For most Americans, the automobile is a beneficial and essential part of modern life. However, owning or operating a car can also be a source of serious financial risk.
Coverage Under the Policy
Automobile insurance usually covers a number of risks in one package policy. The most frequently used policy is the personal automobile policy (PAP)*. The PAP is designed primarily for private passenger automobiles, but protection can be extended to cover other types of vehicles. Typical coverage includes the following:
- Liability Insurance: this coverage protects the owner against losses from legal liability arising from bodily injury or property damage cause by an accident.
- Medical Payments Coverage: medical or funeral expenses because of bodily injury.
- Physical Damage Coverage: this section of the policy is designed to cover physical damage to the insured auto. Collision covers collision losses and comprehensive insurance covers losses from non-collision incidents, such as theft, fire or storm damage.
- Uninsured/Underinsured Motorist: uninsured motorist coverage pays for injuries sustained in an accident with an uninsured (or a hit-and-run) driver. Underinsured motorist insurance covers the difference between actual losses sustained, and what an insured individual can collect from an at-fault uninsured or under-insured driver, up to policy limits.
*The specific coverage and terms of a policy can vary from company to company, and from state to state.