By William P. Gavin
Many people believe that they have good or adequate automobile insurance because they have “full coverage.” An automobile insurance policy typically consists of a number of different types of insurance and the term “full cover” means very little when considering whether the insurance coverage provided by a policy is good or even adequate.
The liability insurance contained in automobile insurance is probably the most familiar to the average consumer. This coverage states that the insurance company will defend any claim brought against the insured by someone claiming that the insured caused personal injury or property damage as a result of the operation of the insured vehicle. The policy will also provide that the insurance company has the option to settle any such claim and has the obligation to pay any judgment resulting from the claim up to an amount not greater than the amount commonly known as the “limits.”
The term “limits” simply is the maximum amount the insurance company will pay under any particular coverage of a policy. The limits will vary from coverage to coverage contained in the policy. For example, the limits for liability coverage will be different than the limits for medical payments coverage, if any, in the policy.
Medical payments coverage is insurance that is also often found in automobile insurance policies. This coverage states that the insurance company will pay the medical expenses of the insured when the insured is injured while occupying the insured automobile. For medical payments coverage, the insured is either the person named in the policy or anyone else occupying the automobile. Again, the amount the insurance company will pay is defined in the policy.
Medical payments coverage does not depend on fault. It is a type of insurance intended to provide medical treatment for someone who is injured while occupying an automobile.
An automobile insurance policy also contains various coverages for damage to the automobile. For example, the policy may provide coverage if the automobile is damaged by acts of nature, wind, hail, etc. and by collision with another automobile. This type of coverage, again, does not depend on fault. For example, if a tree falls on your automobile, the coverage typically known as comprehensive coverage will pay to have your automobile repaired. Also, if another person strikes your automobile, your insurance company must repair the automobile even thought he other driver might have been at fault. This type of property insurance coverage typically involves a deductible that the insured is required to pay.
The most important automobile insurance coverage
For the average consumer, the least understood but the most important coverages in the automobile insurance policy are the uninsured and underinsured coverages. These coverages protect the insured from the catastrophic effects of injury caused by an uninsured or underinsured driver.
Uninsured motorist coverage states that if an insured is injured by the operator of an automobile that is not insured, the insurance company issuing the uninsured coverage will pay the damages the injured insured could have recovered from the uninsured driver. Underinsured coverage requires the insured’s insurance company to pay the difference between the insured’s damages and what the insured is able to recover from the at-fault driver. Underinsured motorist coverage is important when the at-fault driver does not have enough insurance to pay the full damages caused by his negligence.
The critical issue in uninsured and underinsured motorist coverage is the limits. For example, if the limits of your insurance policy for uninsured motorist coverage is only $20,000.00, the most your insurance company will pay for damages caused by an uninsured driver is $20,000.00. If an insured is seriously injured by an uninsured driver and the insured only has $20,000.00 of uninsured motorist coverage, the insured will be faced with serious injuries and substantial medical bills but inadequate insurance to cover this loss.
An underinsured driver is a driver whose liability insurance limits are not enough to cover the damages caused by his negligence. Underinsured motorist coverage states that the most the underinsured insurance company will pay in an underinsured motorist claim is the difference between the limits of the underinsured motorist coverage and the amount recovered from the at-fault driver.
For example: The insured sustained $75,000.00 in damages in an automobile accident caused by a driver who has only $20,000.00 (the minimum required by Illinois law) of limits and liability insurance.
The insurance company of the at-fault driver agrees to pay the injured insured the full $20,000.00 and the injured insured collects this amount. The injured insured also has underinsured motorist coverage with limits of $50,000.00. The injured insured will not be able to recover the full $50,000.00 from his insurance company (even though his loss totals $75,000.00) but will only be able to recover the difference between $50,000.00 (his limits) and the $20,000.00 recovered from the at-fault driver, i.e. $30,000.00
Consumers often do not understand that what they recover from the at-fault driver will be deducted from the limits of their underinsured motorist coverage. Often, this leads to the result that the underinsured coverage is meaningless even though the consumer paid for it in his premium. This result occurs when the injured insured has only $20,000.00 of underinsured motorist coverage and the at-fault driver has liability insurance with limits of $20,000.00 or more. Because the amount that is recovered from the at-fault driver will be deducted from the underinsured motorist limits, underinsured motorist limits of $20,000.00 is, in most cases, worthless.
Unfortunately, Gavin Law Firm has seen many cases in which someone has suffered serious injuries involving substantial disability and high medical bills. When the injured person does not have high uninsured motorist or underinsured motorist limits, it is almost certain that the injured person will not be fully compensated for their loss.
Protect yourself by understanding your insurance policy.
You can protect yourself from the catastrophic result of inadequate insurance by understanding each of the coverages in your policy. The coverages provided by your policy are described on the front sheet of the policy known as the declarations sheet. This sheet will tell you all of the coverages provided and the limits of each coverage.
Insurance agents typically will not explain uninsured and underinsured coverage to consumers. The consumer must protect himself by making sure the coverages are in the policy and that the limits are as high as practical for the consumer. Some insurance companies offer an “umbrella policy” that will raise the limits of the uninsured and underinsured limits to as high as one million or two million dollars. The relatively small premium for this extra coverage is money well spent.