There are two main objectives of no-fault coverage. First, it speeds payment to accident victims. Second, it intends to lower the cost of auto insurance by reducing the number of lawsuits for minor claims. However, in cases of death or serious injury, no-fault laws generally allow policyholders or their families to sue.

To accomplish these goals, each insured’s own insurance company pays the following regardless of who caused the accident:

Reasonable and necessary physician and hospital bills related to the accident.
Reasonable funeral expenses for you, your family and your passengers.
Generally covers lost wages as well as the cost to replace household services normally performed by the individual injured in the accident.

It does not cover pain and suffering.

Personal injury protection is a type of no-fault coverage. States that have no-fault laws require drivers to buy personal injury protection coverage. This coverage varies from state to state, and similar coverages may be offered as an option in states without no-fault laws.

Avoid duplicate coverage. Before you buy medical payments or no-fault coverage, clarify what it covers in your state. Then look closely at your current coverage. If you already have good medical and disability insurance, you may not need additional protection.

Uninsured Motorist Coverage (UM)

If an uninsured driver is legally liable in an auto accident, uninsured motorist coverage pays what the individual’s insurance company would have paid if that individual had liability insurance. It covers you, your family and your passengers for the following:

Medical expenses.
Lost wages.
Injury-related losses including pain and suffering, up to the uninsured motorist limits you purchase.

Some states include uninsured motorist property damage (UMPD).

You may not need uninsured motorist coverage if you:

Have good life, medical and disability income insurance.
Carry high no-fault coverage limits (no-fault covers you for medical expenses and lost wages regardless of who is legally liable).

You may not need uninsured motorist property damage coverage if you:

Already have collision insurance.

Underinsured Motorist Coverage (UIM)

The definition of an underinsured motorist varies significantly from state to state. In most states, when you buy uninsured motorist coverage, you also can buy underinsured (UIM) motorist coverage for the following:

Bodily injury to you, your family or your passengers resulting from the negligence of someone whose liability insurance limits are insufficient.

Generally, property damage is not included in underinsured motorist coverage.

Collision/Comprehensive Coverage

There are two types of insurance which cover damage for your vehicle:

Collision coverage pays for damage to your vehicle caused by a collision or rollover.
Comprehensive coverage pays for damage to your vehicle from some cause other than collision such as theft, fire, vandalism, flooding, hail or collision with a bird or animal.

Generally, collision and comprehensive do not pay for the entire loss because you almost always purchase these coverages with a deductible.

Coverage For Non-Owned Vehicles

Most personal auto insurance policies provide all of the preceeding coverages, not only when you or someone else is operating your vehicle, but also when you or your family are operating a vehicle you do not own or regularly use, including a rental vehicle. Coverage is usually provided if the vehicle owner’s insurance is not enough to pay the damage.

Collision and comprehensive coverage will generally extend to a rental vehicle, but the coverage is limited to the amount necessary to repair or replace the vehicle subject to your deductible. In the event of an accident, some rental companies charge for incidental damages, such as loss-of-use, diminution (loss)-in-value or administrative charges. These incidental charges are usually not covered by collision/comprehensive.

To avoid having to pay these damages, consider buying a damage waiver from the rental company. It waives your responsibility for damage to the rental car in most circumstances. Unfortunately, this insurance from a rental company is expensive — sometimes more than $20 per day. You should also check with your credit card company. Some provide rental car coverage as a special benefit.

If a vehicle is available for your regular use, such as a long term rental, a company vehicle or government-owned vehicle, your insurance will probably not cover you. If the vehicle is available for you to use only occasionally, your insurance will probably cover you. You can buy liability coverage on a regularly-used vehicle by buying a named non-owned policy or an extended non-owned auto (ENOA) endorsement to your personal auto policy. Check with your insurance company to be sure.

Optional Coverages

Here are additional coverages that you can consider.

Rental Reimbursement

Pays, up to a specified amount, for rental vehicle charges while your vehicle is being repaired for damage covered under your policy. If you prefer not to incur the cost of renting a vehicle yourself and cannot be without a vehicle while yours is being repaired, you might consider this coverage.

Towing And Labor

Covers some costs incurred for services rendered at the place of breakdown or for towing to a repair shop. For example, it covers the delivery of gas but not the cost of the gas. If you lock the keys in the vehicle or need a tire changed, this would also be covered. These services are often included in auto club memberships, which can result in unnecessary duplicate coverage.

Umbrella Liability (separate policy)

Provides an additional $1 million or more liability coverage beyond your other liability insurance. Because this is often excess coverage — paying after you exhaust other coverage — umbrella insurance costs less than you might expect. This excess liability coverage applies to your auto, homeowners, renters or boat liability coverage. The umbrella policy also provides liability coverage against claims such as libel and slander.

Vehicle Storage

Some companies offer coverage for your vehicle if it is in storage.

Report All Auto Accidents To Your Insurance Company

If an accident involves another individual (including a passenger in your vehicle) or another individual’s property, you must report it, even if you do not file a claim. If you do not report the accident, and the other individual involved later sues you for injuries or damages, your insurance company would be at a disadvantage in defending you against the claim. The company might deny you coverage or nonrenew your policy because you did not report the accident. Lawsuits can result from any accident — no matter how insignificant.

To protect yourself, report all accidents to your insurance company.

Next: Deductibles And Vehicle Value

Updated Thursday, April 01, 2010