Basics of Insurance – Part I

I often find myself explaining how auto insurance “works” to family, friends, and clients. Even the basics of insurance can be difficult to understand. Unfortunately, the complexities of insurance often cause individuals to unknowingly expose themselves to serious risk when purchasing auto insurance. Through this and a subsequent post, I will explain auto insurance in Virginia. To begin, this post will discuss the basic types of coverage that come into play during a personal injury case.

“Liability coverage” (sometimes called third-party coverage) insures you against losses you cause to other people. For example, if I rear-end another car on the highway, my liability coverage may be available to compensate the property and personal injuries I cause.

When purchasing this insurance, you typically see a cluster of three numbers (e.g., $100,000/$300,000/$100,000). The first number represents the maximum amount your insurance company will pay per person for personal injuries. The second represents the maximum amount your insurance company will pay per accident for personal injuries. The third represents the maximum amount your insurance company will pay per accident for property damage.

“Uninsured motorist coverage” (sometimes called uninsured/underinsured coverage) protects you if someone else injures you but does not have sufficient insurance to compensate you for your injuries. For example, if I am rear-ended and the offending party does not have sufficient insurance to compensate my injuries, my own insurance company may pay me for the difference. This coverage is typically sold with the same cluster of three numbers as discussed with liability insurance.

“Medical expense benefits” (sometimes referred to as med pay) pay you for your medical bills sustained during an auto accident, regardless of who is at fault.

These are the basic coverage types that can come into play in an auto accident. Insurance policies, of course, include other types of coverage, such as collision and comprehensive coverage (covering damage to your own car), towing, etc.

In my next post, I will discuss the notable insurance laws in Virginia. These two posts should help you make an informed decision when purchasing insurance. Until then, here’s hoping that we are done with the snow!

Matthew C. Perushek
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