liability vs collision coverage

Question

I live in Washington State. I have a reasonably cheap car. I am not afraid to replace it if I have to so covering for damages isn't a problem. Additionally, I have a good job with good health care. I am however interested in covering myself for truly catastrophic events. Therefore; I waived all coverages except for liability. However, some friends got me worried that I am misunderstanding the situation and opening myself up for undue risk. I tried reading up and clarifying what each of the coverages mean but it left me even more confused. Here's what i got so far:

Cover myself: at fault -> collision, not at fault -> other party's liability

Cover another party: at fault -> liability, not at fault -> their problem.

Given good healthcare and some reasonable savings, I'm not worried about myself much. The only potential risk is that the other party does not have coverage and won't be able to cover damage to my car or some of my physio bills. I am ok with that.

If I'm at fault, my liability insurance should kick in (up to the limits) and cover me. Correct? For example if I drive into a Ferrari or something along those lines.

Another thing I'm not clear about is what happens if I lend my car to a friend and they get into an accident. Does the table above apply or is it up to their own insurance?

Finally, what happens if I am renting a car that's within the same price range? Am I still covered the same way?

Thank you very much

Answer 1

Auto insurance is Complicated. You should consult with your insurance carrier for specific rules about how your policy applies. However, as a general synopsis, your liability covers damage your insured car may do while you are driving it, and also typically covers cars you drive that are loaned to you (such as by renting a car, or borrowing from a friend). At the same time, this also usually means that if you loan your car to a friend, and they have an accident, their liability will be tapped first, if they have any.

If they don't have insurance, then your insurance may cover it if you have an uninsured/underinsured driver clause. Not all insurance companies or plans offer this, so check ahead of time, and some that do require an opt-in (costs more money). Underinsured comes about when your friend has liability, but it didn't cover the total cost; in that case, your liability can be added towards the costs as well. If you don't take the optional uninsured/underinsured clause, be wary of loaning out your car.

Should you hit a Ferrari, and you're at fault, hopefully they have collision insurance as well. Your liability will be used first, then their collision, and then the rest would be out of your pocket. If you're not at fault, your liability would still likely cover some of the repairs. The same is also generally true if you decide you accidentally run into a telephone pole. The cost of repairing the pole would typically be covered under liability insurance as well.

Finally, there's usually the option of Medical coverage as well. Even with your good health insurance, you should at least consider this type of coverage as well. The reason why is that it can also cover passengers that are injured that don't have as great of a plan (or extra savings in case something happens). While you're not required to have this coverage, it's a bit of a Good Samaritan sort of thing; you're protecting your friends/family from costly medical bills that they may not be able to afford.

I apologize for all the "usually" and "generally" usage, but the takeaway here is that we can only give you general advice. Your specific carrier can explain the rules better than we can. The only thing I can say for certain is, if you own your cheap vehicle, and you can afford to replace it, then a collision policy is indeed worthless; you can put the extra money you save into your savings account and/or use it for something more practical.