Guide to understanding your car insurance when you have a car accident
The purpose of this article is to explain how insurance works when you have a car accident. Each state requires a minimum amount of insurance. If you can afford it, you should consider purchasing additional coverage since the minimum required by the State of Maryland is often insufficient to cover your full loss from high repair bills, medical expenses and lawsuits and uninsured or under-insured drivers. Higher limits of coverage provide more protection against repair expenses, medical expenses and legal judgments which might be higher than the minimum coverage’s required by Maryland law. While the initial insurance coverage required by the State of Maryland is relatively expensive additional coverage up to as high as a million dollars is relatively cheap.
State minimum requirements:
1. LIABILITY INSURANCE
A. Liability insurance protects policyholders when they are at fault for an accident. There are two types of liability coverage that are required by state law:
1. bodily injury liability coverage –
a. The minimum amount of liability coverage required by Maryland Law is: $30,000 for bodily injury per person $60,000 bodily injury per accident
b. If you cause an accident and an injured person makes a claim or files a lawsuit against you, bodily injury coverage will: • Pay for a lawyer to defend you if you are sued; and • Pay the amount of medical expenses, lost wages and pain and suffering that you are legally responsible to pay to another person (up to the policy limits); or, • Pay an amount to settle these claims (up to the policy limits).
c. you will be personally responsible for any claim that exceeds the amount of insurance coverage you have.
I. If you have the Maryland required minimum of $30,000.00 and you at fault in an accident that leads to the death of the other drivers or broken bones or slowly healing sprains and strains $30,000.00 is likely to be insufficient and you could be liable for any part of the claim worth over $30,000.00.
II. If there are many people in the other car who are all injured the most the insurance company will pay for all of them together is $60,000.00. If the other car has a driver and 5 passengers for a total of 6 claims, then in effect there is only $10,000.00 for each person’s injuries.
III. If you are at fault the passengers in your car may also have a claim against you. Suppose you are driving car pool for 5 children in the neighborhood and you have a serious accident and some of the children are seriously injured. You may only have enough insurance coverage to pay each one $12000.00.
IV. If you are at fault and there are 5 cars involved and each car has five people in the car, for a total of 25 claims, the maximum your insurance will pay out will still be the $60,000.00 which is about $2400.00 per claim and you would be responsible for the rest of the claim
V. Suppose you hit a bus which has 60 passengers and you only have $60,000.00 in insurance. You would only have $1000.00 insurance for each passenger and you would be personally responsible for the rest.
2. property damage liability coverage.
a. The minimum amount of property damage coverage required by Maryland Law is $15,000
b. If you cause an accident that damages someone’s property (such as their car) and the property owner makes a claim or files a lawsuit against you, property damage liability coverage will: • Pay for a lawyer to defend you in the event that you are sued; and • Pay the amount of physical damage that you caused to vehicles or property that you do not own (up to the policy limits); or, • Pay an amount to settle these claims (up to the policy limits).
c. You would only need to pay if the claim exceeds the policy limit or if the claim was not covered under the terms of the policy.
d. If you are at fault in an accident and total the other driver’s new car< $15,000.00 is unlikely to cover the cost to repair the damage to the other driver’s vehicle. If the other driver’s vehicle is totaled, all new cars cost more than $15,000.00. Your insurance will pay up to $15,000.00 for the other driver’s rental car and damage to the car and you will be personally responsible for the balance.
2. UNINSURED MOTORIST (UM) COVERAGE
a. Uninsured motorist coverage will protect you if someone driving without insurance causes damage to your property or injures you or your passenger(s).
b. The minimum amount of liability coverage required by Maryland Law is: $30,000 for bodily injury per person $60,000 bodily injury per accident
c. Uninsured motorist coverage also applies when an auto damages your vehicle or injures you and leaves the scene of the accident without being identified.
d. This insurance covers repairs to your property, as well as medical expenses, lost wages, and pain and suffering.
e. The minimum amount of uninsured motorist coverage required by Maryland law is: $30,000 for bodily injury per person; $60,000 bodily injury per accident; and $15,000 property damage. In Maryland,
3. Under-insurance Coverage
a. Uninsured motorist coverage also includes underinsured motorist coverage, which is known as UIM coverage.
b. Under-insurance coverage provides you with bodily injury protection in the event you are involved in an accident where the at-fault driver has an insurance policy with liability limits that are less than your uninsured motorist limits, and your injuries exceed the at-fault driver’s available limits. You then can claim the difference under your own insurance policy.
c. As an example, if you are seriously injured in an accident and the at fault driver only has the state minimum requirement of $30,000.00 worth of liability insurance. Assume your medical expenses, lost wages and pain and suffering are worth $60,000.00. Assume you have your own car insurance policy that has $100,00.00 worth of Uninsured motorist coverage. You would receive $30,000.00 from the at fault drivers insurance company and the balance of $30,000.00 from your own insurance company.
4. PERSONAL INJURY PROTECTION (PIP) Up to the specified dollar amount of your coverage,
a. PIP coverage will reimburse you or others named on your policy or your passengers for reasonable and necessary medical expenses resulting from an auto accident, as well as lost wages up to the amount of PIP coverage you purchased.
b. This reimbursement will be made regardless of who caused the accident.
c. Maryland law requires insurers to offer their policyholders at least $2,500 in Personal Injury Protection (PIP) coverage. If you choose to purchase PIP coverage for all insured drivers and residents of the household above 16 years of age, this is known as “Full PIP.
d. You may elect to purchase limited PIP coverage. You may, however, elect not to purchase a portion of Full PIP. When you decline to purchase PIP for any listed driver and family members of your household (over 16 years of age), this is known as “Limited PIP”.
e. Certain individuals may be able to fully reject PIP coverage. If you meet certain conditions, MAIF and some other insurance companies may permit you to reject all PIP coverage.
f. Because PIP coverage may duplicate an individual’s health care coverage, some consumers choose to waive PIP if they feel they have adequate health care coverage and/ or can afford to pay for medical treatment.
g. Although waiving PIP results in a lower premium, you should keep in mind that PIP also pays lost wages and your household members’ medical expenses, which are not covered under health care policies.
5. Comprehensive Coverage
a. protects you from expenses related to damage or loss of your vehicle from theft or vandalism up to the limit of coverage you purchase.
b. Comprehensive insurance provides coverage for property damage to your insured vehicle resulting from occurrences other than collision, and is sometimes referred to as coverage for “acts of God.” Comprehensive insurance typically provides coverage for flood, theft, vandalism, glass breakage not resulting from an accident, and accidents in which the driver strikes an animal
c. Not required to carry this coverage unless required by your lender.
6. Collision Coverage
a. protects you from expenses related to damage or loss of your vehicle in three different scenarios
I. Collision coverage is provided regardless of who caused the accident.
II. You will use collision coverage to pay for damage to your vehicle when you are at fault in the accident
III. You can use collision coverage when you are not at fault, but the insurance for the other car is taking too long to decide whether they are going to pay for the damage to your car
IV. Use collision coverage when the other car has too little insurance to pay for the damage to your car and you have higher limits. You will eventually transfer this claim from a collision claim to an under-insured motorist claim.
V. Although Maryland law does not require you to purchase collision coverage, often banks and other financial institutions that lend you money to purchase your vehicle or lease you a vehicle, will require that you purchase both collision and comprehensive coverage to protect their interests in the vehicle.
VI. Collision Coverage pays to repair your vehicle or pays you what your vehicle was worth right before an accident occurred. If your insurer determines the vehicle is a total loss, this means that the cost to repair the vehicle exceeds 75% of the value of the vehicle.
VII. collision coverage is usually the most expensive component of your auto insurance premium. Many people may choose to purchase collision coverage with a high deductible. Generally, your premium decreases as the amount of the deductible increases. For example, if you hit a pole and the resulting damage to your vehicle is $1,200 and your deductible is $500, then the insurer will pay $700 to the body shop and you will pay the balance of $500.
7. Medical Payments Coverage (med-pay)
a. pays for medical expenses and related costs for you or others injured or killed while riding in your vehicle. In addition, this coverage will typically cover you or members of your family if hit by a vehicle while walking or riding in another vehicle.
b. Medical payments coverage is different from PIP coverage in that medical payments coverage will only pay medical expenses.
c. If you have health care coverage, you should consult your policy to determine whether you are duplicating coverage.
d. Maryland does not require you to purchase this coverage
8. Rental Reimbursement Coverage
a. pays for all or a portion of the cost of a rental vehicle while your vehicle is being repaired after an accident or a loss specifically protected under your comprehensive coverage.
b. Coverage is usually provided on a fixed rate basis per day, regardless of the actual daily cost of the rental, up to a maximum amount of days (usually not to exceed 30 days).
c. Maryland does not require you to purchase this coverage
9. Transportation Expense Coverage
a. covers additional transportation costs – such as car rental, bus fare, etc. – while your vehicle is being repaired after an accident or a loss covered under your comprehensive coverage.
b. Maryland does not require you to purchase this coverage
10. Towing and Labor Coverage
a. pays to tow your vehicle to a repair shop after an accident or a breakdown.
b. Members of auto clubs, such as AAA, may already have similar coverage.
c. Maryland does not require you to purchase this coverage
11. Mechanical Breakdown Coverage
a. pays to repair your vehicle after a mechanical breakdown (e.g. engine failure).
b. New car buyers are advised that mechanical breakdown coverage may be less expensive than purchasing an extended warranty through an auto dealer. Insurers offer this coverage either directly or as a separate policy.
c. Maryland does not require you to purchase this coverage
12. GAP insurance
a. Today’s automobiles are expensive and most consumers finance the purchase of a motor vehicle. However, the value of a motor vehicle will start to decline as soon as you drive it off the lot. As a result, many new and used car buyers find themselves “upside down,” owing more for the vehicle than the vehicle’s actual cash value at the time of a loss. It can be devastating if your vehicle is stolen and not recovered or is totaled in an accident and the actual cash value is less than the balance owed on the loan. The insurer paying for the accident is only required to pay you the actual cash value of the damaged vehicle at the time of the loss. Thus, you could be left in a situation where your vehicle is determined to be a total loss, but once you have been paid the value of the vehicle, you still owe a balance on your motor vehicle loan.
GAP insurance is an optional coverage that you can purchase to protect you in the event your vehicle is totaled and the actual cash value of the vehicle is less than the amount owed on the vehicle. Some insurers offer a replacement cost endorsement that would provide you with a new vehicle as a replacement for the damaged vehicle. GAP protection provides you with a policy that will pay the difference between the actual cash value of the vehicle paid pursuant to the auto insurance policy and the amount outstanding on the loan. This means that at the end of the claims process, you are not left with an outstanding balance due for a vehicle that no longer exists.
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