Imagine yourself getting ready for the day and suddenly it’s pouring down. The rain is pouring down and you begin to search for your umbrella ….. Now you’re protected from the rain as you step outside. It would be a bright, sunny day without rain and you wouldn’t care about your umbrella or whether you had one. Insurance is the same. Is it really worth your time to care about insurance? Too many people only realize they don’t have enough coverage when something unexpected happens and they need to file a claim with their insurer.
Understanding the basics is a good place to start to check if you have adequate insurance coverage. Understanding the basics of insurance coverage is key to ensuring that you have proper coverage. We will be focusing on auto insurance coverage.
Auto Insurance covers you for both liability and property damage that is related to your motor car. Although there are many other areas of coverage, we will be focusing on the essentials. The declaration pages of your auto policy are the first and/or last pages. The declaration pages detail your auto coverage limits as numeric dollar values.
Here’s a sample of what might appear on your declaration pages for auto insurance policies:
-Bodily Injury/Property (BIPD) 250/500/100
-Limited and Unlimited
-Medical (Med) $5,000
Personal Injury Protection (PIP 250 w/250 ded
-Uninsured/Underinsured (UM/UIM) 250/500/100
-Collision $500 (Coll) Deductible
-Comprehensive (Comp) $500 Deductible
-Rental Insurance (RI), 80%/1500
Let’s look in greater detail at each of the coverage amounts and definitions.
The BIPD is Bodily Injury or Property Damage (PD). The BIPD stands for Bodily Injury (BI) / Property Damage (PD). In this example, the policyholder is entitled to liability coverage of $250,000 per individual, $500,000 per incident, and $100,000 in property damages to the vehicle involved in a collision. Liability coverage covers you for instances when you are found negligent in an auto accident. You will be legally responsible for any punitive and compensatory damages. The BIPD will protect you against negligence that causes bodily injury. BI also covers attorney fees incurred in any lawsuit brought against you. The above example shows that the person in question has $250,000 coverage for all-inclusive liability and attorney costs per injured party, or $500,000 total.
The PD of the BIPD covers damage to another party’s car or property as a result your negligence. In the above example, it would be $100,000. Given the litigious society we live in, we wonder if $250,000/person or $500,000/incident is sufficient BI coverage. It is a personal decision that each individual must make based on their financial situation and knowledge of recent jury decisions. This decision will be influenced by the understanding that you are covered for all amounts beyond your BI coverage amount. If the jury awards punitive and compensatory damages, this is also a factor. If the jury awards $750,000 for bodily injury to the person driving the other car because they collided with you, you are entitled to self-insured up to $250,000 (which in this case would be $500,000. If you don’t have $500,000 to settle the award the judge will give you other options. These include garnishing wages, selling assets, placing a lien upon your property, and even selling some of your assets. An umbrella policy can be purchased to provide additional coverage beyond what you have under your auto BI. In a future article, we will discuss the operation of an umbrella policy in greater detail.
Next, there is “limited right of sue” and “unlimited rights to sue”. You agree to not sue the person responsible for the accident unless you are permanently injured.
-Loss or loss of body parts
-Significant scarring or disfigurement
-A displaced fracture
-Loss a Fetus
-Permanent injury
-Death
This option does not give up your right to sue the government for economic damages, such as medical expenses or lost wages.
You have the right to sue any person responsible for an auto accident. The “limited” option is the most popular as it is less expensive and allows you to sue the negligent party for major and permanent injuries. Many attorneys will choose the “unlimited” option for their personal coverage. They are willing to pay the substantial extra cost if they have the right to sue for any injuries.
Personal Injury Protection (PIP) coverage is a type of Personal Injury Protection. PIP is paid through your own policy. PIP pays for medical expenses as well as lost wages. PIP can sometimes be referred to “no-fault” insurance because it is governed by no-fault statutes. PIP is intended to be paid regardless of “fault” or, more correctly, without regard for legal liability. PIP, also known as “no fault”, is a type of PIP that does not require a claimant to have their insurance premium increased due to a PIP case. If the other party is found to be the negligent party, your insurance may subrogate your PIP claim against their insurance company. In some states, PIP is mandatory.
Uninsured/Underinsured (UM/UIM) is coverage from your policy that may pay for injuries to you and your passengers, and possibly damage to your property, when as a result of an auto accident the other driver is both legally responsible for the accident and determined to be “uninsured” or “underinsured.”
Uninsured motorist is someone who does not have any auto insurance, has insurance that does not comply with state-mandated minimum liabilities, or whose insurer denies their claim or is not financially able pay it. Uninsured drivers are also known in most states as hit-and run drivers. This applies to your insurance coverage and the payment for your injuries.
A driver who is underinsured is one who has insurance that meets the minimum legal requirements, but not enough coverage to pay for the damages caused in an accident. UIM coverage may be able to cover your damages. It is important that you note that the coverages for uninsured as well as underinsured are separate, though they can or should be purchased together in many states. Some states require the purchase of UM/UIM. Others do not.
Collision coverage covers you for any damage to your car. You are covered regardless of whether your car collides with another vehicle or a wall. No matter if you are at fault, your car will be covered if it sustains damage from colliding into another vehicle or another object. Your deductible will normally apply. Your deductible is usually applicable if you collided with another vehicle. In this case, your insurance company can subrogate the claim against that party’s insurer to recover the claim amount.
Comprehensive (Comp), basically covers all of the coverage that collision does not. Comprehensive coverage will cover damage to your vehicle that does not result from collision with another vehicle or object. Comprehensive coverage is required if you do not have it. You will have to pay for any damage to your car that was not caused by a collision. Comprehensive auto insurance typically covers the following perils: fire, theft vandalism, broken glass, animal damage, falling objects and storms (hail or wind).Water damage. Your deductible is usually applicable.
Rental Insurance (RI), which covers you while your vehicle is being fixed due to a covered event, allows you to rent a car. As you can see, the declaration page values of 80%/1500 mean that you have coverage for $80 per-day and $1,500 to rent a vehicle while your vehicle is being fixed. This optional coverage is something that many people choose, but not all.
This is it! This is how you understand your auto insurance coverage. Not so bad, right? Once you are familiar with the basics of auto coverage, you can review your policy declaration page and evaluate your financials to determine if you have adequate coverage.
Stay tuned for future articles to explain the basics of homeowner’s, life, and personal umbrella insurance. It’s impossible to predict when it will rain.
