When purchasing an auto policy, there’s a lot of things you should keep in mind. Recently we talked about the first two numbers in the split limit. Which is the bodily injury, you can visit “Bodily Injury Explanation” if you haven’t read it yet. Today in this article, we’re going to discuss the third number in the split limit. Which is “Property Damage”.
What is a Property Damage and How does it Work?
Well, people usually say “when you break it, you buy it”. That’s the main concept of property damage liability. Since we are going to discuss property damage coverage. We will also tackle how this coverage can protect us if we’re at fault in an accident. So, let’s say you’re responsible for damage on another man’s property. The property coverage is going to help you cover the damage that you caused to another individual. It also includes a business entity’s property.
You should keep in your mind that this coverage pays for all the associated costs. Up to your max limit of liability. When looking into your policy. You can see your limit for the property damage as a total. It means that’s the max limit your insurance company will cover for the damage you’ve done.
So, now we know that property damage liability is gonna cover the damages that we’ve done to other people’s vehicle or property. Let’s have a clarification first before we proceed. Like what I mentioned earlier. It’s more on “other people”. It means that the damages to your own car in a wreck is not part of the coverage. In other words property damage liability is not going to cover it. That’s the job of collision insurance. If you are curious about it, you can visit “Car Collision Coverage” to understand how this type of insurance works.
Example for better understanding
Let’s say that you possessed a legal minimum coverage in your state. Which is $25,000 and your split limit is 50/100/25. The first two numbers which are 50 and 100 are for bodily injury coverage. We already talked about the split limit from the previous article. If you haven’t read it yet, you can visit “Simple Explanation of Split limit”. Our main focus today is the last number, which is 25 in our example. The 25 is the amount of property damage liability per accident.
So, you have this policy and that means you’re covered up to $25,000 in property damages. While driving around, you accidentally run into a Miata. You caused some damages and ended up paying $47,000 worth of damages. Luckily you have insurance. You got this policy and you want to use it to help you pay.
Here’s how it works. Since you’ve got $25,000 in your policy. The first $25,000 is going to be covered by your policy. But the damages you’ve done is $47,000. What we’re going to do here is we are going to subtract $25,000 to $47,000. Now, that’s going to give us $22,000. If you are wondering why you are doing these calculations. Well, this is to determine your out-of-pocket costs.
This means, the person to whom you did the damages still has a $22,000 claim against you. It also means they can come after you for the out-of-pocket costs. So, if you have $22,000 in your bank account or in assets. They can come after you and sue you to get some of your assets.
Some Property Damage Advice
Given the scenario above. This is the reason why some people want more than 25,000 dollars in property damage liability. Some want a hundred thousand in property liability or 500,000. It is because the more assets you have, the more you’re exposed to some kind of accident. So, think about this, if you can afford it, then buy it because it is worth it.
Let’s say you have 400,000 in coverage or it might be an extra hundred dollars every 6 months. What you’re getting is a peace of mind. You’ll be covered instead of using these out-of-pocket costs. That can eventually lead you into bankruptcy.
The property damage is like the bodily injury limit. It shows how much the insurance company will pay out because of the accident. The property damage is “per occurrence” limit. So your insurance company will pay out depending on what’s in your policy.
Key Takeaways
Imagine this, let’s say you’re on the way to a store. Then you accidentally rear-ended a car. Nobody is injured but the “other” car is damaged. That’s where property damage coverage is for. This type of coverage offers 2 key things. First is the damage to another man’s car. If you’re responsible for the accident. Second is for your legal defense. This is to protect you when the owner of the other property or vehicle files a lawsuit against you.
This coverage focuses on damage that you’ve done to other cars, buildings or even public property. Take note, property damage liability is typically mandatory in the United States. Also, in every state they have different mandatory minimum coverage. So, the amount of coverage that you have for property damage will vary based on the state that you’re in. You can also buy more than the mandatory minimum but that’s a decision you have to make.
Here’s another important thing that you need to remember. If you’re found liable in an accident. Your net worth could be at risk. The more assets you possess, the more coverage you may want. For additional liability protection try considering an Umbrella Policy. To know more about Umbrella you can visit this article “Umbrella Insurance: Everything You Need To Know”.