If you are like most people who are not employed in the insurance industry, chances are you probably don’t know exactly what each coverage really means on your auto insurance policy. Don’t worry though, you’re not alone. I will say that this shows you how important and great it is to have a good insurance agent who educates you well on your coverage’s.
Since you’re reading this, I’m going to assume your agent has not told you the meanings of your coverage’s, and why they are important. If this is you, read on. This article will inform you what each insurance coverage is so you are fully aware of what your policy actually means.
Basic Auto Insurance Coverage’s
There are a few parts to a basic insurance coverage that every policy has. I will discuss those in this section. The basic auto insurance coverage’s are:
- Bodily Injury Liability
- Property Damage Liability
- Un-insured/Under-insured bodily injury
- Personal Injury Protection
- Comprehensive Coverage
- Collision Coverage
When someone refers to “Liability Only” on their insurance, they are saying their policy does not include “Comprehensive Coverage” and “Collision Coverage.”
Bodily Injury Liability Coverage
This one is pretty self-explanatory. This coverage covers any bodily injuries in an accident for which YOU are liable for. In other words, if you were the cause of the accident, and people were injured, this coverage kicks in.
Bodily Injury Liability coverage limits are stated in “per person” amounts and “per occurrence” amounts. For example, a common coverage amount is $100,000/$300,000. This means that you have up to $100,000 of bodily injury coverage per person, and up to $300,000 of bodily injury coverage per accident.
Does that mean only up to 3 people would be covered if there is only $100,000 per person? NO! Remember it’s UP TO $100,000 per person. Take for example a van of 6 passengers that gets in a crash, causing injuries to everyone. The medical bill for each of the six passengers came out to be $20,000 per person.
This policy would cover each of these people because each person has coverage up to $100,000, or up to $300,000 per accident. In this case, no one reached the per person limit, and the per accident limit was under $300,000. Make sense? Message me in the comments below if not, I’m happy to expound.
Property Damage Liability Coverage
When people hear the word property, they usually think of land or real estate. This coverage actually has nothing to do with land or real estate..well…kinda.
Your property damage liability coverage will pay for costs of any damaged property (the car, a fence or light post, a wall, etc.) that were included in the accident. This is a liability coverage, so it will kick in if you were the cause of the accident. If it was not your fault, than the person at fault’s policy would cover this.
A relatively popular amount of coverage for this coverage is $100,000.
Now when you hear someone say “100/300/100”, that is simply referring to your liability limits on your auto insurance policy. The first number (100) is referring to the per person bodily injury limit. In this case, $100,000. The second number (300) is referring to the per occurrence bodily injury limit. In this case $300,000. The third number (100) is referring to the property damage limit. In this case $100,000.
Uninsured/Underinsured Motorist Coverage
What happens if you are involved in an accident, and the other person caused it (they are considered “at-fault”), but they don’t have any insurance coverage?
That’s where the uninsured/underinsured motorist coverage comes into play. This coverage will cover bodily injuries caused by an accident that was not your fault, and the “at-fault” person is either not insured, or doesn’t have enough insurance coverage.
Generally, this coverage is stated in a per person and a per accident limits. Again, an example would be $100,000/$300,000 respectively.
This coverage SHOULD be at least the same as your regular bodily injury and property damage coverage’s stated above.
Personal Injury Protection
Personal Injury Protection (often times referred to as PIP) coverage’s vary by state but usually include things such as:
- Medical expenses
- Rehabilitation expenses
- Work loss
- Essential service expenses
- Funeral expenses
- Survivors’ loss (payment to replace income or services usually done by the deceased person)
This coverage is designed mainly to provide immediate benefits in case of injury and gives the victims a fair compensation without involving legal authorities.
PIP coverage’s are listed on insurance policies as either coverage A, B, C, D, or E. Again these coverage’s vary by state so you will need to check with your agent or the state insurance department to get exact numbers. For sake of this article, I’m going to show you what each of the coverage’s limits are for the state of Utah, since that is where I am from and I am aware of what they are.
The coverage’s in the state of Utah are as follows:
Limits of liability coverage designation
Medical expenses (per person)
Work loss (per week – 52 week maximum)
85% of gross income
up to $250
Essential service expenses (per day – 365 day maximum)
Funeral expenses (per person)
Comprehensive and collision coverage’s apply to YOUR vehicle (not the other person’s vehicle) when you are at fault in an accident.
This coverage will cover things like the breakage of glass, fire, explosion, and colliding with a bird, animal, missile or falling object (yes the insurance company will list “missile” in the policy).
This coverage will have a deductible. (if you don’t remember what a deductible is, it’s the amount that you pay out-of-pocket before the insurance company will pay). Most deductible amounts tend to be about $500. Some companies will allow you to drop the deductible down to $0, or increase it up to $5,000+.
The lower the deductible, the more expensive the policy will be. The higher the deductible, the cheaper the policy will be.
Collision coverage will pay for losses due to any type of collision of the insured vehicle with another car or another object. Examples of this would be a driver running into a parked car, or a tree.
Just like comprehensive coverage, collision coverage also has a deductible. Most companies will not do a collision deductible of $0, and most often will only go as low as $100 on this deductible. However, generally speaking, most policies have a $500 deductible on their collision coverage.
The above coverage’s are the most common coverage’s included on a regular auto insurance policy. If you really want to beef up your policy and add some additional coverage’s at a small cost, you can request certain “Endorsements,” or additional coverage’s. Some of those include:
- Emergency Roadside Service
- Rental Car Reimbursement
- Accidental Death and Dismemberment
- Customized Vehicle (if you have put extra money into your car)
- Loan/Lease Assistance
- GAP coverage
Questions To Consider…
When discussing your insurance policy with your agent, there are some important questions to consider which will help you and your agent determine which coverage’s are right for you. First and foremost, I WOULD NEVER RECOMMEND INSURANCE COVERAGE AS LOW AS THE STATE MINIMUMS.
Why? Most state minimums might be 25/65/15. How many vehicles on the road today are worth more than $15,000? How many injuries per person add up to more than $25,000? Probably the majority of them. If you crash and damages are more than your policy covers, tough luck Chuck.
Questions to consider:
- Do you have extra vehicles without a driver? If so, you may not need rental car reimbursement. You’ve got an extra car to use while yours is getting fixed.
- How much is your car worth? If you got in an accident, what are the chances that damages will cost more than the car value? This may help determine whether you need comprehensive and collision coverage’s or not, as well as ensure you have a proper coverage amounts.
- Do you have help in the event your car breaks down in the middle of nowhere? Probably not. You might want to have emergency roadside service coverage, that way if your stranded with a flat tire, you’ve got help on the way.
- Do you have a loan on your vehicle? Is the loan greater than the value of your vehicle? Then you might want to add GAP coverage if your loan exceeds the vehicle value.
These are just a few questions to consider, but more importantly make sure you have your agent explain each coverage for you and help you determine what coverage’s are applicable to you.
Choose Your Coverage’s Wisely
When all is said and done, it’s better to be over insured than under insured. If you don’t know, than go with the higher coverage. Your coverage amount should take priority over the price your premiums are. Trust me….when that accident comes, you will be thankful you did your research and covered yourself properly.
For additional questions, please post your comments below and ill respond quickly! Thanks for reading. Drive safely out there, and remember the phone NOT for use while driving a vehicle.