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Understanding Auto Insurance Policies and Limits

It's important to have a solid understanding of auto insurance policies and limits under California law. In the Golden State, auto insurance is required to operate a vehicle; it's also required to register an automobile and to renew a car's registration. In fact, even if a car is parked on a public street and not driven, insurance is still required to cover a non-operated vehicle. The fact is, motorists must recognize their need for adequate insurance. After all, no one can predict when and where you or anyone else may be in an auto accident. Accidents happen all the time, under every imaginable condition. This is why you need an understanding of auto insurance policies and limits.

Understanding Auto Insurance Policies and Limits

Nearly every state in the country requires drivers to carry auto insurance; though the amounts and types of coverage vary. Some states have enacted what's known as a "no fault" law -- a requirement to have personal injury protection, or PIP, benefits. However, California is a "fault" or "tort" state, meaning a person must be proven to cause an auto accident before insurance companies will pay out a claim.

Your policy is a legal document, and it is important that you understand it. Your motor vehicle may be an auto, truck, van, motorcycle, or another kind of private passenger vehicle. You must show financial responsibility for any vehicle you own, in case of injury to other people or damage to their property. Most people show financial responsibility by buying auto liability insurance. California law states, "All drivers and all owners of a motor vehicle shall at all times be able to establish financial responsibility and shall at all times carry in the vehicle evidence of the form of financial responsibility in effect for the vehicle." If you do not have auto liability insurance, you can be fined, your license may be suspended, and your vehicle could be impounded. --California Department of Insurance

Also, the state of California, just like many others, imposes minimum auto insurance requirements. The law mandates 15/30/5 BI, Liab, and PD minimums (meaning a minimum of $15,000 of bodily injury for each person, $30,000 total for all people injured, and $5,000 for property damage). These requirements are tracked by private automated system mechanisms. In other words, if you cancel your auto insurance, your former surety company or insurer, will immediately report the cancellation to the state. If you do not purchase a new policy right away, the state of California's Department of Motor Vehicles will suspend your car's registration. Further, it is important to understand liability insurance only covers injuries or damages to third parties and their property, not to the driver or the driver's property. If you are in an auto accident and are driving with minimum auto insurance, you are not protecting yourself or your property in an auto accident. Don't be fooled by the term "full coverage" if you carry a 15/30/5 BI, Liab & PD minimum. Here is more helpful information regarding what you need to understand about auto insurance policies and limits in California:

  • BI or bodily injury coverage. It is a legal requirement to have a minimum of $15,000 of bodily injury coverage in California. Though this might seem sufficient, it's actually completely inadequate because just one day in a hospital averages $2,140 to $3,500. This means a three-day hospital stay would easily account for most or exceed the state's minimum requirement.
  • Liability or physical damage coverage. In California, motorists are also required to carry at least $30,000 in liability insurance to cover the injury or death of more than one person involved in a vehicle collision. Here again, the costs will quickly meet or exceed the state's minimum insurance requirement for liability.
  • UM/UIM or uninsured/underinsured motorist. Although California does not require motorists to carry UM/UIM, it's still very important coverage. This is to protect you if you are involved in a car accident with an at-fault uninsured or underinsured driver.
  • Collision coverage. Typically, if you lease or finance a vehicle, the lessor or lender will require as a condition of the financial contract, drivers carry collision coverage. This is due to what's known as "transfer of risk," and means the lender or lessor will generally not have to pay for repairs or replacement of your vehicle because the insurance policy will cover it.
  • Comprehensive coverage. In addition to requiring collision coverage, lessors and lenders also require drivers to carry comprehensive insurance, which covers incidents like vehicle theft, flood, fire, and so on.

If you or a loved one have been involved in an auto accident, you need to immediately seek medical attention and consult an experienced legal professional thereafter. It's imperative you know your legal rights and if you might be entitled to compensation under the law. Time is of the essence, so you must instantly.

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