[ young today, rich tomorrow ]

Setting An Accident Straight: Car insurance explained

By Jennie Bartlemay, Chris Thomas on May 2nd, 2011 • Budgeting, Car Insurance, Owning a car
Originally appeared in: Summer 2011

The universe of auto insurance is vast. Every solar system is a state, every planet an insurance company, every moon an insurance agent, and all the tiny dust particles are you and me in our little cars crashing into each other. From shopping cart dents to 10-car pileups, each car accident is unique, which makes explaining the workings of such a universe almost impossible. However, there is some light to be shed on how elements of an insurance policy work, and what effects those elements will have when you file a claim.

Insurance basics

You pay a premium to your insurer on a fixed schedule (usually monthly). The type of insurance and the risk to insure a driver--assessed by age, gender, geographic location, traffic record, etc.--will determine that premium. In exchange, the insurer agrees to pay for damages in the event of an accident. You'll be covered up to the maximum monetary amount you choose for each type of coverage. Here are a few types:

  • Collision coverage. This covers damages to your car from a collision.
  • Comprehensive coverage. This covers your vehicle for losses from things other than collisions, like theft and damage from floods, fires, or hitting an animal.
  • Bodily injury liability. If you cause an accident, this covers the medical costs and loss of income for those you hurt. It also covers legal costs if you get sued.
  • Personal injury protection. Medical and funeral expenses are covered for you and your passengers, as well as any pedestrians you may hit.
  • Property damage liability. If you damage someone's property, this covers the costs. The property is usually a car, but could include sign posts, buildings or ceramic lawn gnomes.
  • Uninsured or underinsured. Your injury and vehicle damage costs are covered if hit by an uninsured or underinsured driver.
You've been in an accident. Now what?

Whether it's a fender bender or the back seat is violently introduced to the front seat, take immediate steps to make sure that everyone is safe or that medical help is on the way. Once the life and death emergency is addressed, start documenting.

If you can, record any information about the accident on the scene. The more information you can give your insurance agent, the better. Get the insurance and contact info of the other driver(s) involved. Also get contact information from any eyewitnesses. If the police aren't called, contact your local DMV office afterwards to file an accident report if anyone was injured or any vehicle was damaged beyond the state-specified limit ($750 in California, for example). Failure to do so can result in a driving suspension.

Next, file a claim with your insurance company right away, including as much information as possible about the accident. An adjuster will assess the claim and damages, negotiate the settlement, and work with attorneys if the claim is contested. The insurance company of the driver determined to be "at fault" should then pay out for damages incurred from the accident, though they may be reluctant to do so.

Lawyer up

If you're at fault, certain coverage plans provide a defense lawyer if you're sued. If you're not at fault, you still may want to get a lawyer. While hiring a lawyer may not be necessary for minor accidents, there are several scenarios where legal council may give you the best chance of receiving a fair settlement. For example:

  • Serious injury. When medical bills require payment larger than insurance covers, a personal injury lawyer will help sue for the total cost.
  • Fault dispute. Nobody likes to pay up, so be prepared to have council argue for justice.
  • Delayed payout. If it has been 30 or more days from the accident and you still haven't been paid, either there's been some miscommunication or a lawsuit is being prepared.

At the end of the day, how your insurance plays and pays out--whether you're at fault or not--depends on you. Though extra coverage can skyrocket your premium, having insufficient coverage could land you in a world of debt. While you may fancy yourself a world-class driver, everyone else on the road could have failed driver's ed. Base your insurance coverage on that.
 

The Bottom Line

Every year, insurance companies pay out $150 billion to policyholders filing claims. Be sure you understand the terms of your insurance policy (i.e., what's covered and what isn't) before hitting the road.

Sources: carinsurance.com; insure.com; iii.org; allinsuranceinfo.org; bls.gov; flhsmv.gov; geico.com; oregon.gov; dmvanswers.com; edmunds.com

William Smith

Well explained the whole functioning of insurance company. It seems harder for those companies to survive with increasing in number of accidents. Hope the country with good road structure might have low rate in terms of premium.

by William Smith on May 28, 2011
jenniebartlemay

 There are a lot of accidents. No wonder the system is so complicated. It's a lot of money, a lot of paperwork, and a lot of people. 

by jenniebartlemay on June 2, 2011

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <img> <p> <br> <blockquote>
  • Lines and paragraphs break automatically.

More information about formatting options

Image CAPTCHA
Enter the characters shown in the image.