Auto insurance has two primary driving forces: fault and protection of others. To start with, the only time that Auto insurance comes into play is when there is an accident. The insurance has very little bearing unless you have a problem with the car. If the car is running right and you never have an accident then you may never need auto insurance and, most people don’t actually ever use their auto insurance, sadly, it is an expense that is never needed. BUT, and this is a big BUT, if you ever need your insurance then the cost is worth it.
Let’s take an example. There are three big areas that are the result of a traffic accident, these are not all of them but these are the big ones.
- Vehicle damage (for the other guy)
- Property damage (for the rest of the world)
- Medical damage (for the other guy and the rest of the world hurt in the accident)
Let’s be clear: did you notice the use of the terminology: “the other guy”? Auto insurance, from a legal perspective (yes, it is required by the law in all states), is required for anyone that operates a motor vehicle and is primarily intended to protect the rest of the world from the potential damage you may cause from an accident. Don’t get the wrong impression, there are several parts of auto insurance that can be added for your protection, we’ll get into this later.
LIABILITY INSURANCE
An explanation is in order, the term 'fault' (as it applies to auto insurance) is exactly what it sounds like: who was at 'fault', who caused the accident? A little background, in order to operate a motor vehicle, you need to have a driver’s license. In order to get a driver’s license, you need to pass a test where you can: 1) prove that you understand the traffic laws, and 2) prove that you can operate a motor vehicle safely. Operating a motor vehicle also means that you have maintained the vehicle to insure that the vehicle can be operated without creating a hazard to others, the best example is the vehicle that spews huge volumes of black gas causing air pollution.
The concept of fault is established at every accident, based on an investigation by law enforcement. This is normally regarded as ‘getting a ticket’. The ticket is an indicator that the law was broken by the person getting the ticket and the other person involved in the accident is ‘not at fault’. Fault is the identifier as to who will be responsible for any financial burdens caused by the accident. If you are at fault, then you want your insurance to step in and cover the costs because what is not covered by the insurance will be your responsibility (that means you need to write a check). So, the purpose of insurance is to keep you from writing a check when you are at fault, but the best possible option is not ever be at fault.
The concept of auto insurance is generally the protection of others. If you are in an accident, and your car is damaged, your insurance may not cover it, that is based on the types of insurance. Liability Insurance is intended to cover the Property Damage you cause others in both the vehicles damaged and the damage to other property including traffic signs on the side of the road, buildings, walls, or landscaping. In other words, look at the scene of the accident and remove anything that belongs to you and any damage that exists is your responsibility. The worst part is that everyone wants to be restored to their condition before the accident and lawsuits abound .
The liability covers two general areas as it applies to others, the property damage and, the worst part, the medical coverage of everyone else hurt in the accident. There is a reason why your operating a motor vehicle needs to be taken seriously, the damage caused to others is your fault (when you are at fault) and this damage can be something simple (cuts and scratches) to more complex (broken bones and burns) to permanent disabling injuring that may also be disfiguring to someone dying, as a result of the accident. It is important to understand that if someone dies, you will never forget and often accidents can be avoided by paying more attention to your driving.
The liability insurance, Property and Bodily Injury, is intended to cover these costs but do not forget that there are limits to insurance coverage. Property Insurance, in most policies, is limited and explained in the policy. Here is the truth in insurance as in everything else in life, you can upgrade at an additional cost. This is a discussion you must have with your insurance agent. You can buy insurance from a person or you can buy it on-line but the most important consideration is fully understanding the purpose and limitation of each part of the insurance. Commercials make fun of insurance policies and the legal blah blah blah but if you fail to understand your insurance, it is your problem. I would suggest that you write it down, ask the agent if you got it right and confirm your understanding. In times of need, the most important thing having the coverage you need not the coverage you dreamed about.
Liability insurance for Bodily Injury is defined in the policy by using two numbers, the limit on the policy as it applies to a single person and the limit on the policy as it applies to everyone that was injured except for the people in your car. Let’s assume that you have a coverage limit of 100,000/300,000. This means that the cost of the most expensive hurt person is limited to $100,000 and if you take everyone together, the limit is $300,000. This means that if the costs exceed the limits in either case, you are responsible for the excess.
Let’s make sure that you fully understand the problem with the limits on the coverage of the policy. If your insurance does not cover the costs of the accident, you will be held personally responsible. This means that you could have a debt that will require using every asset you have to cover the costs, you may need to sell your home or your car or everything you own. Understand, the lack of insurance coverage could destroy you financially.
MEDICAL PAYMENTS COVERAGE
This coverage is intended to provide you with limited insurance coverage for minor medical costs as a result of the accident. If you have Health Insurance (another topic), this insurance may kick in as part of the coverage of the costs so the Medical Payments Coverage should be considered in consolidation with other types of policies.
This coverage has a fixed limit that can be changed based on the premiums you want to pay. Of course, this coverage will also contribute, up to the limit, for funeral expenses. Because this insurance is part of a larger package, the pricing may be worth considering, depending on the deductible of your health insurance coverage.
Bear in mind, this coverage is not required under state law (unlike liability insurance) but provides benefits that should be considered in a complete package. Since this coverage has no co-pays or deductibles, this coverage steps in from the first dollar (unlike health insurance coverage).
COLLISION COVERAGE
Collision coverage is intended to provide coverage for YOUR vehicle as the result of a collision. Go back to the scenario where you are looking at the aftermath of an accident. Previously, you took out your car, your passengers, and yourself before considering the damage covered under liability coverage. Now, just look at your car and this is the part that is covered by the collision coverage. Collision coverage has a deductible and the deductible is what sets the premium, the lower the deductible then the higher the premium. The flip is also true but remember that the deductible comes out of your pocket so setting the deductible is a serious consideration.
Needless to say, this is collision coverage and that is all that is covered, in other words, coverage requires that you need a collision with another vehicle, collision with an object or a vehicle rollover. Sorry to say, but parking lot damages are not covered under collision coverage.
Please consider that the collision coverage may be required by your lender if you have borrowed money to buy the car. This is a consideration in saving money on the premiums. If you do not intend to replace a vehicle if it is involved in an accident and do not need the money, you can drop the collision coverage and any collision damage will not be covered. There are better ways to save money, but this is a consideration.
COMPREHENSIVE COVERAGE
Comprehensive coverage is, also, intended to provide coverage for your car for something that happens outside of a collision or accident. One good example is a hailstorm and the damage caused by hailstones. Surprising, it is not unknown for hailstones to be the size of softballs, but even golf ball sized hailstones will leave small dents in your car.
Once again, the coverage has a deductible so the premium will increase if the deductibles drops. Also, this coverage may be required if you have a loan on the car. The bank requires this so their investment in your loan is protected because a damaged vehicle has a lower resell value.
The causes of the damage under comprehensive coverage would be caused by:
- Fire
- Wind
- Hail
- Flood
- Vandalism
- Theft
- Hitting an animal
UNINSURED MOTORISTS VEHICLE COVERAGE / UNDERINSURED COVERAGE
While the law requires that everyone have insurance, that does not mean that they have insurance or that they have enough insurance. Consider that someone lets their insurance coverage lapse so they can save some money or, perhaps, they have a suspended driver’s license and they are in an accident with you. You want your costs covered but, as they say, you can’t get blood from a stone and the driver let the insurance lapse because they have no money.
This coverage has the same breakouts that you have for Liability: Property Damage and Bodily Injury only applied to you instead of it being applied to the other driver. You are covered for damage to property, medical expenses, pain and suffering, and lost wages. While it seems like it is redundant, you need to protect yourself from the failings of other.
Uninsured and Underinsured are two different types of coverage but both should be considered because you can’t control what other people do. Since this insurance is providing the coverage you should get from the other driver, there is not any deductible. In this insurance, you establish the limits on the bodily injury like you do for the liability version and since you are covering yourself, provide yourself with the same coverage, because you deserve it.
CAR RENTAL AND TRAVEL EXPENSE COVERAGE
Car rental insurance is an option that can be purchased, at an additional cost. This is where you can rent a replacement car while your car is being repaired. Under this option, the insurance will pay for your car rental and you do not have to pay anything. Let’s be very clear on this one, this option is needed only when you are at fault and your insurance company is paying to fix your car. If the other driver was at fault, the other insurance company should cover the cost.
On top of the car rental, if you vehicle is unavailable due to collision or comprehensive damage when you are more than 50 miles from home, there is an additional option for coverage of meals, lodging and transportation when your car is being repaired. Once again, coverages cost but should be considered as a way to avoid some costs that are unexpected and burdensome.
EMERGENCY ROAD SERVICE
What do you do when your car breaks down while you are out driving around? That is where the emergency road service steps in and provides for towing service to a local repair facility or the cost of mechanical labor repairs if you become disabled or stuck. The range of services available under this option will vary by insurance company so ask.
SUMMARY
Simply put, the point of insurance is to protect you from financial burdens if you are involved in an accident when operating a motor vehicle. The point is that you need to let the insurance take care of you if you are at fault and you need to make sure that you do not suffer any losses when you are not at fault.
Always attempt to drive safely and defensively in order to avoid an accident, however, if you are involved in an accident, do not make any declarations of fault until you are giving testimony to a police officer, there may be circumstances that you do not know about (like the other driver was intoxicated). Let the police do their job and provide insurance information when asked. If you have any concerns about yourself, ask the police if you should go to the hospital because there are some injuries that are not apparent.
Do not pay any attention to the rash of commercials because they all distort the facts to fit the sales pitch because they want you to buy their product. Here is the one thing that pops up a lot, a sales pitch is that you are hit by another driver – stop right there. If you are hit by another driver then they are at fault, not you, so any issues with your car are not your problem. If you have an accident and the insurance does not cover you as you desire, then you (and only you) are responsible for not getting the proper coverage – pay attention, understand what is said and ask questions if you are confused. No matter what else, if you do not get the insurance you want then you are responsible for failing to understand this important topic.