The Tort System
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.
Most auto liability insurance policies contain three major parts: liability insurance
for bodily injury; liability insurance for property damage; and uninsured/under-insured
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
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
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.