their passengers.
- Injuries sustained from an accident while committing a crime.
- Uninsured and Underinsured Insurance Policy
Uninsured insurance covers your injuries, those of your loved ones, and your passengers if another driver without insurance crashes into you. Hit-and-run drivers are also considered uninsured. If an uninsured driver hits you as a pedestrian, an uninsured insurance policy will cover you. Some also give coverage for your car damages. In addition to medical expenses and car damages, uninsured insurance policies also cater to funeral costs, loss of wages, and pain and suffering compensation.
Although acquiring an uninsured insurance policy is not a requirement, driving without one is risky because about one in eight drivers are uninsured. Suppose you are injured, and an uninsured driver damages your car without an uninsured insurance policy. In that case, you will cover all medical expenses and repair costs from your pocket. There are two types of uninsured insurance:
- Uninsured motorist bodily injury covers your medical bills and your passengers.
- Uninsured motorist property damage covers your car damages.
Uninsured insurance policies slightly differ from underinsured insurance policies. An underinsured insurance policy applies to drivers with inadequate insurance to cover the damages and injuries they cause.
An underinsured insurance policy covers your medical expenses and car damages if another driver with inadequate insurance crashes into you. Buying an underinsured insurance policy is not necessary. However, having one may prevent you from paying for medical costs and car damages in an accident with an underinsured driver.
The two types of underinsured insurance policies are;
- For underinsured motorist bodily injury, its coverage covers your injuries and those of your passengers.
- Underinsured motorist property damage covers car damages caused by an underinsured driver.