Some insurance benefits the person that paid for it whilst others don’t. Who gets the payout is not always clear.
After being in a car accident myself and experiencing the complex foggy web of insurance where i thought the other at-fault party had insurance to cover my damages. I later found out their cover was not sufficient to cover the full extent of my damages.
I found myself researching all the different types of Insurance that apply to a motor accidents. However, even though there are many descriptions on the web of each insurance it’s not so clear about who’s insurance applies in an accident and who gets to benefit or get the payout.
Believe it or not, there can be 10 different types of Insurance (and possibly more) that can be claimed upon when there is a motor accident. In this guide, for each of these I will explain:
- What is it
- Who pays for the Insurance
- Which party benefits
- What are the levels of cover
- Things to watch out for
Contents
Benefit to not at-fault party
- Liability Insurance
- Umbrella Insurance
- Uninsured Motorist (UM) and Underinsured Motorist (UIM) Insurance
Property damage benefit – for whoever buys Insurance
Injury damages benefit – for whoever buys Insurance
Other types of add-ons – benefit to who buys Insurance
Required Disclosure before we get started: This is a general guide only, and each Insurance policy can vary, so ensure you read any Insurance policy applicable to you and don’t rely on this guide in isolation. You should also seek your own financial advice and not rely on this guide when deciding on which insurance you may require. This guide should not be considered advice of any kind.
Liability Insurance
at-fault -> | Buys Insurance | Pays not at-fault party
What is it: This is the most basic form of car insurance and is required by law in almost all states. It covers damages to other people or property if you are at fault in an accident. Liability insurance is typically split into two parts:
- Bodily Injury Liability: Covers medical expenses, lost wages, and other damages for injuries to other people in an accident you cause.
- Property Damage Liability: Covers damages to someone else’s property (like their car) in an accident you cause.
Who pays and takes out a policy for the Insurance?: As mentioned above, both parties are required to pay and take out a policy in most states, but the relevant party which needs to have paid and taken out a policy in a particular car accident is the party At-fault in a Motor Accident.
Which party benefits: Both parties benefit in different ways:
At-fault party – They will benefit from the Insurance company paying the eligible damages under the policy up to the specified limit, instead of the At-fault party needing to pay the funds out of their own pocket.
Not At-fault party – Before explaining the benefits, it’s first worth describing what happens if there is no liability insurance taken out by the At-fault driver. Even though there is no insurance, you could still ask the At-fault party to pay the reasonable damages or alternatively go through the unfortunate task of litigation by taking out a lawsuit against the at-fault driver.
However, doing this would take considerable more time, likely costly legal fee’s, more chance of dispute, aggravation and stress and the main risk overall is that, if the at-fault party does not have sufficient assets or means to pay the damages, it’s you who will be out of pocket even if you can prove they are at fault!
Therefore, the main benefit of liability insurance to the not At-fault party does not face the same level of uncertainty of not being paid at all and benefits from more timely payment from the insurer (up to a limit) as well as not needing to spend time, money and aggravation going through a legal process.
What are the mandatory levels of cover: Each state sets out 3 levels of mandatory cover, these are:
- Bodily Injury per Person: The maximum amount that the insurance will pay for a single individual’s injuries in an accident.
- Bodily Injury per Accident: The total amount the insurance will pay for all injuries in one accident.
- Property Damage: The maximum amount paid for property damage per accident
Each state in the U.S. sets its own minimum requirements for these coverages, which are often expressed in a format like 25/50/20. This means $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $20,000 for property damage.
You can check with the DMV for your relevant state but generally across the states this can range from:
- Bodily Injury per Person – $10k to $50k
- Bodily Injury per Accident – $20k to $100k
- Property Damage – $5k to $30k
Things to watch out for: Like I had experience, after an accident you may find the at-fault party does have liability insurance, however if the damages are beyond the mandatory level of cover. Both parties may find themselves surprised that although there was insurance taken out it doesn’t fully cover the full extent of damages.
To help reduce this uncertainty specifically to being at-fault and having damages to pay beyond the mandatory limit, The at-fault party can take out what is called Umbrella Insurance. This is discussed next.
One FAQ:
- Question: I’m the not at-fault driver and I paid for mandatory liability insurance, can i use this insurance to pay for my damages?
- Answer: No, Liability insurance is only able to be used to pay for the other party if you were at fault. Therefore you can not use your liability insurance cover to pay for your damages.
Umbrella Insurance
at-fault -> | Buys Insurance | Pays not at-fault Party
What is it: This is additional liability insurance that provides extra coverage beyond the limits of your standard liability policy mentioned above. In addition to higher limits they often have broader coverage including. For example, it can protect assets and future income in the event of a lawsuit.
Who pays and takes out a policy for the Insurance?: Either Party (At-fault or not At-fault party) can can take this insurance policy out. However the policy only kicks in when the At-fault driver has taken out this additional Umbrella Insurance.
Which party benefits: Like the mandatory liability insurance, both parties benefit in different ways:
- At-fault party – They will benefit from not being liable for the higher level of damages if they occur. They also benefit from the other coverage under the policy such as legal costs and other situations. this can vary from insurer to insurer.
- Not At-fault party – Similar to what was described in the liability insurance section, the benefit is that if they have a significant claim over and above the standard liability insurance limits. They may receive payment from the insurance company faster and with less stress or uncertainty then needing to engage lawyers to attempt to agree a settlement with the at-fault party. Whilst again being at risk of not receiving the damages beyond the standard liability policy if the at-fault party does not ahve means or assets to pay.
What are the levels of cover: Each policy can vary but generally this can be between $1 million to $5 million. In addition to a higher levels of cover to pay for significant damages. There are other benefits such as:
- Broader coverage: It often covers claims not covered by your primary policies, such as libel, slander, false arrest, and reputational damage.
- Legal defense: It can cover legal fees incurred in defending lawsuits, even if you’re ultimately found not liable.
- Personal liability protection: It extends coverage to personal activities outside your home and vehicle, like accidental injuries caused by your pet or during recreational activities.
- Excess liability for primary policies: It applies after your primary policies reach their limits, preventing you from personally covering remaining expenses.
- Peace of mind: Knowing you have significant financial protection against unforeseen lawsuits can offer invaluable peace of mind.
Things to watch out for:
- Cost: Premiums for umbrella insurance vary depending on factors listed above, but generally start around $200-$300 per year for $1 million in coverage.
- Deductible: You’ll likely have a deductible on your umbrella policy, meaning you’ll need to pay some amount out of pocket before coverage kicks in.
- Not a substitute for primary insurance: Umbrella insurance only applies after your primary policies are exhausted. Ensure you have adequate coverage on your existing policies first.
- Most relevant to people with significant assets: If you have a significant assets and happen to be at-fault. You would be most at risk of being sued. Therefore, these types of polices are most relevant.
Uninsured Motorist (UM) and Underinsured Motorist (UIM) Insurance
Not at-fault -> | Buys Insurance | Pays their Damages
What is it: Both types cover your expenses when the at-fault driver lacks sufficient liability insurance. But as the names suggest one covers if there is no insurance at all vs the other where there is some insurance but not enough to cover damages.
- UM insurance applies when the other driver has no liability insurance
- UIM kicks in when their insurance isn’t enough to cover your damages (up to your specific limit).
Given both of these are usually purchased together at a high level all you need to know is you are covered in either eventuation.
Coverage usually includes medical bills, lost wages, and sometimes pain and suffering. Limits often match your standard liability coverage but can be adjusted.
Who pays and takes out a policy for the Insurance?: Either party can take out the insurance but the insurance only kicks in for the not at-fault party of an accident. For example if the at-fault party has this UM/UIM Insurance, even though you have paid for this insurance and have the policy it won’t apply to you for that particular accident.
Which party benefits: The not at-fault party is the real winner here. They will likely get paid the damages up to a certain limit. For the at-fault party although the insurance company will pay the not at-fault party the damages. The insurance company may try to recoup some of money from the at-fault party. For this reason the at-fault party does not benefit from this insurance.
What are the levels of cover: The cover is usually for the mandatory level of liability insurance for your state. (refer to Liability Insurance section for details on this) However you can often adjust this to different amounts.
Things to watch out for:
- Add-on Insurance: This is generally an add-on to your other mandatory liability insurance and can’t be purchased in isolation.
FAQ:
- Question: If the cover is usually for the mandatory state cover level. if the at-fault party has liability insurance how would the underinsured part of this policy ever be useful?
- Answer: If the At-fault party is from a different state, the level of mandatory could be lower. therefore this cover would cover the different between the at-fault cover they do have and your level for your state.
Collision Insurance
Not at-fault -> | Buys Insurance | Pays their Property damages
What is it: This type of insurance covers damage to your own vehicle in the event of a collision, regardless of who is at fault. It’s often required if you have a lease or loan on your vehicle.
Who pays and takes out a policy for the Insurance?: Either party (at-fault or not at-fault party) to the accident can take this policy out.
Which party benefits: Only the party that takes out the policy. Which ever party takes out the collision damage insurance will benefit by the insurance company paying for damages to their vehicle.
However, here are some key differences depending on your situation (note the last two have the most benefit in my opinion) .
- Not at-fault party has collision insurance and at-fault party has no liability insurance – although you could ask the at-fault party to pay your damages, this is likely slow, painful and possible they may not have the money. So you can use your collision insurance to pay you alot quicker. (The insurance company may then try and recoup damages from at-fault driver separately)
- Not at-fault party has collision insurance and at-fault party has liability insurance – Similar to above, you could await a settlement amount from at-fault party insurance company. However, it’s quicker to get payment via your collision Insurance. (The collision Insurance company then may recoup damages from the at-fault liability insurance company)
- At-fault party has collision insurance – When you are at fault, the other party insurance will never pay your damages so collision Insurance is a real benefit to the At-fault party.
- Driver has single car accident (eg crash into car) – Collision Insurance can be a real benefit here as there is no other party that could have insurance to pay your damages.
What are the levels of cover: Generally there is not a specified dollar value. But the policy usually covers the cash value of your vehicle.
For example: If you buy a car for $20k and own it for 3 years before the accident. Due to depreciation and wear and tear the car is worth $13k. Your car is then totaled (meaning it’s not worth repairing, or it will cost more to repair then the value of the car.) The collision insurance company would pay you $13k and not the $20k which you purchased the car for. Refer to Gap insurance if you need to know more about cover if you need insurance to pay a higher amount then the current vehicle value.
Things to watch out for:
Property damage only: Collision Insurance covers property damage to your vehicle or other objects other then the vehicle (eg a fence). It does not cover any injuries you may incur. See Medical Payment Coverage or Personal Injury Protection sections further down.
Your Pet: Note that if your pet is in your car and suffers injuries. Legally pets are considered property and therefore may be covered by the collision insurance policy.
Damage caused by hitting an Animal: Although collision insurance covers damages to your car when you hit another object like a fence. It does not cover you if you hit an Animal, this would be covered by comprehensive insurance which is discussed in below section.
Deductibles – There may also be deductibles.
Comprehensive Insurance
Not at-fault -> | Buys Insurance | Pays their Property damages
What is it: Comprehensive insurance covers damages to your vehicle that are not caused by a collision. This includes events like theft, vandalism, fire, natural disasters (e.g., floods, hurricanes), damage from falling objects, and hitting an animal.
Given this article relates to accidents, the most relevant aspect of this policy relates to damage caused when hitting an animal.
Who pays and takes out a policy for the Insurance?: The party that hit an animal will need to have taken out the insurance. See “Things to watchout for” below for when pets are involved in an accident.
Which party benefits: The party that takes out the comprehensive insurance.
What are the levels of cover: Similar to collision insurance, the level of cover relates to the current value of the vehicle. (see above for further details)
Pets vs wild animals:
- Your pet – if you have a pet in the car that gets injured, you need to check with your comprehensive insurance policy to see if this is covered, it may well be covered.
- Someone else’s pet – if you are at fault, you should check your liability insurance to see if other peoples pets are covered. The reason this may be covered is because pets are legally considered “property”
- Someone else’s pet – if you are not at fault and pet caused accident. Comprehensive insurance should cover this but best check the terms of the policy. There are cases where the pet owner could be held liable due to negligence (eg not keeping pet on lead), however if you have comprehensive insurance the insurer may pay you the damages and then they (the insurer) may try and recoup costs from the pet owner.
- Wild animals – if you crash into wild animals as outlined higher up in this section. It should generally be covered by this type of insurance policy.
Things to watch out for:
- New car replacement – comprehensive cover pays up to the current value of car. If you want to have sufficient cover to replace car with a new car. This is additional cover, refer to lower section “New Car Replacement Insurance”.
- Remaining Loan balance – comprehensive cover does not cover the full amount on loan. it only covers the current car value. There can be a difference and additional insurance is needed to cover this. Refer to below section “Gap Insurance”
- Car rental – If you need to rent a car while your vehicle is being repaired this insurance does not cover this. refer to “Rental Reimbursement Insurance” in lower section
- Deductibles – There may also be deductibles when you claim
FAQ:
- Question: What happens if I’m driving and there is snow and ice. I subsequently crash into a tree due to the snow and Ice. Is this covered by collision insurance as i hit an object (the tree) or is it covered by comprehensive insurance due to the snow and ice events.
- Answer: If you’re driving and crash into a tree due to snow and ice, collision insurance typically covers the damage to your vehicle. This is because collision insurance generally covers accidents that involve colliding with objects, regardless of the weather conditions that contributed to the accident.
Medical Payments Coverage
Not at-fault -> | Buys Insurance | Pays for their Injuries
What is it: This covers medical or funeral expenses for you and your passengers, regardless of who is at fault in an accident. This is also refereed to as “MedPay”
Who pays and takes out a policy for the Insurance?: Either the at-fault party or the not at-fault party can take out this policy.
Which party benefits: This will only benefit the party that took out the insurance and it’s passengers. However, understanding the benefits of MedPay depending on different situation is not so clear.
Generally, from a financial point of view MedPay provides more benefit if you crash into a tree or hit an animal (eg where there no at fault party), or you are at fault, or you are not at-fault and the at-fault party does not have liability insurance.
But from a life threatening injury point of view where time is important this insurance could also be of critical benefit for the other scenarios where it more relates to timing issues of payments from insurance companies.
Scenarios outlined below to articulate the varying benefits of Medpay:
Timing issue in getting payment from insurance company
- I’m a not at-fault party, and the at-fault driver has liability insurance. What’s the benefit of MedPay? If you needed treatments immediately, you would need to wait for the insurance company to determine fault and other aspects that mean the payment is not immediate. where as MedPay provides immediate cover for medical expenses irrespective of if you are at fault or not.
- I’m not at-fault party, and the at-fault party does not have liability insurance but i have UM/UIM insurance. what’s the benefit of MedPay? Similar to answer above, UM/UIM you would need to wait longer to get payment from UM/UIM insurer. Where as medPay will cover medical treatments immediately.
Where there is no other possible cover
- I’m not at-fault party, and the at-fault party does not have liability insurance and i don’t have UM/UIM insurance. what is the benefit of MedPay? Given there is no other insurance available from other drivers. MedPay will mean you have immediate cover.
- I’m the at-fault party, what’s the benefit of MedPay? Given no other insurance available to claim on, this cover means you can get funding for immediate treatments.
- I’ve had a single vehicle accident and crashed into a tree, what’s the benefit of MedPay? similar to above answer, if there is no other party involved there is no one to claim against, so this insurance would allow immediate cover for treatment.
What are the levels of cover: This can vary based on what you specify. Generally this can be $1,000 to $10,000 but can be changed to be higher based on your needs and what the insurer offers.
Things to watch out for:
Lost Wages , Pain and Suffering – MedPay does not cover lost wages or pain and suffering from an accident. This is generally covered by liability insurance you may be entitled to if you are the not at-fault party.
There may also be deductibles.
Personal Injury Protection (PIP)
Not at-fault -> | Buys Insurance | Pays for their Injuries
What is it: Personal Injury Protection (PIP) insurance covers medical expenses, lost wages, and sometimes funeral costs for you and your passengers, regardless of who is at fault in an accident.
It often includes a broader range of coverage compared to MedPay, such as rehabilitation costs and expenses related to household services.
MedPay, in contrast, is more limited, focusing mainly on immediate medical and funeral expenses without covering lost wages or other broader benefits provided by PIP.
PIP is required in “no-fault” states, while MedPay is available in most states as an optional coverage.
Who pays and takes out a policy for the Insurance?: Either party can take this out
Which party benefits: The party that takes out the insurance. (so this can be the at-fault party if they took insurance out or not at-fault party if they took the insurance out)
As outlined above the benefits are also more extensive then medPay, for example may cover rehabilitations costs and expenses
Scenario worth pointing out
If you are at-fault and only MedPay, you will likely get hospital treatment but you won’t get lost wages. where as PIP would also likely cover lost wages.
What are the levels of cover: Typical levels of cover are around $10k but can vary from state to state.
Things to watch out for: There may be deductibles.
Health Insurance
Not at-fault -> | Buys Insurance | Pays for their Injuries
What is it: If you have health insurance, you can possibly use this in the event of a motor accident.
Who pays and takes out a policy for the Insurance?: Either party in the accident
Which party benefits: The party that takes out the health insurance. It will not cover the other party to the accident (unless they are named in the same health insurance policy). if other passengers in your car are named in the health insurance policy they will likely be covered.
What are the levels of cover: This can vary depending on what you have specified.
Things to watch out for: There may be deductibles.
Gap Insurance
Not at-fault -> | Buys Insurance | Pays Loan value gap
What is it: This covers the difference between the actual cash value of your vehicle and the balance remaining on your lease or loan if your car is totaled or stolen.
Who pays and takes out a policy for the Insurance?: Either party in the accident can have this for their own benefit.
Which party benefits: The party that takes out the Gap Insurance only.
How does it work:
Say you buy a car brand new for $20k, To do this, you borrow 16k from the bank and use 4k of your own money
3 years later you still own the car, due to depreciation and wear and tear the car is now worth $10k. On your loan you still have $13k left to pay.
you then have an accident where the car is totaled.
You have comprehensive insurance and your insurance company will pay you current value of the car (before the accident) which would be $10k
At this point, you have 10k from the Comprehensive insurance company. However you still also have a loan for the car of $13k. You use the 10k to pay part of the loan off, leaving a difference of $3k left to pay towards the loan.
The Gap insurance will pay the difference of $3k to the loan company so that you don’t have any amount left on the loan.
What are the levels of cover: This can vary.
New Car Replacement Insurance
What is it: This is an add-on that can be offered by comprehensive or collision car insurers. This is generally offered on newer cars and It covers the difference between the current value of the car that the comprehensive or collision insurance pays the new price of an equivalent car.
Who pays and takes out a policy for the Insurance?: Either party in the accident can have this for their own benefit.
Which party benefits: Only the party that takes out the New car replacement Insurance.
How does it work:
Lets say you buy a car brand new for $20k
6 months later your car has deprecated and is only worth $15k
You then have an accident where you car is totaled.
You have comprehensive car insurance and they pay you the current value of the car just before the accident which is $15k
You would like to go and buy the equivalent car brand new again. however you need an extra $5k (as the insurer paid $15k and the new car price is still $20k which leaves a $5k difference)
The New Car Replacement Insurance will pay you the $5k so you can then go and buy the new car again.
What are the levels of cover: This can vary
Rental Reimbursement Insurance
Not at-fault -> | Buys Insurance | Pays their Rental Car
What is it: This will pay the cost of renting a vehicle while your car is being repaired from the accident.
Who pays and takes out a policy for the Insurance?: Either party to accident can take this policy out.
Which party benefits: Only benefits the party that takes policy out. It will generally have a limit of around $30 a day.
What are the levels of cover: Generally will b around $1,000 but this may vary.
Things to watch out for: This cover generally only starts when the repairs to your cars start. so if it takes 5 weeks for the mechanic to get to your car to fix. it will only start 5 weeks after accident. this means you have a gap of 5 weeks where you may not have a working car.
Roadside Assistance
Not at-fault -> | Buy service | Pays their Assistance
What is it: This is not exactly an insurance but is relevant when you have an accident as they will tow your damaged car away from the scene of the accident.
Who pays and takes out a policy for the Insurance?: Either party to accident can take this policy out.
Which party benefits: Only the party that takes out the Roadside Assistance cover.
What are the levels of cover: Generally this can range from $50 a year to around $100.
Things to watch out for: Some cover may have limits on how many times you can use it, or limitations on towing distance which may be an issue if you are interstate and want repairs completed closer to your home.
Summary
I hope that the information above has helped demystify which insurance benefits which party in a motor accident.
Knowing what insurance you have purchased and which will or may benefit from is important to understand especially if you have just been involved in an accident.
As mentioned at the start this is just a general guide and insurance policies can vary. So i kindly remind you to review any insurance policy that impacts you. You should also seek financial advice when deciding on which insurance policy is appropriate for you. This guide is not to be considered advice of any kind.