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Auto Coverage Choices

Auto Coverage Choices

Below are some common questions regarding your choices in auto policy coverage options.

What are the different types of policies and what do they cover?

Auto insurance is divided into several types of coverage:

  • General liability covers damage you cause to other peoples property and injuries to the people themselves.
  • Collision covers damage to your own vehicle in an accident.
  • Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.—unless the vehicle is overturned, then it is considered a collision).
  • Medical payments insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This “good-faith” coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friends car.
  • Uninsured motorist (UM) and underinsured motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.
  • Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or “endorsements” to your policy.

What does Basic liability insurance cover?

Bodily injury liability covers you for injuries to someone else and property damage liability covers you for damage to someone else’s property, when your auto is in an accident in which you are found liable. Coverage can be purchased in either “split limits” of 15/30/5 (as above) or in a “combined single limit” policy of $35,000.

What is Uninsured Motorist Coverage

Uninsured motorist coverage actually consists of two coverages, uninsured motorist bodily injury (UMBI). The second half is uninsured motorist property damage (UMPD) or collision deductible waiver (CDW)

Uninsured motorist bodily injury (UMBI) coverage pays for injuries to you and to persons in your auto in accidents caused by uninsured or unidentified drivers. The laws says that this coverage must be offered with liability insurance. If you don’t want this coverage, insurance companies must delete it, but they also may refuse to insure you at all unless you accept their total package of coverages.

The second half – Uninsured motorist property damage (UMPD) or (CDW) coverage pays for damage to your automobile caused by an uninsured motorist; however, either the owner/operator or the uninsured vehicle must be identified.

If you don’t carry collision coverage on your auto, UMPD will pay up to $3,500 (not to exceed the value of the vehicle). If you do carry collision coverage on your auto, you can purchase a “collision deductible waiver”. If you are involved in an accident with an uninsured vehicle, your insurer will pay the collision deductible for you.

What is Under-Insured Motorist Coverage

Underinsured motorist bodily injury (UMBI) coverage pays for bodily injury or wrongful death caused by an underinsured motor vehicle (that is, a vehicle which is insured, but at an amount that is less than your UMBI limits). Companies are required to offer this coverage a s a part of uninsured motorist coverage, with limits equal to your UMBI limits. They may also offer the coverage at limits higher than the UMBI limits.

What is Physical Damage Coverage?

This is often called or referred to as “full coverage” which is a very misleading term. Actual full coverage would include Uninsured Motorist, Medical Payments along with the Physical Damage and optional Rental and Towing coverages.

  • Physical damage insurance consists of collision and comprehensive coverage.
  • Comprehensive pays for damage to your auto caused by reasons other than collision, such as fire, theft, windstorm, flood, etc.

These coverages are usually offered with various types of deductibles.

Do I need physical damage insurance?

Physical damage coverage is not required by law. If you are financing your vehicle, your lender will require it. Your loan contract will usually state that proof of insurance must be given to the lender or else they would add their own policy. The cost of the lender’s policy is usually higher than a policy you can purchase on your own and is added onto your loan payments. Also, the lender’s policy does not provide you with liability coverage, which you are required to carry by law.

If your vehicle is over 10 years old, the cost of the insurance may be more than the auto’s actual value. Find out what your auto is actually worth and then decide if you want to insure for comprehensive and collision. Find out how much your car is worth on at the Kelley Blue Book website

Am I covered for natural disasters or “Acts of God?”

Comprehensive insurance, which covers you for fire and theft, generally covers you against damage by flood, earthquake, hail and other natural perils, except when your car is overturned (which is technically considered a collision). If you have special concerns about the safety of your vehicle in the face of Mother Natures wrath, contact your agent for information on catastrophic coverage.

What should I make sure my policy includes? Do I really need to read all the fine print?

While you dont need a law degree or an agent license to understand your policy, you should read it thoroughly. After all, it is a binding legal contract. If there is anything you dont understand, ask your agent to explain it to you. You have the right to know whats in your policy.

If you wish clarification beyond your agent explanation, or if you want to be certain that the policy is completely valid, contact your states insurance department.

What happens when I loan my car to someone? Is that person covered by my policy? Am I still covered?

Yes. Liability and coverage for physical damage (i.e., comprehensive and collision) always follow your car. So, if a friend borrows your car and has an accident, you’re still protected against the cost of damages or injuries. Plus, if the driver of your car is insured, his/her policy will also be available to cover the cost of damages and injuries.

The same rules apply when you borrow someone elses vehicle. Your own insurance follows you no matter whose car you are driving. But the vehicle owners policy is the key coverage if you have an accident.

What is “no-fault” insurance?

No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guys fault.) No-fault simply does away with the concept of one party or the other being at fault. There are no lawyers, no court, no judge, no jury, no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.

If you are insured in a no-fault state and have an accident, you dont go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.

The type and range of no-fault coverage varies by state. What defines the limitations of no-fault policies can differ in two critical areas:

  • Threshold-The type of damage/injury or the cost of repair/recovery that triggers the need for legal action.
  • Mandated Benefit Level-The package of benefits (medical, wage loss, replacement services and other expenses) your state requires you to carry.

The details of no-fault insurance can be complicated. Contact your agent or your states insurance department for further information.