Although the personal auto policy is a packaged product, it can be confusing for many consumers as they try to choose the correct policy for them. Learning which coverage is mandatory and which is optional, and how both benefit the insured is critical to making good choices. The most important and usually mandatory coverage is Liability coverage . This includes Body Injury Liability and Property Damage Liability.
The liability portion of the personal auto policy is what helps you avoid financial devastation after an at-fault accident. It is typically referred to and demonstrated by three sets of numbers : e.g. 100/300/50
The first two numbers represent bodily injury liability limits on a per person and person accident basis. For example, 100/300 refers to bodily injury liability limits of $100,000 per person and $300,000 per accident.
The third number represents the limit for the property damage liability which in this case would be $50,000. Choosing low liability limits in order to reduce monthly premiums puts the insured driver at risk if an action is brought against him after an at-fault accident. The savings between the lowest limits of 10/20 and higher limits of 50/100 are actually not significant enough to assume the additional risk.
Property Damage liability coverage is what pays to repair or replace the other driver’s vehicle in the event of an at-fault accident.
Since there are fewer cars on the road valued at more than $50,000, it may make sense to choose a lower limit to save premium dollars. But, it is very possible to be in an at-fault accident with more than one vehicle damaged. Most accidents do not end up with vehicles being a total loss so if the insured driver is looking to save money, this would be a good place to start.
The insured driver should also be aware that if there is a need for Umbrella coverage (discussed in a later article); the umbrella policy will normally require limits of at least 100/300 for the underlying personal auto policy.
Comprehensive coverage is another option that most consumers do not fully understand. Typically, we know that it covers our vehicle and that a deductible is involved, but we’re never sure when it pays or how much.
Comprehensive coverage pays for damage to your vehicle caused by something other than a collision with another vehicle. It will pay for repairs or replacement of your vehicle for things like a broken windshield (not caused by an accident), vandalism or when you happen to run into a deer.
Many consumers who own older vehicles elect to drop this coverage along with their collision coverage because they feel there is not enough value in their vehicle to warrant the cost of coverage. That may be true for the collision coverage since it is much more expensive than comprehensive coverage, but what if your car is stolen?
That’s right; comprehensive will pay if your vehicle is stolen. Even an old clunker gets you from point A to B so you will need another old clunker if yours is stolen and the comprehensive coverage is the only part of your policy that will get you there.
Be careful though about electing a high deductible for this coverage; you don’t want to end up with nothing because a higher deductible saved you $2 a month.
Depending on the insurance company rules, you can purchase comprehensive coverage without purchasing collision coverage so in every case, comprehensive should be on your policy with a deductible no higher than $250.
In states like Florida, an insurance company must pay 100% of the replacement cost of your windshield, but in many states your deductible will apply so be careful about the deductible selection. There are some real jerks out there that will do some serious key damage to your vehicle if you take up two parking spots for that new Corvette or you have a bumper sticker they don’t appreciate, so make sure your deductible is as low as you can afford.
The most important thing the insurance consumer can do when purchasing protection for their vehicle is to ASK QUESTIONS. What you don’t know is usually related to what you don’t ask. Ask the right questions and you’ll have the right coverage.