LIABILITY COVERAGE pays for bodily injury or property damage claims to those for whom you are legally responsible. This coverage takes care of the damage you cause to someone else or their property. Bodily injury liability protects you in the event you are determined to be responsible for an accident in which someone is hurt or killed. Property damage liability covers the damage your vehicle causes to someone else's property, such as their car, mailbox or a fence on their land.

If you are judged as legally liable for an auto accident, you may be held responsible for property damage, hospital and medical payments, rehabilitative care, lost income and even the pain and suffering of the injured person. You can be sued for the full cost of the damages. If the cost of this loss exceeds the amount of your liability insurance coverage, you have to pay the rest. Be sure you have sufficient liability coverage to protect your assets.

Your insurance policy usually describes the amount of liability coverage as split limits. Suppose your limits of liability coverage reads 50,000/100,000/50,000. In this example, $50,000 is the maximum the insurance company will pay for bodily injuries to each person in the accident. The maximum amount paid for all bodily injuries, no matter how many people are hurt in the accident, is $100,000. The maximum amount paid for damage to someone else's property in the accident is $50,000. Your Bodily Injury and Property Damage Liability may also be shown as a single limit, e.g., $100,000 Combined Single Limit (CSL).  Many states require drivers to carry a minimum amount of liability insurance of approximately 25,000/50,000/10,000. That means there would be $25,000 to cover injuries to any one person, $50,000 total for all injuries, and $10,000 for property damage.

Property coverage compensates for damage to your car, or for the theft of your car. Two types of property coverage include collision and comprehensive.

Collision coverage pays for damage to your own auto resulting from a collision with another vehicle or object, or from a vehicle rollover. Your car is covered no matter who caused the accident. Comprehensive coverage pays for damage to your auto caused by something other than a collision. This includes theft and vandalism, and disasters such as fire, flood and hail.

Collision and comprehensive coverage usually do not pay for the total loss. You generally have a deductible, an amount you must pay yourself, before your auto insurance payment takes effect. Suppose that you have a $250 deductible. On a loss of $1,000, you pay the first $250 and your insurance company pays the remaining $750.  Depreciation also affects the amount you recover for the damage to your car. As your car ages and its value declines, the amount you collect for a total loss declines as well. Your insurance company reimburses you for the actual cash value of your car or its parts, at the time of the loss. If you purchased your car for $20,000, you get less than your original purchase price to replace it due to the car's depreciation in value. You can find out the current value of your car by consulting the N.A.D.A. Official Used Car Guide, which is in most public libraries and banks. Sometimes it is not financially sensible to buy collision and comprehensive insurance on an older car, because of depreciation. The maximum amount paid under Collision coverage is the actual cash value of your car minus your deductible. When making this decision, you need to know the book value of your car, your deductible for each loss, the cost of the coverage, and the amount you would receive if your car was totaled. Then talk to your insurance agent and decide whether the cost of insurance is more economical than the cost of repairing or replacing the car at your own expense.

Medical coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. Medical insurance covers the cost of doctors, hospitals and funeral expenses for you and/or your passengers, that result from an accident, regardless of who is at fault. This coverage protects you when you drive another person's car with permission, or if you or your family are struck by another vehicle as pedestrians. The coverage is relatively inexpensive and generally available with limits between $1,000 and $100,000. It also provides for funeral expenses, when necessary. The availability varies state by state.  Personal injury protection (PIP) is a form of no-fault insurance required in states with no-fault laws. This coverage is a broader form of medical payments insurance. It pays for medical care, lost wages and replacement services for the injured party (for example, paying for a baby-sitter for children while a mother is hospitalized). It pays regardless of who is at fault in an accident. States with no-fault laws usually limit the right to sue for non-monetary damages such as pain and suffering, but you still may be able to sue in cases of incapacitating disability or death. This coverage varies by state and is sometimes an optional offering in states without no-fault laws. In your evaluation of coverage, remember that Medical Payments and PIP also protect your passengers. If you exceed your medical coverage on your auto policy, then Bodily Injury coverage may be needed. Before choosing medical payments or no-fault protection, check with your insurance agent regarding no-fault coverage requirements in your state, and then review your other insurance policies. If you already have adequate medical and disability insurance, you may not need to purchase additional protection.

Uninsured motorist coverage reimburses you if you are hit by an uninsured driver. Under-insured motorist coverage provides compensation if the driver at fault does not have adequate coverage to pay for your entire loss. Keep in mind that uninsured motorist coverage and underinsured motorist coverage vary by state law.

If you are involved in an accident with an uninsured driver, you have very little chance of collecting payment for your damages from that driver. Uninsured motorist (UM) coverage pays the cost of damages and injuries resulting from being hit by an uninsured driver or by a hit-and-run driver. Both you and your passengers are covered for medical expenses, lost wages and other injury-related losses. You may also be able to collect for pain and suffering. Similarly, Under-insured motorist (UIM) coverage pays for damages that exceed the amount of coverage carried by an under-insured driver. You choose the amount of coverage when you buy this protection.