HE-0661, Reprinted August 1998. Fred Waddell, Extension Family Resource Management Specialist, Associate Professor, Human Development and Family Studies, Auburn University. Originally prepared by Josephine Turner, Extension Program Specialist, Professor, Human Development and Family Studies, Auburn University.

---

What Your Auto Insurance Covers

Why You Need Automobile Insurance

Your car is a major investment. Transportation costs for the average family use up a large part of monthly take-home pay. Only housing and food cost more. So, insurance for your car is important to have.

According to the National Safety Council, auto accidents in the United States caused about 47,900 deaths in 1986. Another 5.3 million people were injured. Expenses from auto accidents continue to rise, because it costs more to care for victims, repair damage, and provide other services. In 1986, car accidents cost $80 billion. That is about $440 for every person in the United States.

Car accident losses include property damage, medical costs, time lost from work, costs of emergency services, legal and court costs, and insurance management costs. Because of the risk of such large economic losses, car owners need automobile insurance for protection.

What Automobile Insurance Covers

Auto insurance covers bodily injury and property damage. The following table shows the risks covered by each type.

A Summary of Basic Coverages
	Policyholder	Other persons
Bodily injury
Liability	no	yes
Medical payments	yes	yes
Protection against uninsured motorists	yes	yes
Property damage
Liability	no	yes
Comprehensive physical damage	yes	no
Collision	yes	no
A "yes" indicates insurance coverage. A "no" indicates no insurance coverage. Source: Insurance Information Institute

You can get these six basic coverages in several combinations and for various amounts. You may be able to buy some of these separately, but most people get a package policy.

Basic liability coverage for both bodily injury and property damage is vital. You run the risk of financial disaster if you don't have this coverage. Most states require car owners to carry liability insurance, but as of May 1991 auto insurance isn't required in Alabama, although it is currently being considered by the State Legislature.

Alabama does have a financial responsibility law that applies if you are at fault in a wreck and you don't have insurance. In this case, your driver's license and vehicle registration may be taken away unless you post bond for damages or pay off the damages.

Today, in Alabama, the lowest amount of liability coverage you can buy under a split-limit plan is 20/40/10. This plan pays up to $20,000 for bodily injury for any one person in a single accident; up to $40,000 total for all injured in a single accident; and up to $10,000 for the property damage in a single accident.

With today's high medical costs and the higher cost of new cars, the minimum coverage may not be enough. It doesn't cost much more to get added coverage to help prevent the risk of money losses if you're held responsible for an accident. Experts suggest buying at least 100/300/25 under a split-limit plan, or $300,000 under a single-limit policy.

Some policies set a single limit for liability insurance, such as $300,000, and pay up to that amount regardless of the number of persons injured or amount of property damage.

The Six Basic Coverages

1. Bodily Injury-Liability. This coverage pays for the injury, sickness, or death of others resulting from an accident in which you are judged liable (responsible). The amount paid will not be more than the limits of your policy. You must pay any extra amount yourself. This also provides for your legal defense if you're sued.

2. Bodily Injury-Medical Payments. This coverage pays the medical expenses resulting from accidental injury to you and any passengers in your car, up to your policy's limit. It often pays whether you are in your car, in someone else's car, or walking. Payment is made regardless of who is at fault.

The policy pays necessary medical, surgical, X-ray, dental service, ambulance, hospital, professional nursing, and even funeral services, within a certain amount of time. It pays only up to the limit of your policy. Companies sell coverage in various amounts, usually from $1,000 to $5,000 for each person involved. A few companies double the payment if you were wearing a seatbelt when the accident occurred.

3. Bodily Injury-Protection Against Uninsured Motorists. This coverage provides immediate payment for bodily injury to you and passengers in your car, to you while riding in someone else's car, or to you while walking.

This protection would apply to an accident caused by an at-fault, hit-and-run driver, or by a driver without insurance who was at fault. An estimated 24 percent of car owners in Alabama don't have liability insurance. This means you need coverage in case you are hit by an uninsured driver.

In Alabama the amount of uninsured motorist protection you can buy is 20/40. This means up to $20,000 for one person, with a maximum of $40,000 for the accident.

As of January 1, 1985, Alabama uninsured motorist coverage contains underinsured motorist coverage. This means if you're in an accident and the other person's limit of liability does not cover your damage, your own underinsured coverage will start where the other person's stopped and pay up to the limit of your policy.

4. Property Damage-Liability. This coverage pays for the damage caused by your car to property of others if you are responsible for the accident. It also covers you and any family members living in your household, while driving someone else's car with the owner's permission. It will pay for your legal defense if you are sued.

5. Property Damage-Comprehensive Physical Damage. This coverage pays if your car is damaged by events other than an automobile accident. This includes theft, hail, fire, glass breakage, water damage, vandalism, falling objects, and other events. Comprehensive coverage is usually necessary for a new car or any car you finance through a loan institution. A deductible amount is usually written into the contract. Comprehensive partly pays for expenses such as renting a car or use of taxi or bus service if your car is stolen. Towing service can be added to your comprehensive insurance for a small cost. If you belong to an automobile club, towing may be included in your membership, so be sure you don't pay for the service twice.

6. Property Damage-Collision. This insurance coverage pays for damages to your car resulting from a collision with another vehicle or object, regardless of who is at fault. It doesn't cover injuries to people or damage to the property of others. Insurance companies will pay only the actual cash value of the car based on the car's age and condition. So, this coverage is important for a new car but could be a waste of money on an older model. A $100 to $500 deductible is usually written into the contract.

For more information, contact your county Extension office. Look in your telephone directory under your county's name to find the number.