One of the more common issues we see during our consultations is confusion surrounding insurance coverages. Property damage, deductibles, full coverage – these terms are often misunderstood and used incorrectly. Once you’ve had an accident, customer service representatives creating your claim are almost always required to state all of your coverage information. If you’re not fully aware of what all or some of these terms mean, your introduction to the claims process can be a whirlwind! Being informed is crucial to ensuring you’re being treated fairly, so let’s discuss some important coverage terms.
Every state has required minimums for vehicles to be driven on public roads. This basic requirement is called liability coverage, which means that if a driver causes an accident, their insurance policy must pay for the damages caused to the other vehicle(s) involved in the accident, which are referred to as third-party claimants; first-party claimants are person(s) owning the policy through which the claim is being filed under. To help clarify, John owns a policy through Insurance Company A. John causes an accident and damages Jane’s vehicle. In this instance, Jane is a third-party claimant and John is a first-party claimant.
Liability coverage is often referred to as property damage, or PD for short. Without delving into liability coverage details, the amount of protection purchased by a driver may or may not be enough to pay for the total cost of repairing your vehicle; or in the event of a total loss, the coverage may not fully compensate you for the full value of your vehicle. For example, a person with $5,000 (Pennsylvania’s current state minimum) of liability coverage causes $4,000 of damage to your vehicle. In this instance, all of your repairs can be fully covered under the other person’s insurance policy. Conversely, if that same driver causes $6,000 worth of damage to your vehicle, their insurance policy will only pay out the maximum $5,000, leaving you two choices: (1) filing through your own policy where you may have to pay a deductible, or (2) personally pursuing the driver for the additional $1,000.
Outside of required liability coverages, insurance companies offer collision coverage and comprehensive coverage. Whereas liability coverage only pays for damages to third-party claimants, collision coverage pays for damages to the vehicle which causes an accident. In most states, collision coverage also pays for damages caused in hit-and-run situations and other types of accidents not covered under comprehensive coverages. For example, you’re involved in a single-car accident where you crash into a ditch, which damages your car. Collision coverage will either pay to have your vehicle fixed or pay the fair market value of your vehicle if it’s deemed a total loss. This type of coverage can also be used to fully repair your vehicle in the event when insufficient liability coverage exists for the at-fault driver.
The last common type of coverage is comprehensive coverage, which generally covers all types of perils outside of collisions that can damage your vehicle. Comprehensive coverage generally protects against incidents that are commonly referred to as “acts of God” – floods, fire, storm damage, and various sorts of calamities too numerous to mention here. The important thing to note is that along with liability and collision coverage, comprehensive coverage helps fully insure your vehicle, which is the proper definition of “full coverage.”
Two common misunderstandings our consultants routinely come in contact with involves the term full coverage. People often confuse this term with the expectation that an insurance company is required to repair their vehicle, regardless of cost, to a pre-accident condition. Another common expectation is that people assume their loan will be paid off fully in the event their vehicle is totaled. Neither of these situations are true. Understanding these basic terms is important for every vehicle owner to know in order to help make informed decisions necessary to financially protect their vehicles.