ANSWERS: 1
  • The purpose of insurance is to reduce financial risks that you might incur in the event that some catastrophe happens. In automobile coverages, liability insurance covers damage costs to another person's property (usually a car), in the event you cause an accident and are required to pay for the damage. This insurance covers property damage as well as bodily injury "within it's limits."

    Automobile Insurance Coverages

    Most state laws require that liability insurance be in force on any driver at all times. The law does not require that you replace or repair your own car if it is damaged. If you have a loan against your car, your lender will require that you have full coverage on the car. This means that if you cause an accident, the liability insurance covers damages of the person you hit. Comprehensive and collision insurance will cover the cost of repair or replacement of your own car, which covers the collateral that secures your lender's loan.

    Liability Insurance is Required

    Those who drive an older car, or a car that has no leins against it's title, may elect to drop the comprehensive and collision portion of insurance. This is the coverage that covers repairs or replacement of your own car in the event it is damaged or destroyed in an accident. Liability insurance would be the only coverage you are required to carry.

    Lower Limits Are Not Enough

    Liability insurance will cover the cost of damage you caused injury in an accident "within it's limits." This means that the policy has limits (and circumstances) that it will pay. State laws have minimum amounts that are required of each insured driver. These minimum amounts are very low. Each driver should consider the cost of hospitalization and medical care (as to the bodily injury liability) and make sure they buy enough liability insurance to cover a catastrophe. The injured party can file suit against you, and you may lose any assets you own if you only carry minimum limits and those limits are insufficient to cover the costs. Be sure you understand your limits and the circumstances under which a policy may not cover you.

    Source:

    Insurance Coverage Definition: Car Insurance

    Understanding Fault Based Auto Insurance

    Liability Auto Insurance

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