Auto insurance policies: all you need to know

Liability insurance protects car owners whose vehicle injures others or damages their property. It does not cover the insured vehicle itself. There are two types of liability coverages, bodily injury and property damage.

• Bodily injury coverage pays for medical expenses and lost wages of people you have injured in an auto accident.
• Property damage covers damages you have caused to someone else's property, such as their vehicle, house or fence.

Liability coverages are commonly referred to by their maximum limits in thousands, such as 25/50/25. The first and second numbers stand for your bodily injury liability limits, which here are $25,000 per person and $50,000 per accident. The third number represents your property damage liability limit of $25,000 per accident.

Read more: Does insurance cover the car or the driver?

There’s really no such thing, because no policy can cover every single peril or situation. Most commonly, full coverage is what people label car insurance policies that have liability coverages along with collision and comprehensive physical damage coverages.

• Collision covers damage to your car when it hits, or is hit by, another vehicle, or other object.
• Comprehensive covers your car for those damages from non-collision causes, such as vandalism, hail, animals or theft.

Read more: What are the penalties for driving without insurance?

State liability limits are typically low; a severe accident can easily exceed the limits of minimum auto insurance policies, leaving personal assets of the car owner at risk.

The insurance industry recommends bodily injury liability coverage of $100,000 per person and $300,000 per accident, and property damage liability of $50,000. This is shown as 100/300/50 coverage. If you can afford even more coverage, then the recommendation is limits of 300/500/100.

Read more: State-mandated liability insurance limits

A SR-22 is a form that is filed with the state verifying that you have a current car insurance policy with the state mandated coverages. The particular limits that are required vary from state to state; some require higher Liability limits.

Often the SR-22 is required after certain convictions, such as a DUI or driving without insurance, or to reinstate your license after a suspension, and in most states it must be maintained for three years.

Read more: How do I get SR-22 if I don’t own a vehicle?

You need to list all household members living in your residence when applying for insurance and anyone who frequently operates your vehicle even if they don’t live with you.

Most insurers include those listed as drivers on the policy. There are some that allow you to exclude a driver from the policy or not rate a person on the policy (like an unlicensed 15-year-old).

Failure to list all drivers could result in lack of proper coverage, an increase in payment or the denial of a claim.

Read more: Can I insure a car that I don’t own?