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Types of Coverage

When you buy an insurance policy, it's important to understand what's included in the contract, as well as what's not included. Unfortunately, insurance contracts use unique vocabulary, and for many people, they are almost as easy to read as ancient Egyptian hieroglyphics. This guide will assist you in deciphering your insurance contract by explaining the different coverages available in Illinois.

Liability coverage: If you cause in an accident, your liability coverage will pay for damages incurred by the other people involved in the accident. There are two types of liability coverage: Bodily injury liability and property damage liability. Bodily injury liability, usually abbreviated as "BI" on your policy contract, covers the other party's medical bills and funeral expenses, if necessary. This coverage may also pay for the cost to hire a lawyer to defend you if you are sued as a result of an at-fault accident. Property damage liability, usually listed as "PD" on your policy, covers the damage your vehicle does to someone else's property, including other vehicles, railings, and telephone poles. Please note that liability coverages do not provide any coverage for your own vehicle.

Also, it's important to understand how payments under these coverages are determined in Illinois. Insurance companies use the principle of comparative negligence to determine the amount of damages you can get back. "Comparative negligence" means that if both drivers contributed to causing the accident, the insurance companies must determine what percentage of the accident was your fault and what percentage was the other driver's. You may only collect damages if the accident was less than 50% your fault. Also, the amount of damages you collect from the other person's insurance company must be proportional to the amount that the other party was at fault.

For example, let's say that you are in an accident with another driver and your damages come to $10,000. The insurance companies investigate and determine that even though the accident was mostly the other driver's fault, you share some of the blame, too. They decide that 80% of the fault rests with the other driver and 20% rests with you. In this situation, although you can collect damages for the accident, you can only collect 80%. Instead of getting $10,000, you will only get $8,000.

Uninsured motorist coverage- This coverage, usually abbreviated as UM on your policy contract, protects you if you are in an accident with another driver and the other driver does not have insurance to pay for your damages. Uninsured motorist coverage will also cover a hit-and-run accident, but you must notify police immediately after the accident to guarantee coverage. Uninsured motorist coverage is also required under Illinois law, with limits of $20,000/person and $40,000/accident. However, if you desire, you can buy higher limits for an additional charge. If you buy UM coverage that's higher than the state minimum limits, Underinsured motorist coverage is included, too. UM does not cover your vehicle in an accident with an uninsured driver, only your medical bills. UM coverage only applies if the other driver was at fault in the accident.

Under-insured motorist coverage- If you are in an accident and the other driver is at fault, under-insured motorist coverage kicks in if your damages exceed the other driver's bodily injury liability limits. This coverage is usually written as UIM on your policy. If you buy extra uninsured motorist coverage, UIM is included at the same limits you select for UM.

Uninsured motorist property damage liability coverage- This coverage, also known as UM PD, pays for the damage to your vehicle if you are in an accident with a driver who was driving without insurance, if the other driver was at fault. UM PD always has a standard $250 deductible and will cover up to $15,000 worth of damage to your vehicle. You do not have to have UM PD. However, if you don't have comprehensive and collision coverage (see below), it's a good idea to carry it.

Comprehensive coverage- Comprehensive coverage covers your vehicle if it damaged by something other than an auto accident. For example, if your car is stolen, vandalized, or damaged by flood or fire, comprehensive coverage will pick up the tab to have it repaired or replaced. Comprehensive coverage is not required under Illinois law, but if you are still making payments on your car, the bank may require that you carry it. With comprehensive coverage, you'll select a deductible whenever you buy the policy or add the coverage. The deductible is a set amount that you agree to pay before your insurance company will start paying for damages. The higher the deductible you select, the lower your premium will be.  Comprehensive coverage is often written as "comp" or "OTC" (other than collision) on your policy.

Collision coverage- This coverage pays for damage to your vehicle if you are in an accident and it is your fault, or if you are in an accident with someone who does not have insurance. Like comprehensive coverage, collision coverage comes with a deductible of your choice. Collision coverage is not required by law but may be required by the bank if you are still making payments on your car. The total amount you will receive for a comprehensive or a collision loss depends on the extent of the damage. If your vehicle is fixable, you'll receive the cost of the repairs less the deductible. If it's not fixable, you'll receive a payment for the actual cash value of the vehicle, less your deductible. The actual cash value is the cost of the vehicle new minus the depreciation that has occurred since you bought it. Under Illinois insurance law, the insurance company can also deduct the value of damage that occurred prior to the accident and was never repaired, as well as wear and tear and rust.

Medical Payments- Medical payments coverage, also known as "Med pay," pays up to a certain amount for your medical bills and those of your passengers. Med pay coverage protects you no matter whose fault the accident was. Given the fact that Illinois uses comparative negligence to determine how much of your medical bills can be covered under the other person's insurance if they are at fault, it's a good idea to carry some Med pay coverage for yourself. However, Med pay is an optional coverage and you don't have to have it if you don't want it.

Accidental death- This optional coverage pays a specified amount to your estate if you die as a result of an auto accident.

GAP- As we learned earlier, comprehensive and collision coverage only pay up to the actual cash value of the vehicle. However, if you got the vehicle financed and made a low or no down payment, it's easy for the rate of depreciation to outpace the rate that you are paying off your loan. If your vehicle is totaled, GAP coverage pays the gap between the actual cash value of the vehicle and the amount that you owe, so that you don't have to continue making payments on a totaled car. GAP coverage is often included as part of your car loan, so you may not need to get it from your insurance company.

Custom/aftermarket parts endorsement- Generally, comprehensive and collision coverage only covers factory parts. If you've customized your ride, you may need to get extra coverage for the aftermarket parts.

Rental reimbursement- Rental reimbursement pays a set amount toward the cost of renting a vehicle after a covered loss.

Towing- Towing reimburses you a set amount for having your vehicle towed if it breaks down. In most cases, this coverage is reimbursement only and your insurance company will not be able to send a tow truck out for you. Towing will also pay for certain types of labor costs, such as the cost to hire a locksmith if you lock your keys in your car.

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