If you asked the average person to tell you about their Auto insurance policy what do you think they would say? Probably something like: “Oh, I’m fully insured,” or “I have 25/50/100,” or “I only have liability insurance,” or “I am not sure.” Maybe even, “I just know that I have insurance, I trust my agent.” It is a small group that actually knows the basics of their insurance limits and coverage. Rarely does anyone take the time to read and truly understand the definitions of their insurance policies. That is unfortunate. It really is important to know what you are, or in most cases, are not buying. So let’s start with the basics. By far the most common response I hear is, “I’m fully covered.” What exactly does that mean? Who knows? And that my friends, is where the puzzle begins.
What is insurance, and why should we have it anyway?
Great question. Insurance by definition is an arrangement by which a company gives
customers financial protection against loss or harm such as theft or illness in return for payment premium.
Alright, so the basics are now understood. So let’s go to the various types of coverage.
State law mandates that if you drive an automobile in California that you possess a valid
California driver’s license and proof of liability insurance, or post a bond that proves your ability to pay. (Unless you are very rich, you will go with insurance route.)
The minimum dollar amount that you are allowed to have on one person in an auto accident is $15,000. For more than one person it is $30,000.00. If you hurt another person in the accident, the medical portion of your policy will pay their medical bills up to your policy’s limit.
Coverage minimums for property damage are $5,000.00. This will cover the other person’s car, boat, house or whatever you run into and damage, up to your policy
limits. This of course assumes you are current on your payments and were found to be at fault for the accident. That is not much coverage but it is the minimum in California. Keep in mind that you can still be sued for damages above and beyond what your policy will pay. (So read into this that more insurance coverage is better!)
Up to this point the other people on the road are covered by your liability insurance, but
you are not. This is where your collision coverage comes in. Collision coverage covers your personal vehicle in the event of an accident. If you crash your insured car, this part of your policy pays for the damages to your car up to the policy limits if required. Comprehensive insurance coverage covers non-accident types of insured losses such as a tree falling on your car or the theft of a car stereo or even the car itself.