Insurance Coverages

What is covered and how it is covered

Not only you need to know how to read the policy, but you also must understand the insurance coverages put forward in your auto policy.

Your insurance coverages are the promises your insurance company makes to you in exchange of a premium (a payment).

This premium is what ensures coverage for you, the policyholder and the insured, in case of an insurance claim.

Remember insurance is a business, and a very profitable one. If you really think about it, insurance is another form of gambling, just backwards.

When you gamble, you are betting that something good will happen (you will get that lucky number) in order to get a pay out.

With insurance it is just the opposite, you are betting that something bad will happen (a car accident) in order to get a payout.

My point: insurance companies have the odds against you, and just like casinos they are turning record profits.

Insurance companies often increase those profits by paying less than they have to.

They do this by reducing cost in different areas of the auto claim.

It is not unusual to see an insurance company trying to nickel and dime you (or your body shop, chiropractor, medical doctor, tow truck driver, rental car provider, etc.) on what is rightfully yours.

Therefore, you need to know your coverages and insurance terms, and what exactly they mean. These pages will explain the insurance coverages, terms, and definitions in simple terms.

It is important to note that the objective of all insurance coverages is to indemnify the wronged party. Indemnification means “to put the person back in the position they would be if the accident never happened.” Basically, they have to make you whole again.

Achieving true indemnification is very difficult and sometimes impossible. No one can make the accident disappear or make a bodily injury go away.

The insurance company will try to put the injured victim as close as possible to that position they were before the accident by making monetary payments.

Most insurance coverages are targeted or designed to do that. To put the wronged party back on the position they were before the accident.

Insurance companies use this concept against you. In other words, they will use it to tell you "the purpose of insurance is put you back to the same point you were before the accident, not to make you better off.”

They will argue that because of this concept, they can depreciate your damages. They will tell you that your car did not have “new parts.”

You had a used vehicle and therefore they will put you “back on the same position” you were. A used vehicle had used parts.

State legislators have made law to carry certain insurance coverages; however, you are only required to carry liability insurance.

When there is an insurance claim against you, your insurance company covers that person (the claimant).

Some states also require Personal Injury Protection and Medical Payments coverage. However, remember that these coverages are the bare minimum coverages. Every other coverage is optional.

Important insurance definitions:

First Party: The person insured (the insured).

Third Party: The person making a claim against your family (the claimant).


Click below for an explanation insurance coverages and terms:

Coverages and Terms Overview

Automobile Liability Insurance or Liability Page 1
Automobile Liability Insurance or Liability Page 2

Automobile Medical Payments or Personal Injury Protection (PIP) Page 1
Automobile Medical Payments or Personal Injury Protection (PIP) Page 2

Collision Coverage (Protection Against Loss to the Auto) Page 1
Collision Coverage (Protection Against Loss to the Auto) Page 2

Comprehensive Coverage (Protection Against Loss to the Auto) Page 1
Comprehensive Coverage (Protection Against Loss to the Auto) Page 2

Under or Uninsured Motorist Property Damage (UMPD) Page 1
Under or Uninsured Motorist Property Damage (UMPD) Page 2

Under or Uninsured Motorist Bodily Injury (UMBI)

Rental Reimbursement or Loss of Use Coverage Page 1
Rental Reimbursement or Loss of Use Coverage Page 2

Restoration Coverage

Towing and/or Road Assistance Coverage (Emergency Packages)

Insurance Clauses and Terms

Your policy will be filled with legal language that can be confusing.

Insurance companies have very big underwriting departments (the people that sit and write these policies) so they can control every term of a claim.

I have included a list of the most common clauses and explained how they are used.

In addition, there is a list of other terms that are not classified like the ones above, but they are all over your policy.

There are some concepts that although they are not in your policy, they will be applied by state law. I will note which ones those are when pertinent.

The following list is in alphabetical order (not order of importance or how they appear in your policy).

Actual Cash Value or ACV
Additional Insurance Clause
Cancellation of Coverage Clause
Choice of Law Clause
Forum Selection Clause

Duty to Cooperate Clause
Duty to Report Losses Clause
Financial Responsibility Clause
Insurable Interest Concept
Interpretation of the Policy Concept

Mandatory Arbitration Clause
Mitigation of Damages Clause
Non Duplication of Benefits Clause
Proof of Loss Clause
Promissory Estoppel Concept

Reservation of Rights Concept
Reasonable and Necessary Clause
Right of Appraisal Clause
Right of Settlement Clause
Rights of Counsel Concept

Subrogation of Rights Clause Part I
Subrogation of Rights Clause Part II
Statute of Limitations Concept
Replacement Cost Value
Restoration Coverage
Transfer of Benefits Clause