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The Myth of Full Coverage

When it comes to auto insurance, there are many types and levels of coverage consumers can opt for. If you ask many policy holders what type of auto policy they carry, they'll tell you they have "full coverage" on their automobile. But what does the term "full coverage" really mean? Different consumers across the country have different ideas on what defines full coverage, but the real answer may be surprising to almost all of them.

Full Coverage Hard to Define

In some cases, consumers will base their definitions of full auto coverage on their home states' legal requirements for auto insurance. Most states require some form of personal auto liability coverage with provisions for protecting the covered policy holder from personal responsibility in the event of an at-fault accident. The requirements and the available coverage details vary from state to state, but in general an auto liability policy contains a portion dedicated to dealing with the financial cost of injuries to the other driver and passengers involved in the crash, and another portion set aside for covering costs associated with property damage to other vehicles aside from the covered vehicle itself.

In essence, auto liability coverage protects the policy holder only by shielding that driver from the costs that could arise from these accidents related to fixing someone else's cars or dealing with someone else's injuries. It does nothing to provide compensation for the costs of repairing the car listed in the policy itself, nor of attending to the cost of any injuries that the at-fault covered driver might have sustained in the crash. Clearly, then, a simple liability policy cannot be thought of as "full coverage."

Other auto insurance consumers tend to view a full coverage auto policy as one that combines the mandatory liability requirements of the driver's home state with collision and comprehensive coverage that protects the covered vehicle itself against damage in a variety of situations, accident-related and otherwise. This combination of coverage is much more extensive and wider in scope than a mere liability policy by itself, but there are still certainly limitations to the coverage appointed by such a package of coverage.

When Collision Damages Exceed Coverage

Still, even with a stable of auto insurance including both liability and collision and comprehensive insurance coverage, there is still a significant potential for gaps in coverage. One very common example can happen in a variety of accident circumstances. When the collision damages exceed the level of coverage on the covered automobile, there is a coverage gap that must be dealt with out of pocket by the covered policy holder. Collision coverage is typically limited to the actual cash value (or fair market value) of the covered vehicle at the time of the accident.

If the car is ruled a total loss by the insurer and is totaled as a result, the policy holder will only receive payment in the amount of the car's fair market value less deductible. In situations where the policy holder owes more than the fair market value (i.e. early in a loan repayment situation, especially in cases where the driver put little down in the original purchase agreement), the money received from the insurer will not cover the payoff of the totaled vehicle, especially when high deductibles are involved. Once again, this can hardly be thought of as full coverage.

The same type of situation may also apply to your auto liability coverage. Many states have relatively low minimum requirements for liability insurance, so you can have a fully legal policy and still not carry nearly enough coverage to pay for the damages that come about as a result of an at-fault accident. In addition to auto liability insurance requirements, some states also have financial responsibility laws. These laws require at-fault drivers in auto accidents to personally meet any financial obligations left over after all liability coverage has been exhausted. If your liability coverage is insufficient, you may be forced to pay out of pocket for the remaining costs.

Full Coverage Means Full Protection

There are many other situations which could arise to test the true reach or extent of your auto coverage. For example, even with liability, comprehensive and collision insurance at adequate levels to meet the expenses of dealing with the costs incurred to the other driver and passengers as well as their property and your own, this package of coverage leaves out any provision for your own medical care. An additional endorsement covering your own medical payments is necessary for you to start to round out your insurance policy and begin to think of it as a full coverage plan.

In addition, there are other optional elements that fill in additional coverage gaps in so-called full coverage insurance plans. Uninsured and underinsured motorist coverage protect the covered policy holder from the potential expense of having to deal with the aftermath of an accident with an uninsured driver, or one whose liability coverage is insufficient to cover all the costs of repairing your vehicle and dealing with your medical care. It is unfortunate to think that this type of coverage should even be necessary, but the high rate of uninsured drivers is a nationwide problem, even more so in some areas than others; and many drivers who do carry some liability coverage do not have enough insurance protection to cover all the costs of a major injury auto accident.

Like medical payments coverage and comprehensive/collision insurance, protection from uninsured and underinsured motorists is optional, but necessary to give the covered policy holder the most expansive total coverage possible. If all drivers carried sufficient levels of liability insurance on their policies, and none went without insurance at all, in many cases taking on such extra measures of protection would not be necessary.

But the point of insurance is to protect us from the threat of the unknown; our goal as insured consumers is to be as prepared as we possibly can be to respond to difficult circumstances such as those which often follow car accidents. And the totality of our insurance package actually does even more: the example of comprehensive coverage and the non-accident protection it provides covered vehicles with against the risk of damage demonstrates as much. Most so-called full coverage policies (usually identified as such by the policy holders themselves) usually do not include added endorsements like medical payments coverage or uninsured and underinsured motorist protection. And some of them do not even have collision or comprehensive insurance.

The truth about auto insurance is this: in an absolute sense, there is no such thing as full coverage. Absolute full coverage would protect us completely in every possible circumstance at no out of pocket cost to us. In essence, full coverage would not ask us as policy holders to take on any of the financial risk of driving an automobile as it relates to possible claims situations. Yet no policy can do this completely. The best our insurers can do is to provide products that protect us in the broadest range of circumstances possible. The best we can do as consumers is to purchase the most comprehensive policy with the highest limits we can afford.



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