Preferred Financial Group

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Auto Insurance 101


Auto insurance is a policy purchased by vehicle owners that protects them against financial risks associated with auto accidents. Even if you are a very cautious driver, you are still subjected to these risks, which can be substantial and could prove devastating in the worst case. In our litigious society, it is not uncommon for juries to award hundreds of thousands of dollars or more to victims in auto accidents. Fortunately, this risk can be mitigated with the purchase of insurance. Like most insurance policies, the insured (the vehicle owner) pays a small annual premium to the insurer (the insurance company) for a large amount of protection.


A basic auto insurance policy provides protection in the following areas:


Bodily Injury Liability:

This coverage pays for the medical expenses of people injured in a crash in which you are at fault. You’ll often see this coverage described as a “20/50 policy” or a “100/300 policy”. These numbers describe the maximum dollar amounts that the policy will pay for a single person’s injuries and the maximum for all the injuries sustained by all the occupants of the other car combined. For example, a 20/50 policy will pay a maximum of $20,000 for a single person’s injuries, and up to $50,000 total for the injuries of everyone in the car you hit.


Property Damage Liability:

This coverage pays for damage done to the “other car” if you or the driver on your vehicle is at fault in an accident. Property liability is sometimes referred to alongside Bodily Injury Liability as the third number, so a 20/50/10 liability package will cover up to $10,000 for damages to the other car.


Personal Injury Protection:

This covers you, another driver of your vehicle and any passengers’ medical expenses after an accident. If time is lost at work because of injuries, this coverage may also covered lost wages.



This coverage pays for damage to your car from a collision with another car, an object or even a rollover of your car, irrespective of who is at fault.



This covers your car against all physical damage resulting from causes other than collision, like fire, theft, vandalism, hail, contact with animals etc.


Uninsured/Underinsured Motorist Coverage:

In the event someone without insurance (or inadequate limits) causes damage to you and your vehicle, this coverage protects you, your family and others in the insured auto as well as protecting you and your family in someone else’s auto. If you are hit by a car as a pedestrian, this coverage will protect you.

Many states have mandated minimum limits of liability insurance, but many people purchase additional insurance for additional protection. In California, it is illegal for motorists to operate a motor vehicle without first showing proof of their ability to pay for judgments resulting from auto accidents. California’s financial responsibility requirement mandates minimum liability insurance limits of 15/30/5, outlined as follows:


Bodily Injury Liability

                  • $15,000 for death or injury of any one person per accident
                  • $30,000 for all persons per accident

Property Damage Liability

                  • $5,000 per accident

Here are a few important “need to know” items/ facts

In California, driving without insurance is a serious offense. Drivers who do not carry evidence of financial responsibility will be cited and fined, their car could be impounded and their licenses suspended. If you are involved in an accident without proof of financial responsibility, you could lose your driver’s license for up to four years.

Auto insurance premiums, or the amount policyholders pay to be insured, vary depending on age, gender, years of driving experience, accident and moving violation history, and other factors. Each area of coverage is priced separately. A poor driving record and/or the desire for more complete coverage will lead to higher premiums. However, you can reduce your premiums by agreeing to take on more risk by increasing your deductible.