What You Should Know About Auto Insurance
In our society, the transfer of risk between people is accomplished through insurance. In exchange for a known loss (payment of an insurance premium), the risk of a large catastrophic loss (payment of thousands of dollars for damage to property) is transferred to the insurance company through the insurance policy.
In auto insurance, there is first party coverage and third party coverage. First party coverage covers you and your property for medical expenses and damage to your vehicle as well as creates a duty on the insurance company to defend you in the event that you are sued as the result of your operation of a vehicle. Third party coverage pays for injuries caused to other people, whether in your vehicle or another vehicle involved in the accident. The coverage, and the exclusions from coverage, are set forth in your insurance policy. In exchange for the payment of a premium, an insurance company promises to provide compensation in the event of certain occurrences. You can speak to an insurance representative to find out more about the options available to you, and their costs. Before purchasing auto insurance, it's wise to shop around and purchase the coverage that best suits your needs. It's important to consider factors such as customer service, claims paying ability, claims payment record, general reputation, costs, deductibles and how the insurers are rated by independent organizations such as A.M. Best, Fitch, Moody's, Standard and Poors and Weiss.
In determining what liability limits are necessary, one should consider the amount of their exposure. As a general rule, the more property and wealth you have accrued, the greater the exposure and need for protection against claims from third parties. Liability limits are often set as a combination of numbers, such as 15/30, which means coverage of loss of up to $15,000 per person and up to $30,000 for all injuries which occur in a single accident. Many states require a minimum amount of third party liability insurance be purchased before driving a vehicle on public roads. This is referred to as the minimum liability limit. However, the minimum liability limit may be inadequate to protect your property and wealth. Increased limits, such as 100/300 or 300/500 are very common and can generally be purchased at modest additional cost to you.
Your vehicle itself can be covered in several different ways. Comprehensive coverage provides coverage for loss to your vehicle due to certain proximate causes such as fire, theft, vandalism and acts of nature. Collision covers damage to your vehicle in the event that it collides with another vehicle or object, often regardless of who is at fault. Both comprehensive and collision coverage may be subject to a deductible, which means that damage to the vehicle must exceed the deductible amount before the insurance company will pay you for a covered loss. Deductibles for this coverage are available is various amounts. As a general rule, a higher deductible decreases your insurance premium.
Most insurance policies require a Notice of Loss to be provided to the insurance company, which means that you must contact your insurance company after an accident and tell them what happened. Should you fail to tell your insurance company about an accident in a timely manner, the insurance company may try to deny coverage for the occurrence.
After you have notified your insurance company of an accident, the policy may require you to "Tender the Defense" of any claims arising out of the occurrence to the insurance company. This means that you are required to allow the insurance company to hire an attorney or otherwise participate in the settlement and litigation of claims against you by third parties. This also protects you as the insurance company will provide a defense for you in the event that you are sued as a result of your operation of a vehicle.
Once an insurance company has provided benefits to you, such as the repair of your vehicle under collision damage coverage, you must give the subrogation rights arising from the accident to the insurance company. This means that once your insurance company has "made you whole" after a loss, you must give your right to pursue negligent third parties for compensation to the insurance company. This enables the insurance company to be "made whole" for its payment to you by recovering damages from the negligent third party. In other words, if your insurance company pays you for damages incurred in an accident which was not your fault, you give the insurance company the right to sue the party at fault and give up the right to sue on your own.
Many states and insurance companies require the mandatory arbitration of disputes arising out of auto accidents. In a mandatory arbitration state or insurance policy, liability for damages must be determined as a result of an arbitration process before a civil lawsuit can be filed in the court system. In arbitration, neutral arbitrators (knowledgeable practicing attorneys) are selected and evidence is presented to them. The arbitrators then determine the amount of the arbitration award. If the arbitration award is agreed to by both parties, the matter is ended and the arbitration award may be made a court judgment for further enforcement purposes. If either of the parties involved refuses to accept the arbitration award, a lawsuit may then be filed to have a new trial in a court of law, with liability to be determined by a judge or jury.