What You Should Know About Auto Insurance

UPDATED: Jul 19, 2023Fact Checked

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Brandon Frady

Licensed Insurance Agent

Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...

Licensed Insurance Agent

UPDATED: Jul 19, 2023

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UPDATED: Jul 19, 2023Fact Checked

In our society, the transfer of risk between people is accomplished through insurance. In exchange for a known loss (payment of an insurance premium), the risk of a large catastrophic loss (payment of thousands of dollars for damage to property) is transferred to the insurance company through the insurance policy. In auto insurance, there is first party coverage and third party coverage. First party coverage covers you and your property for medical expenses and damage to your vehicle as well as creates a duty on the insurance company to defend you in the event that you are sued as the result of your operation of a vehicle. Third party coverage pays for injuries caused to other people, whether in your vehicle or another vehicle involved in the accident. The coverage, and the exclusions from coverage, are set forth in your insurance policy. In exchange for the payment of a premium, an insurance company promises to provide compensation in the event of certain occurrences. You can speak to an insurance representative to find out more about the options available to you, and their costs. Before purchasing auto insurance, it’s wise to shop around and purchase the coverage that best suits your needs. It’s important to consider factors such as customer service, claims paying ability, claims payment record, general reputation, costs, deductibles and how the insurers are rated by independent organizations such as A.M. Best, Fitch, Moody’s, Standard and Poors and Weiss. In determining what liability limits are necessary, one should consider the amount of their exposure. As a general rule, the more property and wealth you have accrued, the greater the exposure and need for protection against claims from third parties. Liability limits are often set as a combination of numbers, such as 15/30, which means coverage of loss of up to $15,000 per person and up to $30,000 for all injuries which occur in a single accident. Many states require a minimum amount of third party liability insurance be purchased before driving a vehicle on public roads. This is referred to as the minimum liability limit. However, the minimum liability limit may be inadequate to protect your property and wealth. Increased limits, such as 100/300 or 300/500 are very common and can generally be purchased at modest additional cost to you. Your vehicle itself can be covered in several different ways. Comprehensive coverage provides coverage for loss to your vehicle due to certain proximate causes such as fire, theft, vandalism and acts of nature. Collision covers damage to your vehicle in the event that it collides with another vehicle or object, often regardless of who is at fault. Both comprehensive and collision coverage may be subject to a deductible, which means that damage to the vehicle must exceed the deductible amount before the insurance company will pay you for a covered loss. Deductibles for this coverage are available is various amounts. As a general rule, a higher deductible decreases your insurance premium. Most insurance policies require a Notice of Loss to be provided to the insurance company, which means that you must contact your insurance company after an accident and tell them what happened. Should you fail to tell your insurance company about an accident in a timely manner, the insurance company may try to deny coverage for the occurrence. After you have notified your insurance company of an accident, the policy may require you to “Tender the Defense” of any claims arising out of the occurrence to the insurance company. This means that you are required to allow the insurance company to hire an attorney or otherwise participate in the settlement and litigation of claims against you by third parties. This also protects you as the insurance company will provide a defense for you in the event that you are sued as a result of your operation of a vehicle. Once an insurance company has provided benefits to you, such as the repair of your vehicle under collision damage coverage, you must give the subrogation rights arising from the accident to the insurance company. This means that once your insurance company has “made you whole” after a loss, you must give your right to pursue negligent third parties for compensation to the insurance company. This enables the insurance company to be “made whole” for its payment to you by recovering damages from the negligent third party. In other words, if your insurance company pays you for damages incurred in an accident which was not your fault, you give the insurance company the right to sue the party at fault and give up the right to sue on your own. Many states and insurance companies require the mandatory arbitration of disputes arising out of auto accidents. In a mandatory arbitration state or insurance policy, liability for damages must be determined as a result of an arbitration process before a civil lawsuit can be filed in the court system. In arbitration, neutral arbitrators (knowledgeable practicing attorneys) are selected and evidence is presented to them. The arbitrators then determine the amount of the arbitration award. If the arbitration award is agreed to by both parties, the matter is ended and the arbitration award may be made a court judgment for further enforcement purposes. If either of the parties involved refuses to accept the arbitration award, a lawsuit may then be filed to have a new trial in a court of law, with liability to be determined by a judge or jury.

Case Studies: Auto Insurance

Case Study 1: Understanding Auto Insurance Coverage

Mike is in the process of purchasing auto insurance and wants to understand the different types of coverage available. Mike learns about first-party coverage and third-party coverage in auto insurance. He understands that first-party coverage protects him and his property for medical expenses and vehicle damage, while third-party coverage pays for injuries caused to other individuals involved in an accident. Mike also realizes the importance of carefully reviewing his insurance policy to understand the coverage and exclusions.

Case Study 2: Determining Liability Limits

Sarah wants to determine the appropriate liability limits for her auto insurance policy. Sarah recognizes that liability limits are crucial for protecting her property and wealth in case of an accident. She learns about different liability limit combinations, such as 15/30, which represent the coverage amounts for individual injuries and all injuries in a single accident. Sarah understands that the minimum liability limit required by the state may not provide adequate protection and considers higher limits for better coverage.

Case Study 3: Understanding Comprehensive and Collision Coverage

John wants to comprehend the coverage options for his vehicle itself. John learns about comprehensive coverage and collision coverage. He understands that comprehensive coverage protects against losses due to fire, theft, vandalism, and acts of nature, while collision coverage covers damage to his vehicle in the event of a collision. John also becomes aware of the deductibles associated with these coverages and their impact on insurance premiums.

Case Study 4: The Importance of Timely Reporting and Defense Tender

Emma has been involved in an accident and wants to ensure she follows the necessary steps with her insurance company. Emma understands the importance of promptly reporting the accident to her insurance company, as required by her policy. She learns about the Notice of Loss requirement and the duty to tender the defense of any claims arising from the accident to the insurance company. Emma realizes that failing to comply with these requirements may impact her coverage and defense in case of a lawsuit.

Case Study 5: Mandatory Arbitration in Auto Insurance

Alex lives in a state with mandatory arbitration for auto insurance disputes and wants to understand the process. Alex learns about the mandatory arbitration process in auto insurance, where neutral arbitrators review evidence and determine the amount of the arbitration award. They realize that if both parties agree to the arbitration award, the matter is resolved, but if either party refuses to accept it, a lawsuit can be filed for a new trial in a court of law.

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Brandon Frady

Licensed Insurance Agent

Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...

Licensed Insurance Agent

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

Get Legal Help Today

Find the right lawyer for your legal issue.

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