Auto Insurance: An Overview

The automobile insurance policy currently in use, as provided by Ohio law, is described below. In general terms, a policy constitutes a contract by which a company promises to pay to, or on behalf of, an insured certain losses under specified conditions. The policy also provides certain services. Automobile insurance contracts generally spell out the dollar limits of coverage and the conditions applicable to a loss occurrence.

Note: This is a general description of coverages that vary based on your specific auto policy. It’s important to read the policy and discuss any limitations or exclusions with your insurance agent or company representative. Equally important is to know and understand your duties in the event of an accident or loss. Failure to comply with these duties could void coverage.

Contents of policy

Most automobile insurance policies are composed of several interrelated parts. These parts are: declarations, coverages, supplementary payments, definitions, exclusions and conditions.

In an effort to help insurance consumers to better understand their policies, policy language has been simplified. Most policies are divided into separate parts, with each part indicating the amounts of coverage and conditions that apply to a given type of protection.

Whatever format is used, the intent is the same—to specify the maximum amount of coverage provided, when the coverage applies, the limitations to a given type of coverage and what is not covered.

A brief explanation of each section follows.

Declarations: The declarations section serves to personalize the policy by listing the pertinent information described in the policy, including the insured’s name and address, the policy number, the type of policy, dollar limitations on various types of coverage, descriptions of vehicles covered, deductibles, policy dates indicating the time period in which coverage is provided, any endorsements that modify the basic coverages and, if applicable, the names of any other organization or person to whom payment is to be made in the event of a loss (e.g., bank with loan).

Coverages: Each automobile insurance policy provides several types of coverage, and each, when purchased, has a specific function. Common coverages are:

• Bodily Injury Liability—This protects you, up to the dollar amount stated in your policy, against the financial consequences of a loss arising from injury to someone from an automobile accident for which you are legally to blame. Defense costs are in addition to the limits of liability.
• Property Damage Liability—Similar to bodily injury liability coverage, except that it protects you against a claim for damage to another automobile or other property, in an accident for which you are legally liable. The protection is again up to the amount of insurance you purchase. Defense costs are in addition to the limits of liability.
• Medical Payments—Pays for medical or funeral expenses, up to the amount of insurance you purchase, for you and others injured or killed while riding in your car, no matter who caused the accident. It also covers you and resident members of your family if struck by a car as a pedestrian or if riding in another vehicle designed for use on public roads.
• Uninsured Motorists (UM)—Provides bodily injury coverage to the insured driver, resident members of your family and passengers, up to the UM policy limits, when involved in an accident caused by the negligent owner or operator of an uninsured vehicle or an unidentified “hit-skip.” The named insured and family members are also covered if they are pedestrians and struck by a UM vehicle.
• Underinsured Motorists (UIM)—Provides bodily injury coverage to the insured driver, resident members of your family and passengers, up to the UIM policy limits, when involved in an accident when the at-fault driver’s bodily injury liability policy limits are less than your UIM limit.
• Uninsured Motorists Property Damage (UMPD)—Provides coverage for damage to your vehicle if it is struck by an identified negligent uninsured motorist. Insurance companies are not required to offer UMPD to those carrying collision coverage, since it provides similar coverage. Coverage amount is normally $7,500 and includes a deductible no higher than $250 (higher limits might be available).
• Collision—This coverage pays for damage to your car caused by impact with another object or an overturn, irrespective of fault. The collision coverage usually includes a deductible. This means you pay the first $100, $200 or so for repairs to your car and the company pays the rest.
• Other Than Collision—This is a catch-all coverage that pays you for damage to your car caused by something other than collision or upset. Perils covered under “other than collision” may include fire, theft, missiles, falling objects, larceny, explosion or earthquake, tornadoes and windstorms, hail, water, flood, malicious mischief, vandalism, riot, civil commotion and contact with a bird or animal. “Other than collision” is also available with deductibles. It is also known as “comprehensive” insurance coverage.

Supplementary Payments: This provides for payment over the limits of liability noted in your policy for expenses incurred by the insurance company, all costs taxed against you in a court suit, attorney’s fees, bail bonds (up to a certain amount) and related costs. It also covers reasonable expenses you incur at the request of the company. Most policies cover up to $200 a day for actual lost wages if attending a hearing or trial at the company’s request.

It is important to note that such expenses are an important benefit to policyholders. To illustrate, a basic and very important provision of automobile liability insurance contracts is the promise of the insurance company to “pay for damages for bodily injury or property damage for which any insured is legally responsible because of an accident. In addition to our (the insurance company’s) limit of liability, we will pay all defense costs we incur.” Thus, coverage for legal expenses is a direct benefit to policyholders, expenses they would incur if it were not for the insurance policy.

Definitions: This section of the insurance policy defines the various terms used in the policy. It explains such terms as who is covered by the contract and what the company describes as the “covered auto.”

Exclusions: Each coverage section in a policy includes exclusions. Exclusions clarify the intent of the insurance policy by explaining the situations in which the policy will not cover you or the insured vehicle. You may be able to “buy back” coverage for certain exclusions by adding endorsements to the policy. Policyholders should pay special attention to these sections and should be aware that the policy does not cover all things under all circumstances.

Conditions: This section establishes the conditions that must be present or complied with by the company and/or the insured. Examples of conditions include time-period restrictions, duties in the event of a claim, proof of loss, cancellations, etc.

Liability limits

Under Ohio law, the minimum amounts of liability insurance that satisfy financial responsibility law requirements are:

• $12,500 for any one person killed or injured in an accident caused by the policyholder
• $25,000 as a total limit for all persons killed or injured in an accident
• $7,500 for property damage caused in the accident

If you feel that these limits are not sufficient, you may purchase higher amounts. Many companies also offer policies providing a single limit of liability—such as $35,000 or $100,000—that covers both Bodily Injury and Property Damage Liability.

Ohio’s financial responsibility law

The financial responsibility (FR) law, which took effect October 1953, is NOT a compulsory automobile insurance law. No motorist is forced to buy auto liability insurance. The law DOES require drivers to be insured or have other arrangements to pay for injuries or damages they cause in the event of a crash. The law provides protection against irresponsible drivers.

Stricter penalties for violators of the FR law were legislated during 1994. As of October 20, 1995, this law requires law enforcement officials to ask for proof of financial responsibility when a motorist is stopped for any moving violation, accident or a vehicle safety inspection. The law requires insurance companies to issue auto insurance identification cards to policyholders, which suffices as proof of financial responsibility.

As an additional enforcement measure, the Ohio BMV enacted a mail-in random verification program in December 1998. Those receiving the mailing are also required to provide proof of FR.

For further information regarding the law and its penalties, see the section titled “Ohio’s Financial Responsibility Law.”