Legal: The Basics of Automobile Insurance Coverage
Over the past twenty plus years that I have been a practicing attorney, I have dealt with hundreds upon hundreds of cases arising out of automobile accidents. One of the most common things that I have discovered is that many individuals have very little understanding of the types of auto insurance available, and more importantly the types of auto insurance that they had at the time of their automobile accident (if applicable). After all, every car owner pays hundreds, if not thousands of dollars every year to insurance companies – so what exactly are we buying? I am finding that more and more people purchase their automobile insurance policies online, and many are looking for the cheapest quote. This means that many car owners/drivers never even have the opportunity to talk to an insurance agent for explanations on the types of coverage available and the coverage that is recommended on an individualized basis.
If you pull out your insurance paperwork, you will find a “declarations page” (which is a fancy way of saying a list of your insurance coverage). If you do not have a declarations page, you should contact your agent or insurer to obtain one as soon as possible. On your declarations page you may see some or all the following types of insurance along with the maximum amount that the insurance company will pay under each type of coverage:
Liability – This insurance is required by Texas law and this is what pays a person that you cause damage to in an automobile accident, whether it’s personal injury or property damage. This is also the type of coverage that protects you if you are sued (and pays for an attorney to represent you) and also pays any judgments or settlements, up to the maximum limit of coverage. The most common limits of liability are 30/60/25 or 50/100/50 but they can go much higher. Under a 30/60/25 policy, your insurer will pay someone you injure up to $30,000.00 per person for injuries and $60,000.00 total per accident. Lastly, the insurance company will pay up to $25,000.00 for property damage. The higher your liability limits, the more protection you will have, and the more you will be able to ensure any person you accidentally injure is taken care of; after all, if we legitimately cause someone serious injury, most of us want that person to be taken care of medically. However, as you can imagine, $30,000.00 does not go far in taking care of serious injuries. I’ve seen emergency room bills far exceeding $30,000.00. Therefore, rather than just jumping at the lowest rate, consider at least comparing costs for higher levels of insurance – often, only a few dollars a month can double or triple your protection.
Collision – This coverage protects damage to your car when an accident occurs. If you cause an accident, for example, your liability coverage only protects other vehicles – not you. Therefore, collision is what is needed to repair your car (or pay for it if it is totaled). Ensure your limits are adequate to pay for your car if it’s destroyed in totality; if you drive a heavy-duty truck, luxury vehicle, or sports car, for example, a $25,000.00 policy limit is not going to be a sufficient amount of funds to repair or replace your treasured vehicle.
Comprehensive – This coverage protects your car from damage caused by things other than accidents. For example, if your car is damaged by hail or weather, is stolen, or vandalized.
Uninsured/Underinsured Motorist Coverage (UIM) – This is one of the most important coverage types you can get in my opinion. This coverage protects YOU if you are injured and the driver that caused the accident either has no insurance or does not have enough insurance to cover your injuries/medical expenses. For example, if you have $100,000.00 in medical bills and the at fault driver has a $30,000.00 insurance policy, UIM is the type of insurance that can bridge that gap. Uninsured/Underinsured coverage is your opportunity to protect yourself from the negligence of others, and I always recommend carrying some coverage, and strongly encourage everyone to carry at least $100,000.00 of coverage as medical costs continue to skyrocket.
Personal Injury Protection (PIP) – This type of coverage is essentially reimbursement for out-of-pocket damages when you are involved in an accident. The limits of this coverage typically range from $2,500.00-$25,000.00 and this type of insurance will cover both you and your passengers in assisting with medical expenses (including reimbursing co-pays, deductibles, and other expenses).
New Car Endorsement – Everyone knows that when you drive your car off the lot, it immediately loses a lot of its value because the car is no longer new, and because there was dealer profit built into the price you paid. When another person hits your car and totals it, the at fault insurance is only going to pay what it deems to be the fair market value of the car at the time of the accident. Many individuals are shocked that what they get paid for their car from the insurance company is nowhere near the amount of funds necessary to purchase a new car. Some insurers offer new car replacement, which is a special type of coverage that allows you to get reimbursed the value of a new similar make/model of your car (as opposed to just the fair market value of your vehicle). I have seen this coverage especially helpful in high value vehicles that lose an even larger percentage of their value when they are no longer new.
GAP – One final type of common insurance is GAP, which if it is not included in the financing of your car, GAP should be included in your own insurance policy. GAP, as the name implies, covers the difference in what is owed on a vehicle at the time of the crash, and what you receive from the insurer for the vehicle. For example, suppose your car is totaled and you still owe $45,000.00 on it and the at fault insurer only pays you $37,500.00. The GAP protection pays the $7,500.00 that is still owed to the finance company. If you do not have GAP insurance, you are stuck paying the $7,500.00 personally.
I have confidence that when you pay for something, you want to know EXACTLY what you are buying. Having a good understanding about the different types of insurance coverage available will enable you to evaluate your own personal needs. I personally recommend that you take an assessment of what you currently have and determine your own individualized needs. Are there areas where you feel you may potentially not be insured enough? Alternatively, you may discover that you have coverage that you do not need and will be able to save some money by discontinuing the needless coverage. Having some understanding of these types of insurance will also help you to competitively shop for insurance (which I recommend you do every 1-2 years).
