The Tort System
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| Insurance provides protection to consumers by
assuming certain risks and promising to pay for financial losses. The type of
insurance you will buy will be based on how the financial loss can occur.
Depending on the type of legal and financial responsibility system used in your
state, you will need to purchase either automobile liability insurance or
no-fault insurance. Many states require that you purchase some kind of
insurance coverage to drive legally in the state. |
Liability Insurance
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| Most auto liability insurance policies contain
three major parts: liability insurance for bodily injury; liability insurance
for property damage; and uninsured/under-insured motorists coverage. |
| 1.) Bodily injury liability insurance does
not protect you or your car directly. If you are the cause of an accident in
which other people are injured, this insurance protects you against their
claims for damages such as medical expenses, lost wages, and pain and
suffering. This insurance coverage will also pay if the accident was caused by
a member of your family living with you or a person using your car with your
consent. |
| Bodily injury liability insurance carries
specific benefit limits. These limits address how much money your insurance
company is committed to pay for any one victim injured in an accident and
limits the amount they must pay for multiple victims. |
| To make a smart consumer purchase, you must
understand these limits for bodily injury liability insurance. In most states
you will be required by law to purchase minimum amounts of bodily injury
coverage. However, these minimum amounts are generally low and you may decide
to purchase additional coverage. This decision may be based on your desire to
protect your assets from additional claims above the minimum amounts. If this
is the case, keep in mind that as you raise your coverage, your premiums will
increase. This is because you are asking the insurance company to assume
responsibility for a higher claim. The extra cost of higher coverage tends to
be relatively low. |
| 2.) Property damage liability insurance pays
for any damage you cause to the property of others, such as a crushed fender,
broken glass, or a damaged wall or fence. Your insurance will pay for this
damage whether you are driving your automobile or whether it was being driven
by another person with your consent. Once again there will be maximum limits
set by your policy on the claims your insurance company commits to pay as a
result of property damage losses, as well as a minimum limit set by the state
on how much coverage you must buy. |
| 3.) Uninsured motorists coverage protects
you directly. This coverage pays if you are injured by a hit-and-run driver or
a driver who does not have auto insurance. This coverage in effect takes the
place of the insurance that the other driver should have purchased but did not.
Some policies also contain coverage for under-insured drivers. These are
drivers who purchased insurance but not enough to cover your claim. |
| Once again, uninsured motorists coverage will
have policy limits. In addition, the state may require you to purchase specific
minimum amounts of coverage. Uninsured motorists coverage does not protect the
other driver and it may not cover damage to your vehicle. Your insurance
company may sue the other driver for any money the company pays to you because
of the other driver's negligence. |
| The three coverages mentioned above are the
basic coverages contained in liability policies sold under the tort system.
However, when you purchase auto insurance you will have to decide what other
insurance coverages you would like to purchase. |
| Another way to provide higher limits of
liability inexpensively is by purchasing a personal umbrella policy. An
umbrella policy provides broad liability protection over and above your auto
policy's liability limits. It will also cover some exposures to loss that are
not covered by your auto or homeowner's policies. |
