Most state financial responsibility laws require proof that you are able to pay for any damage or injury you may cause while driving. Auto insurance is the way that most people comply with these laws. Typically compliance only takes liability insurance at some minimal limit that varies by state. Liability coverages include the following:
Bodily Injury Liability – insures against injury that you may cause to other persons. The key is that it involves you being held financially responsible for injuries to other persons because of your driving, your ownership or other use of your vehicle.
Property-Damage Liability – handles damage that you may cause to another person’s property. Again, the coverage only responds when you are financially responsible for such damage and it has to be related to your use or ownership of a vehicle.
Uninsured Motorist Coverage – This coverage typically pays for injury you suffer from an accident caused by a person who has no insurance; a person who can't be located ("hit and run drivers"); or a person who has insurance but their insurance company is insolvent.
Important: Payment under this coverage is controlled by various laws that dictate what limit or limits must be sold. In some states, you may have an option to reject the coverage. Typically, the rejection must be in writing.
Underinsured Motorist Coverage - Similar to uninsured motorist, it pays for injuries caused by a driver who is inadequately insured. Example: You are seriously injured by someone carrying a bodily injury limit of $25,000, but your injuries are nearly $50,000. Your Underinsured Motorist Coverage limit is $100,000. In this instance, your policy would pay the difference between $25,000 and $50,000.
Important: This is merely an introduction to complex policy coverages. Be sure to contact your agent for detailed insurance information. Please see part two of this topic for information on other, typical auto policy coverages.