Auto Insurance Explained*

Bodily Injury (BI) & Property Damage

When we talk about California's minimum insurance limits, we are talking about the limits required for bodily injury (BI) and property damage. BI and property damage protects you from having to pay for damage caused to another in an accident. The state minimum is $15,000 per person, $30,000 per occurrence (per accident) and $10,000 of property damage. An example will now be provided.

Individual Alpha was driving on a freeway and hit Bravo's car.

Bravo was driving his friend's Charlie and Delta home at the time.

The following list explains the damages:

Alpha's car had $2,500 worth of damages

Bravo's car had $8,000 worth of damages

Alpha was hospitalized, and the bill was $5,000

Bravo was hospitalized, and the bill was $5,000

Charlie was hospitalized, and the bill was $10,000

Delta was hospitalized, and the bill was $20,000

With that example in mind, Alpha has the state minimum. Here is how this situation will play out. Alpha will not receive any money for the damage to his car, and Alpha is responsible for his hospital bill. Alpha's insurance will cover the damage to Bravo's car because it was below $10,000. Alpha's insurance will also cover the full hospital bill for Bravo and Charlie. However, it will only cover $15,000 of Delta's hospital bill. There are two reasons for this. First, the policy only covers $15,000 per person. Second, the policy only covers $30,000 per accident, and if the policy was to pay the full amount it would exceed the $30,000. In this situation, Delta may sue Alpha personally for the remaining $5,000, and Alpha will have to pay it. 

The example above illustrates why some individuals elect to go with higher limits. If you are a homeowner, it is important to have adequate insurance, and here is why. Take the example above, but assume Bravo, Charlie, and Delta each accrued a $25,000 hospital bill. Your insurance will cover $30,000, but you are on the hook for $45,000. If you do not have $45,000 lying around or burried in your backyard, they could come after your home to collect the $45,000. However, if the homeowner has limits of $100,000/$300,000 BI and $50,000 property, they are completely covered in the example above. LET US BE CLEAR, THIS IS NOT TO SCARE YOU, BUT TO EDUCATE YOU. Being in the industry, you hear and see the craziest stories, which is why we make sure our clients are informed. If you still have any questions about how BI & Property damage work, please give us a call and we will be happy to explain it. If you are uncertain if your coverage is adequate for your situation, give us a call, and we can do a free coverage analysis for you.

For those considering leasing a car, many LEASING COMPANIES REQUIRE you to carry liability limits ABOVE the state minimum. Please factor the cost of insurance with the higher limits into your monthly budget before leasing a car.

Comprehensive & Collision (Full Coverage)

Quick Facts:

  • Comprehensive and collision can help repair or replace your vehicle
     

  • Comprehensive and Collision are optional coverages UNLESS your financing or leasing company requires them (they typically require you to carry full coverage)
     

  • You have choices for different deductibles
     

  • Comprehensive coverage is required in order to add collision coverage

Comprehensive insurance (Also referred to as "Other than Collision") covers your car from all listed events that are not an accident. Traditionally, comprehensive will cover a vehicle that was stolen and not recovered, vandalism, riots, fire, hail, and hitting an animal. When your car is damaged due to events other than an actual accident, your insurance will pay to cover the cost of repairing the vehicle, less your deductible. 

 

For instance, in the example listed in the BI section, if you are Alpha, and instead of hitting another car, you ran into a fire hydrant causing $2,500 damage to your car, and $500 damage to the fire hydrant. Let us further assume you have full coverage with $500 deductible. the property damage will be covered by your liability policy, and the insurance will pay $2,000 to repair your car. You will be responsible for the $500 deductible.

 

THE DEDUCTIBLE YOU SELECT WILL FACTOR INTO THE COST OF YOUR AUTO INSURANCE PREMIUM. HIGHER DEDUCTIBLES LOWER YOUR PREMIUM, WHILE LOWER DEDUCTIBLES RAISE YOUR PREMIUM. WE ARE ALWAYS HAPPY TO PROVIDE YOU A QUOTE WITH HIGH AND LOW DEDUCTIBLES TO ALLOW YOU TO MAKE AN INFORMED DECISION.  

 
 

Bodily Injury (BI) & Property Damage

When we talk about California's minimum insurance limits, we are talking about the limits required for bodily injury (BI) and property damage. BI and property damage protects you from having to pay for damage caused to another in an accident. The state minimum is $15,000 per person, $30,000 per occurrence (per accident) and $5,000 of property damage. An example will now be provided.

 

Individual Alpha was driving on a freeway and hit Bravo's car.

Bravo was driving his friend's Charlie and Delta home at the time.

The following list explains the damages:

Alpha's car had $2,500 worth of damages

Bravo's car had $4,000 worth of damages

Alpha was hospitalized, and the bill was $5,000

Bravo was hospitalized, and the bill was $5,000

Charlie was hospitalized, and the bill was $10,000

Delta was hospitalized, and the bill was $20,000

With that example in mind, Alpha has the state minimum. Here is how this situation will play out. Alpha will not receive any money for the damage to his car, and Alpha is responsible for his hospital bill. Alpha's insurance will cover the damage to Bravo's car because it was below $5,000. Alpha's insurance will also cover the full hospital bill for Bravo and Charlie. However, it will only cover $15,000 of Delta's hospital bill. There are two reasons for this. First, the policy only covers $15,000 per person. Second, the policy only covers $30,000 per accident, and if the policy was to pay the full amount it would exceed the $30,000. In this situation, Delta may sue Alpha personally for the remaining $5,000, and Alpha will have to pay it. 

The example above illustrates why some individuals elect to go with higher limits. If you are a homeowner, it is important to have adequate insurance, and here is why. Take the example above, but assume Bravo, Charlie, and Delta each accrued a $25,000 hospital bill. Your insurance will cover $30,000, but you are on the hook for $45,000. If you do not have $45,000 lying around or burried in your backyard, they could come after your home to collect the $45,000. However, if the homeowner has limits of $100,000/$300,000 BI and $50,000 property, they are completely covered in the example above. LET US BE CLEAR, THIS IS NOT TO SCARE YOU, BUT TO EDUCATE YOU. Being in the industry, you hear and see the craziest stories, which is why we make sure our clients are informed. If you still have any questions about how BI & Property damage work, please give us a call and we will be happy to explain it. If you are uncertain if your coverage is adequate for your situation, give us a call, and we can do a free coverage analysis for you.

For those considering leasing a car, many LEASING COMPANIES REQUIRE you to carry liability limits ABOVE the state minimum. Please factor the cost of insurance with the higher limits into your monthly budget before leasing a car.

Comprehensive & Collision (Full Coverage)

Quick Facts:

  • Comprehensive and collision can help repair or replace your vehicle
     

  • Comprehensive and Collision are optional coverages UNLESS your financing or leasing company requires them (they typically require you to carry full coverage)
     

  • You have choices for different deductibles
     

  • Comprehensive coverage is required in order to add collision coverage

Comprehensive insurance (Also referred to as "Other than Collision") covers your car from all listed events that are not an accident. Traditionally, comprehensive will cover a vehicle that was stolen and not recovered, vandalism, riots, fire, hail, and hitting an animal. When your car is damaged due to events other than an actual accident, your insurance will pay to cover the cost of repairing the vehicle, less your deductible. 

 

For instance, in the example listed in the BI section, if you are Alpha, and instead of hitting another car, you hit a deer causing $2,500 damage to your car. Let us further assume you have full coverage with $500 deductible. The insurance will pay $2,000 to repair your car. You will be responsible for the $500 deductible.

 

THE DEDUCTIBLE YOU SELECT WILL FACTOR INTO THE COST OF YOUR AUTO INSURANCE PREMIUM. HIGHER DEDUCTIBLES LOWER YOUR PREMIUM, WHILE LOWER DEDUCTIBLES RAISE YOUR PREMIUM. WE ARE ALWAYS HAPPY TO PROVIDE YOU A QUOTE WITH HIGH AND LOW DEDUCTIBLES TO ALLOW YOU TO MAKE AN INFORMED DECISION.  

Collision insurance is exactly what it sounds like. It covers your car in instances when you are at fault and hit another car, or a fixed object such as a guard rail, lamp post, or telephone pole.

For instance, in the example listed in the BI section, if you are Alpha, your car has $2,500 worth of damages. Let us further assume you have full coverage with $500 deductible. the BI & property limits will cover what was listed above, and the insurance will pay $2,000 to repair your car. You will be responsible for the $500 deductible.

A second example would be that Alpha, instead of hitting a car, ran into a telephone pole. The same amount of damages to the car, but the telephone pole also received $500 of damages. The property damage will cover the telephone pole, and the insurance will still pay $2,000 to repair your car, leaving you to cover the remaining $500 for your car.

THE DEDUCTIBLE YOU SELECT WILL FACTOR INTO THE COST OF YOUR AUTO INSURANCE PREMIUM. HIGHER DEDUCTIBLES LOWER YOUR PREMIUM, WHILE LOWER DEDUCTIBLES RAISE YOUR PREMIUM. WE ARE ALWAYS HAPPY TO PROVIDE YOU A QUOTE WITH HIGH AND LOW DEDUCTIBLES TO ALLOW YOU TO MAKE AN INFORMED DECISION.  

Uninsured/Underinsured Motorist Coverage

Uninsured/underinsured motorist coverage is exactly what it sounds like. ACCORDING TO THE INSURANCE RESEARCH COUNCIL 1 OF EVERY 8 DRIVERS ON THE ROAD ARE UNINSURED. 

So what does this mean for the other 7 drivers who are insured?

If you get hit by someone without insurance, your options are limited. You either pay out of pocket, or sue the individual directly. BUT LET'S BE REALISTIC. ONE WHO DOES NOT PURCHASE INSURANCE, WILL PROBABLY NOT HAVE ENOUGH ASSETS FOR YOU TO RECOVER YOUR LOSSES. With full coverage, your car can be repaired as long as you pay the deductible, but you will be responsible for any bodily injury claims. 

SO HOW DO I PROTECT MYSELF?

This is where uninsured/underinsured motorist coverage comes in:

  • Uninsured Motorist Bodily Injury Coverage - covers your medical expenses, lost wages, emotional distress, pain and suffering…that sort of thing. But it doesn’t cover car damages resulting from the collision.
     

  • Uninsured Motorist Property Damage Coverage - covers damages to your vehicle but it wouldn’t cover bodily injuries.