Insurance is coverage for the unexpected, the unknown, and the uncontrollable. We all know the basic definition of insurance, "a means of guaranteeing protection or safety", but just how "protected" are you with your current policy? It's a question many Americans never think to ask. We trust that our agent wisely advises us to purchase the needed coverage. As insurance professionals, agents are our "Laymen's Terms" go to person for the hard to understand terms and large vocabulary used by the common policy declarations page and attached documents. Even though agents are trustworthy professionals, why not be a smart consumer and know our definitions, terms and coverage's well enough to make an educated, sound purchase?
To get a better understanding of the fundamentals of insurance and to better educate the common consumer, I've compiled what I feel like are the 8 ground rules for car insurance.
Let's start off with the state mandated coverage that we all must carry; Liability. Liability coverage is damages done to others. This means medical and funeral costs, car repair, rental car (if needed), and punitive damages. The state minimum in Texas is currently 30/60/25. The 30 means that $30,000 limit is available for each person (commonly called Bodily Injury or BI). The 60 represents the $60,000 available per accident. The final part, 25, stands for the $25,000 available for damaged property, commonly called Property Damage or PD. This is your basic coverage. Now keep in mind, many of us purchase raised limits, 50/100/50 or 100/300/100, to insure that in the event of an accident there is a much larger aggregate to cover damages, medical bills etc.
In addition to Liability, there are 2 other state mandated coverage's, which without a rejection form, have to be purchased. These are Medical Payments and Personal Injury Protection (PIP). These are beneficial to you, the driver. Both of these coverage's are intended for medical and funeral expenses resulting from an accident. They cover you, your family members and passengers in your car, regardless of who caused the accident. The only difference in the two additional coverages is that Personal Injury Protection pays for 80% of lost wages. Just for arguments sake, let's say I am a retired school teacher. Would PIP be necessary? The answer is no, because I do not make set "wages", my primary income would come from retirement, therefore Medical Payments would be a more suitable coverage.
Next in the long line of insurance terms is Uninsured/Underinsured Motorist Coverage. Most of the time you will see this represented as UM/UIM. This is for the many instances when someone rear-ends our nice shiny car and they either don't have insurance or the insurance they have is not adequate. If you drive a $79,000 Jaguar and your car is damaged by a person that carries liability limits of 30/60/25 (minimum limits), odds are, you will be out of pocket the excess amount after the other drivers limits are exhausted. If UM/UIM is purchased, it will kick in once the other party's limits are reached.
Now for your vehicle. When we get into an accident we obviously are concerned about the other party, but also for our own well being and the well being of our car! This is where Comprehensive and Collision enter the picture. After your liability insurance pays for the other person involved in the accident, you will rely on Comprehensive or Collision to pay for the repair of your car. The deductible, which is the amount you retain, is usually $500.00. This amount is variable, anywhere from $100-$2000, but remember in the event of a claim, the deductible is the amount you pay. For example, I am driving one evening and hit a deer. The front of my car is completely destroyed so I file a comprehensive claim. There is $6500.00 worth of damage so my insurance sends me a check for $6000, because my deductibles are $500. The higher the deductible the lower the premium, but the higher the deductible the more money out of pocket you are in the event of an accident.
Comp and Collision are usually required coverages whenever you have a lienholder (a bank or mortgage company that finances your automobile). Most people don't realize this, but if someone forgets to put their lienholder on their car and then they total it, the money paid by the insurer legally has to go to the party that has the lien. So when a claims check is cut to a person that has a lien, they generally will put Paid To The Order Of: Lienholder's name & Insured's name. This is to ensure that the bank or credit union receives their due funds.
Comprehensive coverage is what is done by the elements and thieves. Sounds like an unusual way of remembering the specifics, but it works! Hail, fire, and anything not related to Collision. If someone steals your car, or bashes in the back window, you would claim it under this. Collision is pretty self explanatory. Hitting a tree, another vehicle and any kind of impact is covered under Collision.
These next two coverages are "extras". Towing and Labor pays for "charges when your car can't be driven". Any kind of repair or work that is done on site (where the accident occurs) is covered under this. If you get into an accident and need a fan belt replaced, don't take it to the shop and replace, get the auto tech to do it right there on scene and it's covered, if you've purchased Towing and Labor.
Rental Reimbursement is exactly what it sounds like. When you have an accident or when it hails and your car is getting the dents removed, Rental Reimbursement will cover the cost of renting a car in the mean time.
That is insurance in a nutshell. Of course there's tons of scenarios and "what if's", but in general this should give you enough information to make an educated decision on what coverages mean and how they work. If you have something that you would like to share with us or ask us, please don't hesitate to call or email. We'd love to help you become knowledgeable insurance consumers!
