Automobile Liability Insurance: A Primer

A few days ago, I posted about automobile insurance. I gave just a brief introduction to first party coverages, in other words, coverages where your insurance company pays you. We discussed the promise that you buy in first party coverages.

Today, its third party coverages - coverages where your insurance company pays someone else. This is generally called liability coverage. If you are buying liability coverage, you are buying a promise from the insurance company that they will pay for damage you cause as a result of using your car. Want some examples? You hit a parked car. The insurance company will pay for damage to the parked car. You rear end a car while driving. Your insurance company will pay for damage to the parked car, as well as any injuries the people in the car sustained.

This is simple, right? Well, it could be if California would adopt a single limit liability policy. That argument will be saved for another day. In California, when you buy liability insurance, they will throw out numbers like 15/30, 25/50, 250/500. What does that mean?

The first number (15, 25,250) is the most, in thousands, that the insurance company will pay to one person injured in an accident. The second number (30,50,500) is the most, in thousands, the insurance company will pay for everyone injured in an accident. So, a 15/30 policy? The insurance company will pay no more than $15,000 per person  with a maximum of $30,000 per accident. This is the minimum in California.

Then they give you one more number. It could be 5, 25, 50, 100. This is the most, in thousands, that they will pay in property damage. So 25 means they will pay up to $25,000 for all damage you cause to someone else's property.

Whats right for you? That is almost impossible to determine. (See my prior post on how every person has different requirements.) However, in future posts, we will discuss some generalties on what may be right in different situations.