I recently held a session called “Coffee with Pete.” Several of my current clients and even a few “tire-kickers” attended the event held at my office in Elmira, NY.
We had a very informational and even enlightening conversation. While certainly there is always a discussion about price and money-saving ideas, our focus was on coverage. We went line by line and discussed all the important definitions of the auto insurance policy (using a NY policy).
Outlined below is a description of all the definitions of the standard policy:
Bodily Injury Liability Coverage – required. This coverage protects you in the event of a harmful accident where you (or anyone driving your car with your permission) are at fault and a claim is made against you. Your insurance company will pay for injuries.
This coverage is broken into two numbers: Per Person and Per Accident. So, if you purchase $100,000/$300,000 that means:
- up to $100,000 will be paid for each person injured in the accident.
- up to $300,000 will be paid for the total accident, regardless of how many people are injured.
These figures represent how much your insurance company will pay. The minimum amount of liability you are required to buy is $25,000/$50,000 (per person/per accident). In my experience, I honestly don’t think this is enough coverage for most drivers. You want to protect yourself against a lawsuit which could ultimately affect your possessions and assets, such as your home or bank account. I highly suggest you consider at least $300,000/$300,000.
True story – A woman driving a van pulled through an intersection and didn’t see the motorcycle crossing in front of her. The motorcyclist suffered severe leg injuries, eventually losing a leg. A lawsuit followed asking for $300,000. The driver had a $100,000 liability policy. Her insurance carrier properly paid the $100,000. But that was no where near enough. She was on her own to pay damages above that $100,000. She was forced to sell her home and work more hours at her job to pay this claim.
Having good coverages will give you a feeling of protection and peace of mind–and will help you at a time when you need it the most.
Property Damage Liability – required. This is insurance that pays when you have an at-fault accident where you damage someone else’s vehicle or property.
These accidents happen every day, and thankfully most are minor. But even minor accidents can be expensive. It’s good to know your insurance will provide support, where a claims adjustor will contact the other party and arrange for payment for damages.
The minimum coverage is $10,000 but I’d suggest you consider at least $100,000 coverage here. In my experience I’ve seen repair costs exceed $60,000 (the cost if you happen to hit a Lexus!). Cars are pricey these days and tend to crumble easily, unlike those big heavy cars our grandparents drove back in the day. I’ve also seen chain-car collisions where several vehicles are involved. If it’s your fault you may be responsible to pay for repair to all of them. It’s better to have good property damage coverage on your policy that will pay the claim in full.
Personal Injury Protection (also called PIP) – required. This is your “No-Fault” coverage. This pays for injuries regardless of who is at fault in the accident.
In my opinion, this is a great benefit for you. Regardless of who is at fault, your own insurance will pay for your medical costs and lost wages. You don’t know how much insurance the driver of the other car carries (if any!), so with PIP you get to use your own insurance to cover your expenses and get the proper care you need.
No-Fault PIP pays medical expenses, lost wages, and other expenses (like an ambulance), for you as a driver or for your passenger, or even a pedestrian injured by your car.
True story – Mary was driving her late model Subaru at an off ramp of the local highway, close to her home. As she slowed down for a red light, a large 18-wheel tractor trailer behind her did not slow down fast enough and struck her, hard! Clearly, this was totally the fault of the truck driver. Mary had severe back and neck injuries and had to be transported by ambulance to the hospital where she stayed for seven days. Whose insurance company pays for these expenses? Mary’s did.
Mary’s insurance helped her and paid her medical expenses. She did not have to worry if she discovered that truck driver had no insurance or if this was a hit-and-run event where the driver may never be caught. Bottom line: Mary’s insurance paid for Mary’s injuries.
The basic PIP coverage is $50,000. This is required for all insurance policies. All types of injuries are covered here – from serious car crashes, to a pedestrian or bicyclist accident or if you close the car door on your thumb.
PIP “No-Fault” auto insurance coverage includes:
- medical and rehabilitation expenses
- 80% of lost earnings from work, up to a maximum payment of $2,000
- a $2,000 death benefit
Uninsured / Underinsured Motorist Coverage – required. This is protection for you if you, your family or your passengers are involved in an accident where the other driver does not carry insurance or has low limits of insurance.
As I discussed with the PIP coverage, if you have medical costs your PIP or Medical Payments coverage will pay hospital expenses. But what if these injuries are serious, or even permanent? This is where your own insurance will step in and provide coverage for you.
Example – a 40-year old father is involved in a car accident. It was not his fault. The other driver was a 17-year old newly
licensed driver who had the state minimum limits of $25,000/$50,000. Injuries were severe. The 17-year-old’s insurance company immediately pays $25,000 and walks away. The 40-year old hires an attorney and sues, but there really is no money available from the young at-fault driver. The 40-year old then uses his own insurance policy to collect.
I believe, for peace of mind, you should carry as much coverage as you can. You are truly buying insurance for yourself here, knowing that other drivers may only have minimal coverage. You can feel assured that if you are injured in an accident you will be able to collect necessary money to help you recover and maintain a healthy lifestyle.
The majority of our clients select limits that equals their Bodily Injury Liability Coverage ($300,000/$300,000). Protect yourself as much as you are protecting others!
Additional Personal Injury Protection (called APIP) – Optional. Here you can purchase more coverage to protect yourself in the event of an accident where you are injured. Additional PIP also broadens your coverage in two ways:
- provides increased coverage when an accident occurs out of state
- extends wage loss coverage and provides more coverage
The maximum amount you can purchase is $100,000. Combined with PIP, this would give you a total of $150,000 ($50,000 PIP plus this APIP coverage).
Medical Payments – Optional. Your insurance will pay, regardless of fault for medical and funeral costs for you and your passengers up to the stated limit in your policy. Because you are required to carry Personal Injury Protection, some insurance companies may not offer this optional coverage.
In some cases medical payments will pay for expenses in alcohol related accidents (where PIP coverage may be denied as it may be considered an illegal act.)
Optional Basic Economic Loss (called OBEL) – Optional. If you miss work because of a car accident, and all of your PIP and APIP is exhausted, you can collect from this part of your insurance. Lost wages, extra expenses to travel to medical appointments and other caretaking costs are provided here.
Spousal Liability – Optional. While your automobile liability insurance policy provides coverage for every passenger in your vehicle injured in an accident caused by the driver’s negligence, it will most likely not provide any liability coverage when the injured passenger is your spouse (although your spouse would be eligible for Personal Injury Protection).
This insurance covers your spouse up to the liability insurance limits provided under your policy. You may need to request this additional coverage from your insurance company and pay an additional premium for it unless it is provided at no charge.
Collision – Optional. If you have a nice vehicle or a bank loan, it’s important to protect your asset. This coverage takes care of accidental damage that happens to your car.
- If you slide on ice and hit a tree or a guardrail, collision coverage pays to fix your car.
- If you hit another car and it’s deemed your fault, collision coverage pays to fix your car (your property damage liability pays to fix the other car).
There is a deductible associated with this coverage. A deductible is the amount of repair costs you pay first before the insurance kicks in. You choose your deductible based on your affordability and comfort level.
For example, if you are involved in an accident and the body shop repair estimate is $5000 and you carry a $500 deductible you would be responsible to pay the $500 and your insurance would pay the $4500 balance. Obviously, the higher deductible you choose means you will have to pay more for a claim, but the cost savings for the insurance may be beneficial if you don’t submit many claims.
Comprehensive – Optional. This coverage pays for damages to your car “Other than Collision.” Theft, fire, vandalism and glass coverage. Also, if something strikes your car, like a deer or other animal, or a flying object like a stone from the dump truck traveling ahead of you, Comprehensive pays.
For Example: You’re driving down the road and you are hit by a deer, that’s comprehensive coverage. If you swerve to avoid the deer and hit a guardrail, that’s collision.
Similar to Collision Coverage, there is a deductible associated with this coverage. There is often a No Deductible option for glass coverage on most personal (not commercial) policies. Check your own policy or ask your agent to be sure.
Rental Car Coverage – Optional. If there’s a situation where your regular car is at a repair shop as a result of an accident, you can obtain a rental car for temporary use.
Towing and Labor Coverage – Optional. If you have a roadside emergency like a flat tire or engine failure, your insurance carrier will pay for a tow truck or any labor that they might charge, such as like jump starting your car battery.