Indemnity Insurance For Cars | What You Need To Know
Indemnity insurance doesn’t technically exist, but rather refers to the process of your auto insurance company covering you financially from losses.
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Ensuring that a vehicle is financially protected on the road is essential for every driver, and it is also known as indemnity. While you may be familiar with indemnification, you might not know how it applies to car insurance.
In my 9 years of auto insurance experience, I have helped people like you to better understand indemnity insurance related questions, so let’s talk about it.
Key Takeaways
Indemnitification is simply an agreement that your auto insurance company will pay for damages of a covered incident.
Indemnity will pay for deductibles, copayments, medical bills, and court costs.
What Is Indemnity Insurance?
Indemnity is a promise that one party will pay for damages to another party, in the case of losses or damages. Indemnification is the actual act of compensation a party from already occured losses or damages.
Indemnitification protects the insured from financial loss in the event of an incident such as an auto accident, theft, or other covered incident under the policy.
How Does Indemnity Work With Car Insurance?
When an insured vehicle has a covered incident such as a car accident, weather damage, vandalism, or theft, the burden of responsibility must fall on someone. With indemnity, the insurance company the policy is written through assumes the financial burden to make the policyholder whole again.
It would not matter if the coverage was for you or the other party, indemnity covers you both depending on which additional coverages you have in place.
An auto insurance company may cover you for:
Legal fees
If you are sued by the injured party after an accident, your insurer will cover legal fees if you have liability insurance. This will be restricted by your policy limits. A 2024 study shows that legal fees can be between 25% and 40% of a settlement.
Property damage
Another driver’s personal property damage such as a vehicle or home will be covered up to your policy limits. You would need collision coverage for your own repairs.
Indemnity is designed to restore the driver back to where they were before the incident. One cannot expect to receive greater compensation and have a better vehicle than what you previously owned, unless that dollar amount was equal to the policy limit.
Medical bills
Your liability insurance policy will cover the medical expenses of the other driver and their passengers. This is also restricted to your policy limits. This does not include your personal injuries. You would need medical payments added to your insurance policy for your personal injuries to be paid.
Important: In addition to liability coverage, 80% of insured drivers purchase comprehensive coverage; 76% buy collision coverage. This is according to a Triple-I analysis of 2021 NAIC data.
Who Should Have Indemnity Insurance?
Having indemnity from your auto insurer is required by most states. If your vehicle carries a lease or you have put money into it restoring it, this increases its value. Indemnity insurance would be wise since it covers theft. It also covers if someone vandalizes your vehicle as long as you also have comprehensive coverage.
Keep in mind that the costs of an auto accident can be quite high especially with many of the newer electric vehicles on the road today. Indemnity insurance is the added protection a driver needs should the costs of a claim go beyond the Bodily Injury (BI) and Property Damage (PD) of a standard insurance claim.
Finally, every driver should have at least minimum coverage to protect themselves and others on the road.
If you’re insure if you need indemnity insurance then you should speak with a licensed insurance agent.
On The Hook: Car insurance rates can increase an average of 49% for an at-fault accident. – Some insurance companies do have loyalty programs called Accident Forgiveness; this is only available through select companies.
Is Indemnity Insurance Worth It?
Indemnity insurance generally includes add-ons to liability insurance coverage’s bodily injury and property damage. These two add-ons are Comprehensive and Collision.
Under normal circumstances, without auto insurance, a driver would pay out of pocket to repair or replace their vehicle. Indemnification is there to make the driver whole again without paying anything but their insurance premium.
Important: According to a Forbes 2024 study, the least expensive state to live in for auto insurance is Vermont, at $1,158 per year; the most expensive is Florida at $3,865 per year.
FAQs
What Does Indemnity Insurance Cover?
Indemnity will cover property damage if you cause an accident. If you have collision coverage, you will also be covered for the damages to your car. You are also covered for medical bills for the other driver and passengers.
If you have added coverage in your policy, you will also be covered for your passengers. Finally, you are covered for legal fees if you are sued. All of these areas are up to policy limits.
What Are The Benefits Of Indemnity Insurance?
The benefits of indemnification are, for one you will be protected financially in the event of a covered event. Without insurance, the cost of medical bills, legal fees, and auto repairs can become astronomical, especially with newer vehicles.
Insurance just makes sense. Auto insurance also is mandated in most states and if you lease a vehicle could be a requirement of your lease.
What Are The Drawbacks Of Indemnity Insurance?
Indemnity insurance in some cases can be considered full coverage. Carrying full coverage can be costly. However, when you have a lease on your vehicle it may be required by your lender.
Consider cutting the extras on your policy that you may not need that are not required such as rental reimbursement and towing.
Sources
⇅- The Hartford – indemnification
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