Even though California auto insurance contracts are supposed to
written so that the average person can understand them, the standard
auto insurance contract can appear to be written in Ancient Greek to
the uninitiated. However, it's important to understand what the
different coverages listed on the contract are. Your California auto
insurance contract is a legally binding document that describes what
your insurance company will and will not be responsible for paying in
the event of an accident. Insurers generally offer several types of
coverage in California. Here is a brief description, in plain English,
of what they are and what they do.
Your liability coverages cover the damages that other people suffer
in an accident that's your fault. Liability coverage is subdivided into
two types of coverage: bodily injury liability, often abbreviated as
BI, and property damage, often written as PD. If you are in an accident
that is determined to be your fault, bodily injury liability will cover
the other person's medical bills and funeral expenses, if necessary.
Bodily injury liability generally has two limits: a per person limit,
which is the maximum amount your policy will pay for a single person,
and a per accident limit, which is the maximum amount your policy will
pay per accident. If the other person’s medical bills are higher than
your limits, don’t think you are off the hook. The other person or the
other person's health insurance company can sue you to try to collect
the remainder of the damages. That’s why it’s a good idea to carry more
than the minimum limits. Property damage liability pays to repair or
replace the property you damage in an at-fault accident, whether it's
another person's vehicle, a guard rail, or a lamp post.
Uninsured and underinsured motorists coverage
Usually abbreviated as UM/UIM, uninsured and underinsured motorists
coverage will pay for your medical expenses if you are hit by someone
who does not have an auto insurance policy. This coverage also protects
you if you are hit by someone who is insured, but who does not have
high enough liability limits to completely pay for the damage they
cause. Additionally, this coverage will pay for your damages if you are
involved in a hit and run, as long as you call the police immediately
afterwards. The highest amount of UM/UIM coverage you can take out for
property damage is $3,500. You don't have to have UM/UIM coverage at
all, but if you don't want it, the state requires you to submit a
signed, written request to your insurance company to have it removed
from your California auto policy.
This coverage often appears on your California insurance policy as
"Medpay." Medical payments coverage provides a set amount of coverage
for anyone riding in your vehicle to pay for medical expenses as a
result of an accident. This coverage kicks in any time there is an
accident, regardless of which driver is at-fault.
On your California auto insurance policy, this coverage is often
abbreviated as "Comp," or sometimes "OTC," for other-than-collision.
Comprehensive coverage covers any damage that occurs to your vehicle as
a result of something other than an accident. For example, if your car
is stolen, that's considered a comprehensive loss. Damage from weather,
fires and earthquakes is also covered under comprehensive coverage.
With comprehensive coverage, you agree to pay a deductible yourself,
and then the insurance company picks up the rest of the cost. The
higher the deductible you choose, the lower your premium will be.
Comprehensive and collision coverage will only pay up to the actual
cash value of your vehicle, which is usually quite a bit lower than
what you paid for it on the car lot. This is because your vehicle goes
down in value as you drive it, and the insurance company only wants to
reimburse you for the amount the car was worth at the time of the loss.
Most loan and lease companies require you to carry both comprehensive
and collision coverage on your vehicle.
Collision Coverage pays to repair or replace your vehicle if you are
involved in an at-fault accident. If you don't have collision coverage,
you are responsible for the cost of repairs yourself if you are in an
at-fault accident. If the other party is at fault, the cost is paid by
their insurance company, under their property damage coverage. With
collision coverage, you agree to pay a certain deductible before the
coverage kicks in. The higher the deductible you agree to, the lower
the premium. Collision coverage is not mandated by the state, but if
you are making payments on your car or leasing it, the bank will
require that you carry it to protect their interest in the vehicle. If
you are required to carry comprehensive and collision coverage as a
condition of your loan and you don't do it, the bank will take out
"force-placed" coverage on the vehicle and make you pay for it as part
of your loan. Alternately, they may repossess your car. Force-placed
insurance coverage is usually extremely expensive, so make sure that
your insurance policy meets the requirements of your loan or lease.
This coverage pays a set amount to reimburse you for the cost of
having your car towed, or for labor costs such as hiring a locksmith.
It does not pay for repairs to your vehicle.
Rental reimbursement pays a certain amount toward getting a rental
vehicle if you have to file a comprehensive or collision claim.