Understanding Your Auto Insurance Coverage


First thing that comes to your mind after thinking of getting a car is: All of us who have a car have to have car insurance, the reason…first if all, its the Law, and secondly its a need. More people are looking for car insurance rates than ever before, more people are switching insurance than ever before. The reason is simple, everybody wants to save a buck or two, but sometimes you pay a big price for saving those few bucks a month. So before you check insurance rates again, it is very important that you understand key coverages in an automobile insurance policy.

COVERAGE FOR THE “OTHER GUY”

1. Liability Limit

The liability limits of your car insurance policy are basically for the “other guy”. If you hit somebody and that’s your fault, the other guy will get paid out of your liability limits for:

i. His (or his passengers’) bodily injuries; and

ii. Damage to his car and/or other property.

Liability limits are also two types. First and the most common type is “Split Limit” coverage when you have your limits split between Bodily Injury Per Person, Bodily Injury Per Accident and Property Damage Per Accident. You will see on your policy limits written as

Bodily Injury 20,000 Per Person/40,000 Per Accident

Property Damage 15,000 per accident

The Second or Less common type is “Combined Single Limit” or CSL. You will see only one figure on your policy in front of liability Limits for eg.

Liability Per person/per accident 100,000

Now, the question arises that how much liability coverage do you need? Every state has a minimum Liability limit requirements, For Eg. the state of Maryland requires us to have a minimum of, For Bodily Injury, $20,000 per person/$40,000 Per accident and For property damage $15,000. For simplicity sake, they are read as 20/40/15. However State of Maryland is increasing the bodily injury limits to 30/60 in 2011. Minimums are usually not enough, So DO talk to your about evaluating your insurance needs and suggest you a limit right for you.

COVERAGE FOR YOU AND YOUR FAMILY

1. Uninsured/Underinsured Motorist Coverage

So what happens, when you become a victim of “Hit and Run” or the other guy who hit you, does not have enough coverage to pay off your expenses or does not have insurance? Your Uninsured Motorist (UM) coverage covers you and your car. These limits are ideally same as your liability limits. In Maryland you may choose to have lower UM coverage, but you have to sign a waiver. I would never recommend doing that.

2. Personal Injury Protection (PIP) Coverage:

In Maryland, we are required to carry PIP coverage, minimum $2500. It covers you for lost wages or hospitalization expenses upto $2500 if you get hurt in an accident. You can either have full PIP (i.e. including family) or Limited PIP (i.e. excluding family). Full PIP will cover the “Other Guy” and You and Your Family, both and Limited PIP will only cover the “Other Guy”. Full PIP is always recommended. If you reside outside MD, please consult your agent for Personal Injury or TORT coverage in your State.

COVERAGE FOR YOUR CAR.

This part of your coverages are optional and you can choose if you do or do not want them in your policy.

1. Collision:

This coverage will cover damage to your car that is due to a accident. Your insurance co would require you to have a deductible for this coverage. A deductible is your share in the loss. So your company will pay for whatever it take to repair or replace your car minus your deductible. What is a good deductible? depends on how much would you be willing to pay from your pocket. A general rule is higher the deductible, lower the premium and lower the deductible, higher the premium. You vehicles current book value is another important factor in deciding about your deductible. If your vehicles model year is 10 years older than today, them may be Collision coverage (or full coverage) is not worth it, because if your vehicle is declared a total loss (totaled) then your insurance company will pay the book value of your vehicle minus the collision deductible. If you own a 1995 vehicles and its current book value is, say, $500 and your collision deductible is $500, then you wont get anything despite paying the premium for your collision coverage for years!

2. Comprehensive:

In easy term, Other than Collision. This coverage will cover damage to your vehicle for something other than a car accident, for e.g. a tree falls on your car, or somebody breaks the window and steels something from inside the car. You will be required to have some deductible here too.

3. Towing/Roadside Assistance

This coverage provides the peace of mind that if your vehicle gets disabled on the road, you can call your company for a tow truck and have some of your expenses reimbursed or paid by your insurance company. This coverage is usually not expensive and is good to have it on your policy.

4. Rental Coverage/Loss of Use

If your vehicles is disabled after an accident and is going to be in the shop for several days, you would still need a vehicle to go to and from work or school. If you add this coverage, your rental charges for a replacement car will be paid by your insurance upto your purchased limit.

You may find other optional coverages, like Medical Payments, Sound System coverage (for custom built sound system in your vehicles), death indemnity, new car replacement, lease-loan gap etc. It is always a good idea to go over your coverages with your agent every time you renew your policy. Terrible things happen every day on the roads and none of those people ever thought it could happen to them. Do make sure that you are covered!

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