Insurance policies have become commoditized and transactional in nature; most people not even aware of what they have purchased. Price becomes the distinguishing factor among carriers and while price is a factor, it shouldn’t be the factor that determines which policy you select. Here are 7 things in your auto policy, explained, so you can start being more knowledgeable about your own needs.
This coverage is exactly as it states; the policy will reimburse you for costs associated with renting a car, if you need it while your car is towed and fixed. Usually you see a max amount per day and then the max total cost. An example would be: $30/$900 which means they will reimburse you up to $30 per day (you would be responsible for anything above that) and for a total of $900 over the period of time you have the rental car.
Medical payments coverage isn’t in every state but it is pretty common and it provides money to passengers in your car that may have needed medical assistance as a result of an accident. Who is responsible for the accident is irrelevant, as this coverage applies regardless of who is at fault. Additionally, it’s worth noting that the coverage can apply to the policyholder/insureds even if they are in a friend’s vehicle because the coverage applies to the policyholder/insured, not just the insured vehicle.
So why would this be a needed coverage if you have healthcare or personal injury protection (PIP) coverage too? Whether healthcare coverage would cover injuries sustained in a car accident varies by state so it’s important to understand what your healthcare plan would cover. Additionally, there are often co-pays or high deductibles associated with healthcare that you have to pay out of pocket and this medical expense protection could help subsidize costs.
PIP does overlap with medical payments but PIP goes beyond strictly medical payments related to physical injuries, as it also can cover psychological and other impacts related to an auto accident. If you have PIP, it may be okay not to have medical payments coverage but it’s also important to note that there are maximum claim limits so if PIP was maxed out, medical expense payments could help supplement any leftover costs.
Property damage relates to any costs incurred from damage you cause to someone else’s property. Minimums and requirements of this coverage vary by state so it’s important to know what applies to you but a common amount is $5,000 per accident.
Comprehensive is a “catch all”. Everything other than an accident that can happen with your vehicle usually falls under comprehensive. Some common examples include mother nature damaging your vehicle, vandalism occurring, or someone completely stealing the car.
Again, it varies by state but typically if your car isn’t paid off free and clear, comprehensive and collision are both required coverages so the company you received your car loan through has some protection if something should happen to their vehicle.
Collision coverage applies to anytime your car gets into an accident and there needs to be fixes to the vehicle. It is typically required if there is a lien on the car and the maximum amount covered is the actual cash value of your car which is the price of your vehicle minus depreciation. You may hear someone say their car is “totaled” and what this means is just that the cost to fix the vehicle is more expensive than the actual cash value of the vehicle.
Bodily Injury Per Person/Per Accident
Bodily injury is one of the very basic coverages that are required in most states and it covers any injury you cause to others in an accident, caused by you or anyone insured on the policy. You may also hear this coverage referred to as “liability” because essentially this is what you are responsible for if someone gets injured in an accident caused by you.
The amounts of coverage can vary but a pretty common amount is $100,000/$300,000 which means $100,000 per person and up to $300,000 total for the entire accident. If the costs are more than the coverage, individuals injured by you can sue and come after you personally so it’s really important to understand your financial situation and possibly consider an umbrella policy (which will be covered in a later post).
Premium & Deductible
Finally, this is usually what most people are aware of because it’s literally money out of a person’s pocket. The premium, which can usually be paid monthly, quarterly, semi-annually or annually is the cost of the entire insurance policy. Sometimes you can get discounts for paying the policy for an entire year or six months rather than monthly so that’s something to consider.
A deductible is the amount you are responsible for before the policy pays anything at all. This is one of the “levers” that you can adjust to bring your pricing up or down. For example, if you had a $500 deductible and you brought it up to $1,000, you’re eliminating some of the risk for the insurance company so you’ll see a decrease in your premium. It’s extremely important that you make a decision about the deductible based on what you’d be capable of paying if something were to happen. For example, if you haven’t had many accidents and don’t drive that much and have a lot of savings in the bank, you may want a higher deductible because it’s less likely that you are going to get into an accident and if you do, there is enough in your bank to pay the deductible.
While this post isn’t intended to provide a specific recommendation of what coverage you should have, it’s a good starting place to understand the types of coverage you have in your auto policy. Always talk to a financial professional in conjunction with your insurance agent to make the best decision for you.