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Auto Insurance Terms Discussed ©
As an insurance agent, and a former auto insurance claims adjuster, I want to share some information and advice that I believe will be of useful to many people while educating themselves, shopping for better coverages, or in the process of a claim. Thank you for taking the time to read this valuable information.
Patrick McKenna
President
Bodily Injury Liability Coverage (BI)
Pays for losses (up to the limits stated in the policy) that you are legally liable for when you inflict bodily injuries or death to others in an automobile accident. Covered losses generally include medical expenses, pain and suffering, and lost income. Bodily Injury Liability Coverage does not cover injuries to you, your spouse, relatives living with you, or other drivers listed on the policy. Bodily Injury Liability Coverage also provides you with a legal defense if another party from an accident files a lawsuit against you.
Property Damage Liability Coverage (PD)
Covers you (up to the limits stated in the policy) for losses that you are legally liable for when you damage or destroy someone else's personal property (this can be someone else's vehicle or other property like their fence.) Property Damage Liability Coverage does not cover damages to property that you own, or that is in your care, custody or control. Property Damage Liability Coverage also provides you with a legal defense if another party from an accident files a lawsuit against you.
Collision Coverage (CN)
Collision coverage pays for damages to your vehicle (regardless of fault) caused by an impact with another vehicle or object, or a rollover. The insurance company pays the amount of damages in excess of your deductible. A common misbelief is that an insured does not have to pay their Collision deductible if they are not at fault in an accident. The deductible applies to Collision Coverage whether you are at fault, or not. If you are involved in an accident, and the other party is at fault, you can attempt to submit claim to his/her insurance company to pay for the collision damage to your vehicle. If the other party's insurance company accepts liability for the accident, you will not pay your deductible. Strongly reconsider a lower deductible. Many insureds select a high deductible (i.e.: $1,000, $1,500, even $2,500 or $5,000) and when an accident occurs, they become upset because they have difficulty coming up with the deductible for the repairs to their vehicle. Even if you know the other party is at fault, it does not mean that their insurance company will pay you. Sadly, many insureds have their claims denied or delayed because of unscrupulous claimants. The other party may lie to their insurance company about what happened and try to blame you. Maybe there is not an independent witness to confirm your stated facts of the loss. Maybe there are multiple cars involved in an accident and it is hard to determine fault. We strongly recommend that you take the following action in cases where the claimant or their insurance company is not cooperating in and fair manner while adjusting the claim. Don't waste your time fighting with the claimant's insurance company. Submit your collision claim to your own insurance company. Yes, you will have to pay your deductible, but it is a much better option than putting in countless calls to a non-responsive claims adjuster and possibly have your claim denied. Also, you do not pay your deductible until the repairs to your vehicle have been completed. You never know, the claim could be resolved by then and maybe the claimant's insurance company will forward your deductible to you. Remember, you pay your insurance company premiums. You are their customer. They want to take care of you and make you happy. Your insurance company has a duty to take care of you. Likewise, the claimant pays his premiums to the other insurance company. If the other party is not cooperative, or lies about the accident, which side do you think they are going to take? Lastly, once your insurance company has paid damages for collision, they can legally subrogate against the driver of the other vehicle. Your insurance company either files a lawsuit against the responsible party or takes his/her insurance company to inter-company arbitration to recover the damages that they paid, as well as trying to get your deductible back for you. Let your insurance company take care of you. You will definitely have a much better experience.
Comprehensive Coverage (CP)
Comprehensive coverage covers damage to your vehicle (regardless of fault) caused by miscellaneous hazards, other than collision . Examples include fire, theft, flood, explosion, windstorm, hail, or contact with an animal. The insurance company pays the amount of damages in excess of your deductible. In the event of a total loss (which is when the cost to repair the damages to your vehicle exceeds its value) the insurance company pays you (or your finance company if the vehicle is financed) the Actual Cash Value of your vehicle. Personal property (cd's, clothes, computers, tools) is not covered under an auto policy. These personal property items can be covered under a homeowners, renters or a personal articles floater policy.
Medical Payments Coverage (MP)
Pays for medical bills (regardless of who is at fault) for injuries sustained by you and your passengers in the event of an auto accident. Coverage is usually paid in excess to your health insurance policy if applicable.
Uninsured Motorist Bodily Injury Coverage (UMBI)
Pays for damages resulting from bodily injuries that you and your passengers suffer when you're involved in an accident with a hit-and-run driver, or a driver without adequate insurance, or a party with no insurance at all. The insurance company pays the sums (medical bills, lost income, pain and suffering etc.), which you would be legally entitled to recover as damages from the owner, or operator of an uninsured motor vehicle because of bodily injury, sustained by an insured. Some important conditions that must be met before coverage applies:
- the other party must be uninsured;
- the driver of the other vehicle must be legally responsible for your damages;
- the bodily injury has arisen out of physical contact of the automobile with the insured or with an automobile which the insured is occupying;
- the insured or someone on his or her behalf shall have reported the accident within 24 hours to the police department of the city where the accident occurred.
This is very valuable protection for a family. If you, or a relative that lives with you, are struck by an uninsured motorist as a pedestrian or while riding a bicycle you may still be able to receive damages under Uninsured Motorist Bodily Injury Coverage.
Uninsured Motorist Property Damage (UMPD) /
Collision Deductible Waiver (CDW)
Pays for damages sustained by your policy vehicle when involved in an accident with an uninsured motorist. Some important conditions that must be met before coverage applies:
- the other party must be uninsured;
- the driver of the other vehicle must be legally responsible for your damages;
- actual, direct physical contact must occur between your vehicle and the uninsured vehicle;
- you must be able to provide the insurance company positive identification of the uninsured party (pocket license number, license plate number of the other vehicle.) If this involves a hit and run and you are not able to get the uninsured party's information, coverage will not apply;
- you must report the loss to the insurance company within 10 days of the accident.
The insurance company's liability to you will be limited to the following:
- For vehicles with Collision Coverage, the most the insurance company will pay under this coverage ( CDW ) is your Collision deductible.
- For vehicles without Collision Coverage, the most the insurance company will pay under this coverage ( UMPD ) is $3,500 or the Actual Cash Value of the vehicle (whichever is less.)
Rental Car Benefit (RCB)
Reimburses you for the cost of renting a replacement vehicle when your policy vehicle is rendered inoperable due to a covered loss. Rental Car Benefit has a maximum per day limit, and a separate maximum per loss limit (example: $30/$900 – In this scenario, the maximum paid per day would be $30, and the maximum paid for the entire loss would be $900.) Rental Car Benefit pays for losses caused by a covered Comprehensive or Collision loss. It will not pay for you to rent a vehicle if your car mechanically breaks down or you go on a vacation and rent a car. You might reconsider that high Comprehensive or Collision deductible, as Rental Car Benefit is not paid unless the damages to your policy vehicle exceed your deductible. The replacement vehicle must be rented from licensed rental car agency.
Towing & Labor (TL)
Reimburses you for the expense of towing & labor charges that occur at the place of disablement. Examples of covered labor include changing a flat tire, jump-starting your vehicle and lockout service.
Special Equipment Coverage
Pays for non-factory modifications to your vehicle for equipment that you have declared on the insurance policy and which a premium has been charged for.
Loan/Lease Gap Coverage
When the loan payoff amount of a vehicle exceeds the actual cash value, there is a gap. If a vehicle with Loan/Lease Gap Coverage sustains a total loss, the insurance company will pay the difference between:
- the actual cash value of the owned automobile at the time of the total loss reduced by the applicable deductible and by its salvage value if the insured retains the salvage; and
- any greater amount the owner of the owned automobile is legally obligated to pay under a written loan or lease agreement to which the owned automobile is subject at the time of the total loss, reduced by any:
a. unpaid finance charges or refunds due to the owner for such charges;
b. excess mileage charges or charges for wear and tear;
c. charges for extended warranties or refunds due to the for extended warranties;
d. charges for credit insurance or refunds due to the owner for credit insurance;
e. past due payments and charges for past due payments; or
f. collection or repossession expenses.
g. roll over balances from any previous vehicle leases or purchases; or
h. cash rebates or incentives from the car dealer or manufacturer
With Loan/Lease Gap Coverage most, if not all, insurance companies will not pay more than a certain percent (some pay 15%, 20%, 25% etc.) of the actual cash value of the owned automobile at the time of the total loss to cover the gap. To help you understand, here is an example. The insured sustains a total loss and the actual cash value of the vehicle is determined to be $10,000. The insured owes the finance company $14,000 to pay off the loan amount. The insured has a $500 deductible and the insurance company retains the salvage so there is no deduction for the salvage. In this example, we will say that the insurance company will pay 25% (Mercury Insurance Company's limit) on top of the Actual Cash Value towards the gap. The insurance company would pay $12,000 (125% of the ACV minus the deductible.)
Total Loss
When the cost to repair the damages to your vehicle exceeds its Actual Cash Value, the vehicle is a total loss. In the event of a total loss, the insurance company pays you (or your finance company/lease company if the vehicle is financed/leased) the Actual Cash Value of your vehicle. A stolen vehicle is also considered a total loss if it is not recovered. Many times, an insurance company will declare a vehicle a total loss per their individual practices. Some insurance companies will total a vehicle if the amount of damages to the vehicle exceeds a particular threshold (60%, 70%, 80% etc.) of the Kelley Blue Book value of the damaged vehicle. They total the vehicle even though the damages do not exceed the actual cash value of the vehicle as many times in the repair of a vehicle, supplemental damages are discovered. The insurance company could end up with a repair cost that substantially exceeds the value of the vehicle.
Actual Cash Value (ACV)
The typical definition of Actual Cash Value under an insurance policy is “the replacement cost of a vehicle, minus depreciation.” The basic meaning of this definition is the market value of your vehicle. Many factors are taken into consideration when determining the ACV of a vehicle. The insurance companies are held to strict guidelines in how they can determine this value. They cannot solely use the blue book in determining a vehicles value. They must determine what a similar vehicle to yours (year, make, model, mileage, condition, options) would sell for at the time just before it was involved in a loss. There is a company called CCC Information Services, which provides detailed data reports on the actual sales prices of vehicles. Insurance companies use these reports along with local vehicle sales advertisements (AutoTrader, Cars.com, local newspaper, etc.) to determine the Actual Cash Value of your vehicle.
Split Limit / Combined Single Limit (CSL)
Insurance policies structure limits for the maximum amount payable under certain coverages. The most common limits structure is the Split Limit. Under a Split Limit, a maximum limit is declared to cap all payments made to any one person, then a separate limit is declared to cap all payments made under that occurrence. Under a policy in which the Named Insured has selected a limit of 100/300/50 the following would apply: The most the insurance company would pay under Bodily Injury Liability to any one person would $100,000. In conjunction with the $100,000 per person limit, the insurance company would not pay more than $300,000 for all of the injuries combined in the accident. Separately, the third number in a Split Limit is the limit for Property Damage Liability. Under this scenario, the most the insurance company would pay under Property Damage Liability is $50,000. Under the structure of a Combined Single Limit, the policy has just one limit for the particular coverage. For example, if an insured has a 300 CSL, the most that the insurance company would pay for and loss would be $300,000. The Bodily Injury Liability and Property Damage Liability damages would all be paid under the same $300,000 limit.
This page is offered for informational purposes only and does not represent contractual agreements. Your insurance policy definitions, terms and coverages may be different than what has been discussed here and the language contained therein will govern your policy. |
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