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The Essential Guide to Car Insurance: Terminology

April 21, 2016 Hastings and Hastings

Insurance is mandatory. Under Arizona law, drivers are required to carry bodily liability insurance worth $15,000 per person or $30,000 per accident in which more than one person suffers an injury. Additionally, they must carry $10,000 of coverage for property damage. This coverage must be offered by an insurance provider authorized to do business here in Arizona. Of course, opting for the minimum coverage may put you at risk. But what are the alternatives? Today, in the Hastings & Hastings blog, we will look closely at the wide range of coverage options available to you in a car insurance policy.

Types of Coverage:

Liability Coverage: Liability coverage is the type of coverage that is required by the state of Arizona. It pays for the damages incurred in an accident YOU caused. Liability coverage has set individual limits for bodily injury and property damage depending on the size of the policy. If these limits fall short of covering the full extent of the damages, the at-fault motorist may be subjected to lawsuits seeking further financial compensation.

The two types of liability coverage are:

  • Property Damage Coverage: Pays for the damage caused to another person’s property. In an accident, this is almost always their vehicle. Every state has a required minimum limit for property damage coverage.
  • Bodily Injury Coverage: Pays for the treatment of injuries caused by the accident. Every state has required minimum limits for bodily injury coverage. Typically, there are two numbers associated with this limit. The lower number will be the coverage per person in the accident. The higher number will be for the accident in total. This number cannot be exceeded regardless of the number of individuals in the accident.

Medical Payments Coverage &Personal Injury Protection: Medical payments coverage and personal injury protection (PIP) will pay for the treatment of injuries suffered as a result of an accident for the driver and any passengers in the policy holder’s car. Unlike liability coverage, PIP will assist in the payment of medical bills regardless of who is found at-fault for the accident.

PIP is also known as “no-fault” insurance. Currently, there are 12 states that require PIP protection. These are also the only states in which this type of coverage is available. For the other 38 states, standard medical payments coverage is available.

As Arizona is not a no-fault state, it is not required to hold medical payments coverage. The importance of doing so is largely influenced by an individual’s medical insurance coverage.

While standard medical payments coverage pays for the treatment of injuries to the driver and passenger, some policies may also cover lost wages, funeral expenses, in addition to the cost of replacing services normally performed by an injured party.

Collision Coverage: Remember, liability coverage pays for the damages inflicted upon another driver’s car in an accident in which you are at fault. But what about the damages to YOUR car? Collision coverage pays for the damages suffered by your vehicle in a collision with another vehicle, an object, or as a result of flipping over. Collision coverage protects in you in worst case scenarios. When using collision coverage, you will have to pay the value of your deductible, and your insurance provider will cover the rest. The size of the deductible will be inversely in proportion to the size of your premium.

Comprehensive Coverage: This type of coverage will protect you from damages caused by anything that is NOT a collision. Such damages could be caused by theft, vandalism, fire, hail, flood, earthquake, or any other number of things. Some comprehensive coverages will also offer repair for cracked or shattered windshields. As with collision coverage, when using comprehensive coverage, you must first pay for your deductible before your insurance provider will shoulder the costs.

Uninsured/Underinsured Motorist Coverage: This coverage protects you if you are involved in an accident with an at-fault driver who does not carry any insurance coverage, or whose insurance coverages are not large enough to fully pay for the extent of the damages. This coverage will also protect you if you are the victim of a hit-and-run. If you DO NOT carry uninsured/underinsured motorist coverage and are the victim of an accident with an at-fault driver who is uninsured, you will be left without support to cover any damages.

Coverage Add-Ons: Beyond these primary pillars of coverage, many insurance providers will offer you a catalog of potential insurance add-ons which can be used to enhance your policy in some ways. The options offered by each insurance provider may vary, but these are a few common add-ons which may be available to you:

  • Roadside Assistance: Every roadside assistance policy is different, so to find out exactly what you are being offered, you need to speak with your insurance agent. Typically, motorists opt for roadside assistance if they do not already utilize a service such as AAA. Roadside assistance may offer any of the following services: towing, battery jumping, flat tire changing, emergency fuel, or locksmith services.
  • Rental Car Reimbursement: This add-on will pay for you to use a rental car while your own vehicle is being repaired. The necessity of this add-on will depend on your specific life situation.
  • Gap Insurance: When paying out damages, insurance providers use standard valuation measures in determining the worth of a car. It is possible that you may owe more than your vehicle is worth. There may be a gap between what you still owe as a car payment and what your provider will offer you as the value of the vehicle. Gap insurance pays for the difference.
  • Vanishing Deductible: The vanishing deductible is a type of premium insurance add-on that is offered by many insurance providers as support of maintaining a clean driving record. With vanishing deductible, the size of your deductible will be reduced by a set amount on an annual basis for every year you avoid traffic citations or accidents.