Let’s face it, when it comes to auto insurance policies, sometimes there are terms that read like ancient Latin. Terms like “full coverage,” “comprehensive,” “limited tort” and “deductibles?” If only someone could make sense of all this auto insurance lingo. Well fear not, Effective Coverage is to the rescue!
First things first, let’s discuss something that you will never see on an auto insurance policy – that’s the term “full coverage”. There is no such thing as full coverage. Often times auto insurance policymakers will refer to “full coverage” as a combination of comprehensive insurance, liability insurance, and collision insurance, which leads us into our first two lessons.
Let’s start with the easy one. Collision insurance is exactly what it states, it’s part of your auto insurance policy that pays for damages to your vehicle from accidents involving other cars or objects. Anything that constitutes a “collision” will most likely be covered under your “collision” auto insurance policy.
Next up, is comprehensive insurance, which comes in two different flavors. There is comprehensive auto insurance for your car, and there’s comprehensive insurance for your apartment. What auto comprehensive insurance typically covers is any event that is not covered by collision insurance. Examples of this include personal items that are damaged or destroyed during fire, flood, vandalism, or theft instances. In addition, damages incurred by hitting an animal are also covered under your comprehensive insurance policy. Although hitting an animal is technically a “collision”, most auto policies will cover it under comprehensive instead of collision.
Like comprehensive insurance, liability insurance also has two types – bodily injury coverage, and property damage coverage. In auto insurance jargon, this coverage includes injuries or damage to other people and property when you’re at fault for an accident. So even if the accident is your fault, and another person is injured, you won’t have to worry about paying for their medical expenses as long as you have liability insurance. Likewise, if you damage another person’s property, the property damage portion of your liability insurance will cover those expenses that you’d otherwise have to pay for.
For drivers in the state of New Jersey, or other “full tort” states, full tort coverage may apply. What full tort means is if you are involved in an accident, you are allowed to sue in order to receive full compensation for medical bills, lost wages, property damage, and other various out of pocket expenses. You are even permitted to sue for non-fiscal values such as ‘pain and suffering’ and ‘loss of consortium’ (loss of companionship while a loved one is recovering from an injury). Full tort coverage is more expensive than, say, limited tort coverage, because you are reserving your right to sue.
Limited tort coverage means if you are involved in an accident, you will be entitled to compensation for medical bills, lost wages, property damages, and other out of pocket expenses, but you will not be able to sue for non-fiscal damages like pain and suffering and loss of consortium. In exchange for giving up this right to sue for non-fiscal damages, your auto insurance company will lower your monthly premium. It depends on the auto insurer, but this reduction is usually in the neighborhood of 15%.
Lastly, let’s discuss vanishing deductibles. On an auto insurance policy, a deductible is an amount you must pay out of pocket before an insurance company will pay any expenses. The good thing about a deductible is, under certain policies, it could be eliminated. A vanishing deductible is part of your auto insurance policy that rewards safe driving.
Lets say an car insurance company will reduce your deductible by $100 for every year of safe driving. If your deductible was $500, after two years of safe driving, your car insurance deductible is now $300. Three more years of safe driving will bring the deductible down to $0, which means in the event of an accident, you could pay nothing out of pocket. Depending on your car insurance policy, the vanishing deductible may reset after the event of an accident, but call your Effective Coverage specialist to find out if that applies to your policy.
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