Auto Insurance – It’s About Protecting You & Your Family
We are bombarded with advertisements about auto insurance. Many times, a very important but basic concept about auto insurance gets lost in those advertisements. If you or a member of your family are injured in an accident, auto insurance can help protect you and your family against financial loss. Protecting you should be the focus of auto insurance. Advertising lines like “we keep you legal for less” (Safe Auto) or “save hundreds on auto insurance” redirect your focus mostly on price rather than what’s most important – protecting you and your family. We like saving money as much as the next person but not at the expense of our families. That’s especially true as auto accidents and costs of claims have steadily risen over the last decade. Added to the increased risk are accidents due to cell phones and legalization of marijuana. The question is not if but when you’ll be involved in an accident and need the protection of good insurance.
We invite you to read our series of articles on auto insurance. What does it cover and what are legal consequences if you fail to have insurance? Why is uninsured and underinsured motorist coverage the most important and least expensive coverage that you can purchase? What are the practical consequences of electing “limited tort” coverage? What affects your auto insurance rates and how can you purchase better coverage for less?
The basics: auto insurance protects you on four fronts:
Medical coverage pays for the cost of treating your injuries, rehabilitation and sometimes lost wages and funeral expenses.
Uninsured and Underinsured Motorist coverage pays for your financial losses in the event the person causing your injuries is uninsured or has insufficient insurance to cover your losses. The required minimum coverages have not increased in 46 years and are the lowest in the country. This coverage is more important than ever.
Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
Property coverage pays for damage to or theft of your car.
Required and Optional Coverages
When you purchase auto insurance, there are certain coverages that are required and others that are optional. The required coverages are:
Medical Benefits — This pays medical bills for you and others who are covered by your policy, regardless of fault. The minimum limit is $5,000 of coverage. Higher limits are available if you so choose (and are highly recommended).
Bodily Injury Liability — If you injure someone in a car accident, this coverage pays their medical and rehabilitation expenses and any damages for which you are found liable. The minimum limit is $15,000/ $30,000. The $15,000 pays for injuries to one person, while the $30,000 represents the total available for one accident. These minimum coverages have not increased in over 40 years and are not nearly enough to protect your personal assets.
Property Damage Liability — If you damage someone’s property in an accident and you are at fault, this coverage pays for it. The minimum limit is $5,000 of coverage. Some companies offer a single limit of $35,000 which meets the bodily injury liability and property damage liability minimum requirements.
Limited or Full Tort — You can choose to have “full” or “limited” tort coverage. Limited tort coverage offers you a small savings on your premiums. You are still able to recover all out-of-pocket medical and other expenses; however, you are not able to recover certain damages – such as payments for pain and suffering – unless the injuries meet certain exceptions. With full tort coverage selection, you retain unrestricted rights to be compensated for all of your financial losses. We do not recommend limiting your rights.
Further reading: Limited Tort Coverage: not worth the discount
In addition, auto insurance policies offer a variety of additional optional coverages that can be purchased. These include:
Uninsured Motorist (UM) — This coverage applies to you, your family and your passengers for bodily injury if you are hit by an at-fault uninsured motorist. This does not cover damage to property.
Further reading: Uninsured and Underinsured Motorist Coverage: the most important and least expensive coverage you can purchase
Underinsured Motorist (UIM) — This coverage applies to you, your family and your passengers for bodily injury if you are hit by an at fault motorist who does not have enough insurance to cover your claim. This does not cover damage to property.
Stacking of UM or UIM — This coverage allows you to either multiply the amount of uninsured or underinsured motorist coverage by the number of vehicles on your policy or to receive uninsured or underinsured motorist coverage from more than one policy under which you are insured. It costs extra to stack uninsured or underinsured motorist coverage.
Funeral Benefit — This coverage pays, up to a certain dollar amount, money for funeral expenses if you or a family member dies because of an auto accident. Income Loss — This coverage pays a portion of your lost wages when injuries sustained in an auto accident keep you from working.
Collision — This benefit pays to repair damage to your car because of an accident. Most banks or lenders require you to buy this coverage to receive a car loan. Under Pennsylvania law, the insurance company applies a $500 deductible unless you request a lower amount. The higher your deductible, the lower your premium.
Comprehensive — Generally, this pays for theft or damage to your car from hazards including fire, flood, vandalism or striking an animal. Most banks or lenders require you to buy this coverage to receive a car loan. There are various levels of deductible that may be purchased.
Extraordinary Medical Benefits — This coverage pays for medical and rehabilitation expenses that exceed $100,000. It provides a maximum of $1 million of coverage.
Accidental death benefit — This benefit is paid to the personal representative of an insured if the bodily injury from a motor vehicle accident results in death within 24 months of the date of the accident.
Rental reimbursement coverage — This pays for an individual’s expenses, up to the limit on their policy, to rent a vehicle if they have a covered comprehensive or collision loss.
Towing coverage — This reimburses an individual, up to the limit on their policy, for towing and labor costs for a covered disabled vehicle. This coverage is usually only available if comprehensive and collision is carried on the vehicle.
Gap coverage — This will pay the difference between an insurance company’s payment for a totaled vehicle and the balance of a vehicle loan. This coverage is traditionally only available when an individual is purchasing a new vehicle.
Understanding Your Auto Insurance Policy
Your policy is divided into sections. It details types of coverage, rights and obligations under the policy and exclusions or limitations. Types of coverage may include liability, medical payments, uninsured/underinsured motorist, and coverage for damage to your auto.
An insurance policy is a legal contract. Your policy begins with a declarations page. This identifies the policy number and provides important information including the policy term, coverage limits, and information about the insured. It also contains a description of the vehicles covered under the policy. If you received a loan to purchase your car and there is still an outstanding balance, the lender will be listed as “loss payee” on the declarations page.
Further reading: How to Read Your Declarations Page
Your policy contains a general insuring agreement consisting of a broad statement listing the perils and risks covered under the contract. The insuring agreement also identifies exclusions, which are specific events and circumstances the policy will not cover. It will contain definitions to help make the coverage clear and prevent any misunderstandings.
We’d be happy to review your current auto insurance and answer your questions. We may be able to help you identify cost savings that you can turn into coverage that better protects your family. You can request the review here.
Further reading: Need Help Navigating Auto Insurance?
Next Article: Legal Consequences of Having No Auto Insurance