Insurance that Works for You: Part 4

Protecting Your Ride—Auto Insurance Basics

You have a ride. You have wheels of your very own. Now, you need to insure those great wheels—but where do you start?

What is the minimum coverage you have to have to be “legal”?

Is that enough?

How can you be sure you are protected as well as possible?

If this seems like too many questions without answers, just relax. Auto insurance is not hard once you get familiar with a few key concepts. This short write-up will provide you with an overview of those key concepts and terms, so that when you sit down with your agent, the insurance “jargon” won’t unduly confuse you!

“Liability” is a term that means “what you are responsible for”—or liable for—when/if you do damage to someone else or to his/her property. Hence, liability insurance covers the expenses involved in those responsibilities.

This type of coverage is expressed in numbers that look like fractions but are actually shorthand for dollar amounts. For instance, a liability insurance coverage “fraction” of 100/300/100 means:

‒     you have $100,000 in bodily injury insurance per person involved;

‒     you have $300,000 in bodily injury insurance per accident; and

‒     you have $100,000 in property damage insurance per accident.

These figures represent how much your insurance company will pay toward the total bills for damages to persons or property for which you have been determined to be responsible, or liable. Since “liability” often involves legal ramifications as well, liability helps offset any legal expenses you incur in the process of sorting out the details of an accident.

In short, liability insurance is your fundamental “starting point”—every state requires it as part of an auto policy. Your insurance professional should know what your particular state requires in terms of “minimum coverage.” However, if you have any questions, ask.

You will need to be certain that when you shop for insurance, any premium rates you are quoted will cover you for those minimum dollar amounts. As well, since this insurance covers you only up to your limit, you need to make sure that is sufficient. If you cause $25,000 worth of property damage but you have only $10,000 in liability insurance…you are still responsible for the remaining $15,000. That is why getting more liability coverage—rather than simply the minimum—is a good idea. We always encourage clients to take a minimum of 250/500/100 or higher coverage.

In contrast to liability, which is personal coverage, these types of insurance are coverage for your vehicle.

Collision insurance is what takes care of any accidental damage that you happen to cause to your own car. Even if you completely total a vehicle, your insurance company can reimburse you for its cash value—minus the deductible, or the amount of money that comes out of your pocket before the insurance company pays. (Except in rare instances and particular special offers from insurance carriers, you will always have to pay something out-of-pocket.)

For example, say that your deductible is $500, and you have a mishap that causes $6,500 worth of damage to your car; you will pay the first $500 of the repair bill, and then, the insurance company will pay the remaining $6,000.

Moreover—as you can probably guess—the higher the deductible is, the lower your premiums can be. This can be a catch-22, however, if you want to economize, that probably also means you do not exactly have a bundle of cash sitting around to pay a high deductible! A good rule of thumb: Try to “split the difference” to get the highest deductible you can reasonably handle—even if it is a little stretch—and put the difference in premium cost away in a savings account to cover that deductible, with a little “wiggle room,” should you ever have to use it.

Comprehensive coverage is what takes care of damage to your car through events other than accidents: fire, theft, vandalism, storms, and the like. (Surprisingly enough, there is one interesting exception: if you hit a deer or other animal with your car, even though it is technically an accident, you are covered under your comprehensive plan—not collision!)

Medical Payments coverage is exactly what it sounds like. It covers medical bills for you or your passengers in the event of an auto accident. Medical bills are one of the major “hits” your budget cannot take and sometimes difficult to recover from—so it is a good idea to carry a healthy amount of coverage for this purpose.  Medical payments from your auto coverage do not coordinate payment with your health coverage.  It can be paid in addition to.

Personal Injury protection can often go several steps further beyond medical costs. It can cover such things as lost income due to an injury, or even funeral costs in the event of a death. Personal Injury coverage is usually optional, but in some states (such as Arizona) it is mandatory. Be sure you have it for your protection in those cases!

While we are all “required” to carry auto insurance, we also all know that not everybody bothers to fulfill that “requirement.” Alternatively, some of us do have insurance—but just barely. You will see this especially with new and/or young drivers who may have a hard time pulling together full-bore coverage for their cars. They are okay to drive and they are technically not breaking the law…but they are also not carrying near enough to fully cover what you may be entitled to in the event of an accident.

This is where Uninsured/Underinsured Motorist can cover your bacon (and eggs, and toast, not to mention coffee). In a nutshell, it protects you in the event that you have an accident with one of these drivers who are either uninsured entirely or insured by the skin of their teeth with minimal, 15/30/10 “basic” coverage. Those amounts will not cover you in places like New York, where repair costs are notoriously above national averages—or if you take a major hit that is more injury-related. Hence, your coverage then steps in and makes up some crucial differences. This insurance also takes care of another category you may not have thought of; this is what takes care of you if you are a hit-and-run victim. Better to have some coverage at that point than none at all, with your assailant speeding off into the distance!

You should always apply for 250,000/500,000 to match your liability limit.

You ought to. You have just read over the basics of automobile insurance coverage types—Liability, Collision, Comprehensive, Medical and Personal Injury, and Uninsured/Underinsured coverage. Getting the right amounts on these “basics” means you are covered. You are legal without having to wear a three-piece suit or carry a briefcase—and more than likely, with a topnotch agent to help you, it was easy, too.

So relax…put that insurance card in your glove compartment…and then hit the road!