Nothing we need seems to be as confusing as car insurance. “Every single one of America’s 50 states has laws that require, or at the very least, strongly recommend, that the owners and operators of automobiles have insurance,” according to carinsurancerates.com but very few people understand what they’re buying. It can also be a fairly boring topic but one that consumers need to understand.
A typical car insurance policy in a personal responsibility state like Georgia might look like this: A 25/50/25, G500, D250, C5000, H, R, U250 50/100/50.
That is just plain gibberish to the average consumer but if you know how to read it you’re way ahead of the game.
Required by law in most states liability coverage covers damage you do to another person’s property or bodily injury you cause to another by your actions. There is usually a minimum amount you have to carry which varies from state to state although you can elect to carry more than the minimum amount. The first part of the example A 25/50/25 refers to liability coverage. In our example, the first 25 means this person has $25,000 available to pay for injuries to a single person in a single accident. The 50 means if more than one person is injured in that accident no more than $50,000 will be paid for bodily injury period. The last 25, means that no matter how much the damage to the other car ends up costing; the insurance company will only pay $25,000 towards vehicle repair or replacement including providing alternate transportation while repairs are being done.
Unless you live in a no fault state such as Michigan, if you’re not at fault in a motor vehicle accident the at fault party’s insurance carrier is obligated to ensure that you are reimbursed for expenses related to car repairs or replacement, replacement transportation and medical expenses. Notice I didn’t say they are responsible to pay up front. Many carriers will but this is more of a customer service issue for them. Paying for your expenses up front stops you from calling their client constantly and may prevent you from getting an attorney which would add to the expense of the insurance claim. Also some insurance carriers will require you to sign a release of damages upon being paid so they may elect to withhold payment for bodily injury until you’ve completed medical treatment. This is more to ensure that you don’t get a check for an emergency room visit, sign a release and then go to your doctor for a follow up visit and not have money to pay that provider. If you are at fault for the accident, liability insurance benefits you by making it less likely that you will be sued by the other party.
“Full Coverage Insurance”
One commonly held myth is that full coverage insurance pays for everything you need in case of an accident. That is not true. I worked for a major automobile insurer for five years and heard at least fifty times a day “I thought I had full coverage insurance” when I explained to customers that something like a rental car wouldn’t be covered. So called full coverage insurance is required when you lease or finance a car to ensure that your lender’s investment is protected in case of an accident or other damage to the vehicle. If you’re leasing or financing your automobile, the dealership or bank wants to be sure that the car won’t suffer damage and not be repaired if it comes back into their possession. What is known as “full coverage” insurance according to carinsurancerates.com is actually two forms of coverage on top of liability – comprehensive coverage and collision coverage. A motorist can elect to have comprehensive coverage without collision, but not collision without comprehensive. Again this is designed to protect not you but the finance company or bank that holds the title to your vehicle.
Collision coverage is important especially if you live in a no fault state or you are involved in an accident where liability is unclear or the at-fault party’s insurance company has a hard time reaching them. In the second situation, despite what many believe, a police report doesn’t automatically cause an insurance company to pay you. A police report, especially in a parking lot accident, is merely an accusation that someone is at fault since the officer usually didn’t see the accident. To put it another way, people go to court all the time and are found not guilty of moving violations. That means an insurance company usually has an obligation written into the insurance policy contract to contact their client and get their side of the story before they agree to pay. It would not be good for them to begin paying you for a hit and run then find out their client wasn’t even in the country when the accident occurred and the car had been stolen!
Your collision coverage will pay for your damages while the at-fault party’s insurance company tries to verify that they were at fault. Usually, as soon as they’ve done so, the at-fault carrier will contact your company and either take over the claim or agree to pay your deductible so you’re not penalized by your own company. In our example above this person has G500 or the insurance company has agreed to pay for repairs to this vehicle minus a $500 deductible which the customer has to pay.
Comprehensive coverage is important in case your vehicle is stolen, vandalized, hit by falling tree limbs or suffers hail damage. The example above has D250 so the deductible is $250 and the insurance company has agreed to pay for damage to the vehicle that is in excess of this amount. This coverage is necessary even if you don’t plan on driving your car for a while and you can carry it without collision but not without liability coverage.
Insurance coverages that will directly benefit you but that have to be requested by you are rental coverage, medical payments coverage, towing or roadside assistance coverage and gap insurance.
Medical Payments Coverage or C
Medical Payments Coverage is in my opinion a vital coverage. Remember liability coverage is responsible to reimburse you for medical treatment once it’s completed. That could be years after the accident. In the meantime even if you have health insurance, you will be getting bills from the emergency room, ambulance service (if you were transported by ambulance), emergency room physician, your personal physician and any chiropractors or physical therapists you see. Medical payments coverage has no deductible; you are usually not penalized for using it and will pay up front for any medical bills related to the accident. Best of all it will cover anyone in your vehicle for same amount. If you purchase $5000 worth of coverage and there are three occupants in your car during the accident, all three of you can have up to $5000 worth of accident related medical bills covered. It is a very useful coverage and applies to any accident related to a car. One claim I paid involved someone slamming their finger in the car door. They happened to call about repairs for a scratch on their car and mentioned they were going into the doctor to get their finger examined. Once I found out how the injury happened we were able to open a claim and have the doctor bill their automobile policy, no deductible, no co pay. It is important to note that even though your bills are paid, the amount the at-fault insurance company owes you for bodily injury is not decreased by those bills being paid. You also don’t have a legal obligation to tell the other company or the other party’s attorney that your bills were paid by this coverage.
Roadside Assistance or Coverage H
Typically this coverage either reimburses you or pays up front for expenses you incur while stranded. Simply put, if you are stuck on the side of the road your insurance company will pay the cost of delivering gas to you or for a tow.
Rental or R
Rental coverage usually pays a portion of the cost of replacement transportation. In five years of working in the insurance industry, I never saw a single rental coverage provision that paid 100% of the cost of a rental car. The only time rental car coverage was ever paid for in full by an insurance company is through liability coverage.
Uninsured Motorist Coverage or Coverage U
Uninsured motorist coverage protects you from other’s negligence. According to Wikipedia.org, “It is mandatory to have this sort of insurance in some States, such as Illinois, Maryland, and New York”. It functions similar to liability coverage but usually has a deductible. The deductible on uninsured motorist coverage is may not be the same as your collision deductible so in hit and run accidents, a responsible claim handler will choose the coverage with the lower deductible to benefit their customer. Most insurance companies require that their policyholders do things such as file a police report in cases of hit and run in order to qualify but once you do qualify this coverage pays for your rental and damage and will even reimburse you and anyone else in your vehicle for bodily injury. It does not interfere with medical payments coverage and you can be paid by your insurance company through medical payments coverage and still collect the same amount you were owed under uninsured motorist coverage as if those bills were still outstanding. Underinsured coverage is similar to uninsured motorist coverage but comes into play when your damages exceed the liability limits of the other party. In those situations you can sue the other party for the difference but it’s usually better to cover it with underinsured motorist coverage and let your insurance company pursue the at-fault driver. In the example above U250 50/100/50 means there is a $250 deductible with $50,000 available per person for injuries, $100,000 total if more than one person was injured and a maximum of $50,000 available for car repairs after the deductible.
Gap insurance or umbrella protection policies are relatively inexpensive and actually sold as a part through homeowner and dwelling rental insurance policies. It can confuse even those who work in the insurance claim industry but the basic idea is they will pay up to a specific dollar amount once you’ve reached the limits of your policy. In the example above let’s say you struck a luxury car and it’s totaled. The $25,000 your basic policy has won’t cover replacement costs so after $25,000 is paid from your auto policy, your gap insurance will pay the difference to replace the luxury vehicle.
As I said, insurance isn’t exciting but it’s necessary and often required by law. Even when I worked in the insurance claims industry, I didn’t read my entire auto policy. But I did learn to keep it handy and consult it as soon as I had an incident where I thought I might need it. Many people prefer to let their agent or claim handler explain it all to them after an accident but I’ve always felt that an educated consumer is less likely to buy something they don’t need. For example if you have an older paid for car it may be cheaper for you to drop collision coverage and instead put the savings aside until you have enough to buy another. That’s what I’m doing rather than give it to an insurance company every month. Educate yourself, keep your policy handy and please if you have a claim don’t tell the claim handler you want a rental because you have “full coverage” insurance.