Liability Coverage is insurance for when you are liable -- for when there is bodily injury or property damage to others, and the accident is your fault. The minimum coverage required by law in Arizona is expressed as 15/30/10: $15,000 per person bodily injury, $30,000 per accident bodily injury, and $10,000 per accident property damage. For coverage higher than 15/30, typical increments are 25/50, 50/100, 100/300 and 250/500. The third number, property damage coverage, can vary by insurer.
Some insurers offer coverage expressed as "CSL". This is Combined Single Limit coverage. For example, a policy with 300 CSL has a total of $300,000 available for all damages -- injury and property damage combined. By comparison, coverage in the format "500/500/500" means that there is $500,000 available for all injuries, and a single person could receive the full $500,000 . . . and there is another $500,000 available for property damage.
How much insurance do I need?
"As much as you can afford" is one simple answer. People generally insure what they feel they have to lose, so the amount "you can afford" is tied in to what you believe you have to lose, as well as to how risk averse you are. If you can write a check for $15,000, then you need more than $15,000 coverage. If you own real estate other than your home, have your own business, more than one car, savings or investments, a well-paying job that leaves you with discretionary income -- you need enough coverage to protect those assets in the event you are liable for severe injuries to others. Considering the high cost of many vehicles today, you might want higher levels of coverage for the property damage coverage alone.
Uninsured and Underinsured Coverage
Liability coverage protects you when the accident is your fault. When the accident is the fault of the other party, their liability coverage compensates you for your loss. But what if the other party has no insurance (it has been estimated that up to one-third of Arizona drivers have no insurance), but has caused you serious injuries? With all the uninsured drivers in Arizona, you absolutely, positively, must have uninsured motorist (UM) coverage.
If you are seriously hurt, a bad day in the emergency room or a helicopter ambulance flight can easily exceed the minimum $15,000.00 coverage of the other party. In this case underinsured motorist (UIM) coverage protects you. You make a claim for underinsured motorist benefits after getting whatever the other party has and showing it to be insufficient.
While your insurance rates may increase if an accident is your fault, Arizona law prohibits your insurance company from raising your rates just for using your UM or UIM coverage.
Medical Payments Coverage or Personal Injury Protection
In Arizona we refer to this type of coverage as MedPay or MP. This is coverage under your automotive policy for the purpose of paying medical bills. Medpay is especially useful to pay for medical treatment such as physical therapy or chiropractic care, for which your health insurance may provide limited or no coverage. The cost of medpay coverage and the terms of coverage vary from carrier to carrier. Some insurance companies will claim that their medpay benefit covers only what your health insurance does not. This is referred to as "excess" medpay coverage. To collect on this coverage you generally have to provide proof of your out-of-pocket obligation to the medical provider. Some companies provide excess medpay coverage for free as a benefit of insuring with them. Some companies will pay only a portion of some bills, in the same way your health insurance would.
Collision coverage repairs or replaces your vehicle, less your deductible, regardless of fault. You need this coverage when there is no second vehicle involved, when the other vehicle is uninsured or there is a question as to coverage, when the other vehicle's property damage liability limit is insufficient, or when the other party's insurance company disputes liability.
After an accident, since you are required to repair or replace your vehicle as soon as possible, it is often advisable to go through your own insurance policy's collision coverage. Once the other party is determined liable, your insurer will attempt to get the money back from the other side -- including your deductible.
Comprehensive coverage is for damage to or loss of your vehicle by causes other than collision. This includes theft, fire, vandalism and flood. In Arizona, coverage to replace the glass in your vehicle, preferably without a deductible, is particularly desireable.
If your vehicle becomes a total loss, you may owe more than the vehicle is worth -- there is a gap between what you owe and what you will be paid. This situation is also referred to as being "upside down". Gap coverage is intended to close that gap and leave you owing nothing. You still will need to get a new vehicle, but at least you will be starting out even again.
When do you need gap coverage? Think of the various situations where you are likely to owe more than the vehicle is worth. These are when you pay too much for the vehicle, when your interest rate is high, and when your payment amounts are too low to quickly enough pay down the principal owed. If your deal revolves around the salesman asking "How much do you want your payments to be?", consider yourself in need of gap coverage. The slogan "Buy here, pay here" is another red flag. Any time you buy a used vehicle from a dealer, you should be questioning whether you need gap coverage.
This document is intended for informational purposes only and does not constitute legal advice, which may only be obtained through formal representation by a licensed attorney.
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