What follows is a simplified, plain-language description of the most common categories of auto insurance coverage and how they may benefit you.
Bodily Injury Liability
If another person is injured because of your carelessness or the carelessness of someone driving your car, this coverage typically requires your insurance company to pay the claim. The company’s obligation is limited, however, to the amount of coverage you purchased. For example, if your liability limits are the minimum of $20,000 per person and $40,000 per accident, your company will pay no more than $20,000 to each injured person and no more than $40,000 total for any one accident.
This is similar to bodily injury liability except that it covers damage to another person’s property rather than physical injuries. The company’s obligation to pay also is limited to the amount of coverage you buy.
This category of protection generally requires your insurance company to pay for damage to your car caused by something other than an auto accident (for example, fire, theft or vandalism). The company’s obligation to you will be limited by the amount of any “deductible” you may have purchased. A $100 deductible means that you pay the first $100; the company pays the rest.
Your insurance company pays for damage to your car caused by an auto accident. Deductibles also are common with this coverage.
Personal Injury Protection (PIP)
Your company will pay the reasonable medical expenses of anyone in your car who is injured in an accident. Under this coverage, it does not matter who was at fault in the accident. You and most members of your household need not be in a car for this coverage to apply. For example, you also would be covered if struck by a car while you were a pedestrian. A portion of your lost earnings is also covered by this type of insurance. As with liability insurance, the company’s obligation is limited to the amount of coverage you buy.
Uninsured Motorist (UM)
If an uninsured driver injures you or other occupants of your car, this coverage will pay your claims for physical injuries. It serves as a substitute for the bodily injury liability insurance that the other driver did not have. This coverage also is limited to the amount of insurance you buy. As with personal injury protection coverage, payment is not limited to automobile occupants.
Underinsured Motorist (UIM)
If a driver injures you or your car’s occupants, and his liability insurance is insufficient to cover the full value of your claims for physical injuries, this coverage will make up the difference. Again, your company’s obligation is limited to the amount of coverage you purchase. Like personal injury protection and underinsured-motorist coverage, it is not limited to automobile occupants.