INTRODUCTION TO PERSONAL AUTO

A Personal Auto Policy (PAP) is a conventional automobile insurance policy offered to

private motorists. It provides coverage for loss or damage to a personal vehicle in case
of an accident or collision. A PAP also includes coverage for medical expenses that may
arise if someone suffers from Bodily Injury due to a collision or other accident.

A PAP usually excludes coverage for vehicles utilized for commercial purposes, such as
pizza delivery or ridesharing. For these uses, a Business/Commercial Auto Policy is
required.

TERMINOLOGY

- Auto: Any motorized land vehicle intended for use on public roadways.
- Accident: A sudden, continuous, or recurring exposure to the same conditions
that results in personal harm or property damage.
- Coverage: Protection and benefits provided in an insurance contract.
- Liability: The legal obligation of an insured to compensate a victim for damage
or injury.
- At Fault: The party that is legally liable for the damages in an accident.
- No-Fault: Auto insurance that pays for the insured and the passenger’s medical
claims regardless of who was at fault in an accident.
- Vehicle Identification Number (VIN): A 17-digit number assigned to each
vehicle manufactured in the United States before 1980. This number is used for
identification purposes and is visible on the dashboard when viewed from the
outside of a vehicle.

COVERAGES

Insurance coverage is the amount of a person's or business's risk or liability covered by

insurance services. Personal Auto Policies (PAPs) are designed to insure the private
passenger automobiles that your insureds own or lease. What coverages are included in
the policy dictates the level of protection it provides. Because coverage requirements
vary by state, you must familiarize yourself with the regulations applicable to your
insured's jurisdiction. Typically, a Personal Auto Policy provides the following
coverage to the insured:

1. Autos Liability Coverage: This coverage provides financial protection if the

Insured is found legally responsible for an accident that results in injury, death,
or damage to a vehicle or any other property (property damage). May also apply
if someone else is driving your vehicle and is at fault for an accident. Most states
require drivers to carry a minimum amount of liability coverage, although the
amount varies from state to state. Auto Liability coverage has two parts:
- Bodily Injury (BI) Liability: If the insured is at fault in an accident, this
will cover the medical bills for the other vehicle’s injured driver and
passengers during the accident. It will also cover the loss of income that
resulted from injuries received and costs associated with pain and
suffering for the third party.
 - Property Damage (PD) Liability: If the insured is at fault in an
accident, this covers the costs to repair or replace damaged items. That
can include damage to other vehicles and other types of property, like
homes, fencing, and storefronts.

2. Medical Payments (MedPay) and/or Personal Injury Protection (PIP):

Medical Payments coverage provides protection for expenses related to
vehicular accidents. Also called “MedPay,” it covers the insured and any
passengers in the vehicle, any injured pedestrians, and the Insured themselves if
they are riding as a passenger in another car or are injured by a vehicle as a
pedestrian, bike rider, or public transportation rider. Personal Injury Protection
(PIP) covers the healthcare costs related to injuries sustained in an automobile
accident for both injured policyholders and passengers.

Important points to remember:

⮚ Med Pay and PIP are ‘no-fault’ coverages, which means coverage takes
effect regardless of which driver is considered at fault for the accident.
⮚ PIP coverage is mandatory in states that require no-fault insurance and
optional in others. MedPay is optional in all but a few States.
⮚ PIP coverage applies to many of the same injuries and medical
treatments that MedPay covers. It often has higher limits, more generous
coverage, and ensures a wider range of issues relating to the accident.
For example, it has medical payment provisions for psychiatric and
rehabilitative care, plus lost wages, which MedPay does not.
⮚ In some states, you cannot have both at the same time.

Personal Injury Protection (PIP): Personal Injury Protection coverage is

prevalent in states with no-fault laws. PIP coverage is also "no-fault"
coverage that pays reasonable and necessary medical or burial expenses for
an injured passenger in the insured's car. However, PIP coverage is more
extensive than medical payment coverage. The PIP covers the following
additional costs:

● Physical/Occupational Therapy and Rehabilitation

● Psychiatric Treatment

● Lost Wages

● Child Care

● Other Professional Health Services

 3. Uninsured Motorist (UM) and/or Underinsured Motorist (UIM) Liability:
In some states, auto insurance is not mandatory. However, even in places where
it is mandated, some drivers prefer to drive with only the minimum legal
protection or without a Personal Auto Policy. In such cases, the UM/UIM
coverage provided by a PAP help protect the Insured in situations where the
third party involved in an accident is under-insured or uninsured.

- Uninsured Motorist (UM) Coverage: It is a component of an auto

insurance policy that provides coverage when the policyholder is in an
accident with someone who does not have insurance. It is an add-on to a
standard auto policy and pays for injuries to the policyholder and
passengers, and in some instances for property damage, if the other
driver is legally responsible for the accident but uninsured. In some
states, it is required that auto insurance policies include uninsured
motorist coverage.
- Underinsured Motorist Coverage (UIM): UIM coverage protects the
Insured if they are involved in an accident with someone who does not
have sufficient insurance of their own. In an accident, the at-fault
person's insurance is supposed to compensate the other injured person. If
the at-fault party's policy has a limit below the cost of the damages, the
injured party's underinsured motorist coverage will cover the rest.

NOTE!

Some states mandate that an Insured have both UM and UIM coverage,
while others permit any or both coverages to be declined. Each state
handles UM and UIM differently.

4. Physical Damage: Covers damage to or total loss of an Insured's covered

vehicle or any non-owned vehicle (such as a borrowed or temporary substitute
car). In contrast to the previously taught categories of coverage, the Insured can
choose the extent of coverage they require against several hazards. A PAP can
include coverage for one or both of the following exposures:
- Collision: Includes coverage for physical damage in the event of a
collision or rollover
- Comprehensive: Provides coverage for any mishap besides a collision
or rollover. Examples include fire, theft, bad weather, and falling objects.

5. Other Coverages: In addition to the coverages mentioned above, PAP policies

provide the following coverage, depending on the carrier.
- Rental Reimbursement: Pays for a rental car while yours is being
repaired after a covered loss.
- Towing and Labor: Protects you against some of the costs and hassles
associated with common roadside breakdowns.

FULL COVERAGE VS. LIABILITY

Full coverage and liability are both types of auto insurance coverage, but they provide
different levels of protection.

1. Liability Insurance: Liability insurance is typically the minimum required by

law in most states. It covers damages and injuries the insured may cause to
others or their property while driving. In other words, liability insurance will
cover the costs associated with the other party's injuries and damages if the
insured is at fault for an accident. It does not cover any damage or injuries the
insured may suffer or damage to the insured’s vehicle.
2. Full Coverage: Full coverage insurance, on the other hand, includes liability
coverage and coverage for the insured’s vehicle. It typically includes collision
and comprehensive coverage, which covers damages to the insured’s car caused
by collisions, theft, vandalism, or natural disasters. Full coverage insurance is
not required by law, but it is often recommended for drivers with newer or more
expensive vehicles.

In summary, liability insurance covers damages and injuries to others, while full
coverage insurance provides additional coverage for damages to the insured’s vehicle.

WHO IS PROVIDED COVERAGE?

Three different types of insureds can be protected under a PAP, and each one has a
different level of protection:

1. Named Insureds: The named insureds are the people or businesses covered by
all policy provisions. Typically, the Insured themself and their family members
are listed as "Named Insureds" in a PAP. Both spouses should be mentioned on
the policy if a married pair owns the vehicle, as this gives protection in case of
separation or an unanticipated event.
2. Extended Insureds: Extended Insureds are those parties or entities which, if
certain conditions are met, are also covered by the PAP. Each coverage
component within a PAP has separate 'extended insured' eligibility requirements.
- Part A: Liability
● Any authorized user of the Insured's covered vehicle.

● Any person or organization legally liable for the activities of an

Insured while operating their covered vehicle.
- Part B: Medical Payments
● Extended Insured coverage extends to the driver and all other
occupants of the covered vehicle.
- Part C: UM/UIM Medical Coverage:
● Any occupant of the Insured's covered vehicle.

● A third party who suffers consequential losses as a result of an

insured's injury.
 3. Additional Insureds: Additional Insureds are individuals or entities added to an
insurance policy at the request of the Named Insured. This is typically
accomplished through an endorsement added to the policy.

NOTE!
If a vehicle is to be held jointly by two or more unmarried individuals, the
Joint Ownership Coverage endorsement can be used to cover all of them.
This is especially useful if a family member jointly owns a vehicle but does
not reside in the home because they are away at college or in the military.
Which Coverage Would Be Applicable?
Use this simple algorithm to determine which coverage is applicable according
to the situation:

Comprehensive: (insured)
1. Car Stolen or Vandalized
2. Animal Collision
3. Car damaged by a natural disaster
Collision: (insured)
1. Car damage from hitting something
2. Car rolls over
3. Another car crashes into your car.

Here's another quick guide to determine what coverage would be provided to

the insured or another person.

You & your car:

1. Collision
2. Comprehensive
3. UM/UIM
4. Medical
5. Other coverages (Towing/Rental)
Other Person:
1. Liability coverage

LIMITS OF LIABILITY

A policy limit represents the maximum amount of damages an insurer will pay for a
covered loss. A liability limit applies when the insured is held responsible for an
accident or loss/damage to a third party.

Liability Limits are applicable in two formats, i.e., Split or Combined. Each format
covers different sub-limits, which are explained in detail below.

UNDERSTANDING THE TERMS

1. Property Damage (PD): A part of Auto Liability Coverage, refers to damage to

the third-party automobile and its components due to accidents caused by the
Insured.
 2. Bodily Injury: In auto insurance, Bodily Injury (BI) refers to the harm suffered
by the driver and passengers of a third-party vehicle involved in an accident or
other events for which coverage is provided.

COVERAGE FORMATS

1. Split Limits: When policy limits are set independently for a policy on a per
accident/claim basis, this is referred to as "Split Limits" and is the most frequent
procedure for PAPs. With split limits, three different dollar amounts apply to
each accident:
- Per Person Limit for BI: Limits applicable to individuals involved in
any event for which coverage is provided where SEPARATE amounts
are determined for EACH involved person.

- Per Accident Limit for BI: Limits applicable to individuals involved in

any event for which coverage is provided where a SINGLE amount is
determined for ALL involved persons.

- Per Accident Limit for all PD: This limit represents the maximum
amount an insurer will pay for property damage to a covered vehicle in a
SINGLE accident.
In contrast to other limits, the physical damage limit indicates that the
coverage amount is restricted to the least expensive choice between the
actual cash value (ACV) and the cost of repairing or replacing damaged
or stolen items.

NOTE!

Split limits generally look like this: 15/25/10. This represents $15,000 in per-person
BI coverage, $25,000 in per-accident BI coverage, and $10,000 in per-accident PD
coverage.

2. Combined Single Limit (CSL): This limit is meant to provide a more flexible
payment option in the event of an accident. Instead of determining separate
limitations, a Combined Single Limit (CSL) applies to all BI and PD damages in
an accident. When setting limits for Covered Autos Liability Coverage. It
combines the following limits into one:
- Covered Autos Liability – BI Per Person Limit: This is the maximum
amount the insurance company will pay for physical injury damages
sustained by EACH third party in a SINGLE accident.
- Covered Autos Liability – BI Per Accident Limit: This is the
maximum amount the insurer will pay for ALL third-party bodily injury
damages resulting from a SINGLE accident. It serves as the maximum
amount an insurance company must cover.
 - Covered Autos Liability – PD Limit: This limit represents the
maximum amount the insurer will pay for ALL third-party property
losses resulting from a SINGLE accident.

3. UM/UIM Liability Limits: UM/UIM Liability provides coverage to the

INSURED when a third party is at fault for an accident who is uninsured or
underinsured. UM/UIM Liability Limits are divided as follows:
- UM/UIM Liability – BI Per Person Limit: This is the maximum
amount an insurance company will pay for EACH covered person who
received bodily injury medical expenses in a SINGLE accident caused
by an uninsured or underinsured driver.

- UM/UIM Liability - BI Per Accident Limit: This is the maximum

amount the insurance company will pay for ALL bodily injury medical
expenditures incurred by covered individuals in a SINGLE accident
caused by an uninsured or underinsured driver.
This limit is the maximum amount an insurer must cover for UM/UIM
bodily injury coverage.

- UM/UIM Liability - PD Limit: This is the maximum amount the

insurance company will pay for ALL property damages to the insured's
covered vehicle(s) caused by an uninsured or underinsured driver in a
SINGLE collision.

ENDORSEMENT

To keep rates cheap, insurance policies are constructed to provide the coverage
necessary for most consumers. However, an insured may occasionally have a need that
the policy does not cover by default.

An endorsement is a modification to an insurance policy that adds, modifies, or

removes coverage to address a specific need.

When an endorsement is added to an insurance policy, it becomes a legally binding part

of the policy. Unless the policy endorsement specifies a time frame for its validity, it
will generally remain a part of the policy through renewal.

TERMINOLOGY

1. Lessor(Landlord): The individual or entity that leases property to another.

2. Trust: An arrangement in which one individual holds property for the benefit of
another.
3. Livery: The transportation of persons and/or things for compensation (taxi or
delivery service).

Endorsements commonly applied to PAP are listed below:

1. Lessor Endorsement: This endorsement acknowledges the lessor of a leased

vehicle as an additional insured and compels the insurer to defend the lessor.
 2. Trust Endorsement: In addition to the insured, a trust can be added as a named
insured or an additional insured. If owners transfer their vehicle into a trust and
designate a trustee, the trustee will retain legal ownership of the automobile.
3. Additional Resident of Household: This endorsement can be used if an
additional member of your insured's household requires coverage for a vehicle
they do not own but occasionally use. This may include a domestic partner,
roommate, or live-in nanny/housekeeper who is not blood-related. This
endorsement gives family member coverage to these individuals.
4. Miscellaneous Type Vehicles: This endorsement provides coverage for
recreational vehicles not previously covered by a PAP, such as motorhomes,
motorbikes, golf carts, dune buggies, and other vehicles.
5. Limited Transportation Network Driver Coverage: No Passenger Public or
Livery Endorsement – This endorsement provides limited coverage to insureds
whose vehicles are used for ridesharing. It provides coverage from when an
insured driver registers into a "transportation network platform" to when the
driver accepts a specific online ride request.
After the driver accepts a request, no coverage is provided (as the company will
generally provide coverage at that point). By definition, the 2018 PAP excludes
any ridesharing activities from coverage.

EXCLUSIONS

An exclusion is a technical provision in an insurance contract that removes coverage

rather than increasing or changing coverage.

Insurance policies may exclude coverage for certain types of loss or damage by default.
Additionally, an insured can remove coverage from their PAP for factors they feel are
unnecessary.

Exclusions commonly applied to Personal Auto Policies are listed below:

1. Public or Livery Conveyance Exclusion: This exclusion adds a definition for a

transportation network platform to the PAP and excludes from Liability
Coverage, Medical Payments Coverage, and Coverage for Damage to Your Auto
any insured operating a vehicle and using a transportation network platform.

2. Vehicle Sharing Program: This exclusion removes coverage for losses

incurred while the covered vehicle is operated as part of a personal vehicle-
sharing program. This exclusion applies to both the party that owns the car and
the party renting the car through a peer-to-peer car-sharing agreement.

3. Racing in a Facility Designed for this Purpose Exclusion: Any vehicle

located within a facility constructed specifically for racing purposes, preparing
for, or competing in a race or driver skill event is excluded from coverage under
a PAP.

4. Other Common Exclusions:

- Intentional bodily injury or property damage.
- A driver's use of a vehicle without permission.
- Vehicles that have less than four wheels or are designed for use off
public roads.
- Vehicles that can be used for flight or water.