The 8 Ground Rules for Car Insurance

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Insurance. Insurance is insurance that covers the unforeseeable, the unknown, or the uncontrollable. You are probably familiar with the basics of insurance: “A means of guaranteeing safety or protection”. But how protected are you with your current policy? This is a question that many Americans don’t think to ask. We are confident that our agent will wisely guide us in purchasing the right coverage. Agents are insurance professionals and our “Laymen’s Terms” go-to person for difficult to understand terms and the large vocabulary found in the policy declarations page. Agents are trusted professionals. However, smart consumers know enough about our coverages and terms to make informed purchases.

I have compiled the following 8 rules to help consumers understand the basics of insurance.

Let’s begin with the mandatory coverage we all have to carry: Liability. Liability covers damages caused to others. This covers medical and funeral expenses, car repairs, rental cars (if necessary), and punitive damage. The current state minimum in Texas stands at 30/60/25. The $30,000 maximum per person is available at the 30 (commonly known as Bodily Injury, or BI). 60 is the $60,000 per accident. 25 is the final part. It represents $25,000 for property damage, also known as Property Damage, or PD. This is your minimum coverage. Keep in mind that many people purchase higher limits such as 50/100/50, 100/300/100 or 100/300/100 to ensure that there is more coverage in case of an accident.

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Other than Liability, 2 state-mandated coverages must be purchased. These include Personal Injury Protection (PIP) and Medical Payments. These benefits are for you, the driver. These coverages cover funeral and medical expenses that result from an accident. These coverages cover you, your family members, and any passengers in your vehicle, regardless of the cause. The only difference between the two coverages is Personal Injury Protection, which pays for 80% of lost earnings. Let’s pretend I am a retired teacher. Is PIP necessary? Because I don’t make “wages” set, PIP is not necessary. My primary income would come in retirement. Therefore, Medical Payments would be more appropriate coverage.

Next in the long line of insurance terms is Uninsured/Underinsured Motorist Coverage. This will most often be represented by UM/UIM. This is used in cases where someone rear-ends your shiny car and doesn’t have enough insurance. If you own a Jaguar Jaguar worth $79,000 and your car is wrecked by someone who has liability limits of 30/60/25 (minimum limit), chances are you will have to pay the excess amount. If UM/UIM has been purchased, it will kick into effect once the limits of the other driver are exceeded.

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Your vehicle. We are not only concerned about the safety of the other person involved in an accident, but we also care about our health and that of our vehicle. Comprehensive and Collision are crucial here. Comprehensive or Collision will pay for your car’s repairs after your liability insurance has paid for the victim. The deductible is the amount that you pay, and is typically $500.00. The amount can vary from $100 to $2000. However, in the event that you have to pay for a claim, the amount you pay is the deductible. One example: I was driving in the evening when I hit a deer. My car’s front is totally destroyed, so I file a comprehensive insurance claim. My insurance pays $6500.00 for the damage, and I receive a check for $6000. The deductible is the lowest premium. However, the higher your deductible, the greater the amount of money you will have to pay in case of an accident.

When you have a lienholder (a bank, mortgage company or other financial institution that funds your vehicle), comp and collision are required coverages. This is something most people don’t know. If someone forgets to place their lienholder on their vehicle and they then total it, the money paid to the insurer legally must go to the lienholder. When a claim check is sent to someone with a lien, they will usually put Paid To the Order Of: Insured’s and Lienholder’s names. This is done to make sure that the bank/credit union receives all due funds.

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The elements and thieves are responsible for comprehensive coverage. Although it sounds odd, it is effective! Hail, fire and everything not related to Collision. You would be entitled to your vehicle if someone stole it or smashed in the back window. The definition of collision is quite simple. Collision covers any type of impact, including hitting a tree or another vehicle.

These two coverages are considered “extras”. Towing and Labor pay for “charges” if your car isn’t able to be driven. This covers any kind of work or repair that is done on the spot (where the accident occurred). If you have purchased Towing and Labor, you don’t need to take your fan belt to the shop if you are in an accident.

It is exactly what it sounds. Rental Reimbursement covers the cost of renting a vehicle while your car is being repaired or in an accident.

This is insurance. There are many scenarios and “what-if’s” but this should provide enough information for you to make an informed decision about what coverages you need and how they work. You can reach us by phone or email if you have any questions or comments. We would love to assist you in becoming a knowledgeable consumer of insurance!

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