Introduction to Auto Insurance
This article clarifies the auto insurance industry and terminology as a whole. There is a lot of misinformation that keeps appearing on the forum.
Coverage Types
- Bodily Injury - BI - Bodily Injury coverage protects you when you are legally liable for injury or death to others caused by your vehicle. Some of these expenses include medical treatment, lost wages and compensation for pain and suffering. Your own legal fees, bail bonds and court costs are also covered. In the event of a serious accident these costs can become very substantial and if you do not carry a sufficient limit of insurance, the person you injure may pursue compensation from your personal assets and earnings. In most states, in addition to the person in the other car(s), this can also be a passenger of your car (if you are negligent).
- Property Damage - PD - Property Damage protects you when you are legally liable for damage to property of others caused by your vehicle. This not only includes damage to others' vehicles, but also objects such as buildings, signs or trees. In the event of a multiple vehicle accident, you could be responsible for compensating several other car owners.
- Uninsured Motorist Bodily Injury - UM - Uninsured Motorist Bodily Injury pays damages you are legally entitled to recover because of bodily injury or death caused by uninsured or hit-and-run motorists. Or a river whose company has become insolvent. Under this coverage, you are collecting from your own carrier.
- Underinsured Motorist Bodily Injury - UIM - It also covers amounts that exceed a negligent driver's insurance, if your injuries exhaust his or her coverage limits and the limits of your coverage are higher.
- Uninsured Motorist Property Damage - UMPD - Uninsured Motorist Property Damage pays damages you are legally entitled to recover because of damage to your insured vehicle caused by uninsured or hit-and-run motorists. Payments are made on an actual cash value basis for the amount of each loss above your deductible up to the limit you select
- Medical Payments - MED - coverage that pays up to the policy limit for accident related medical bills for the driver of the insured vehicle plus any passengers regardless of negligence.
- Personal Injury Protection - PIP/No-Fault - coverage that pays for medical bills for the driver of the insured auto and their injured passengers plus lost wages, funeral/death benefits & essential services regardless of fault (hence its common name, No-Fault)
- Comprehensive - Comp - Comprehensive coverage pays for loss or damage to your vehicle caused by fire, theft, vandalism, hail, windstorm, riot, falling objects, flood, and other events as stated in your policy contract.
- Collision - Coll - Collision coverage pays for loss or damage to your vehicle caused by collision with another vehicle or object. Payments are made on an actual cash value basis for the amount of each loss above your deductible
How Much Coverage do I Need?
Now that you have the basic definitions of what coverage exists, what limits should you consider? Well, in short, more is better. It is always beneficial to carry as much coverage as you can afford. Personal Injury Attorneys are a crafty breed and they can get blood from a stone given the chance.
Strongly consider your limits of coverage when buying auto insurance. When you harm someone as a result of a car crash, your insurance adjuster is your new best friend. Help him/her by purchasing enough coverage to settle any claims within your policy limits. For example, if you carry state minimum limits and the injured party is left with a permanent injury (a paraplegic), it is extremely difficult to get a settlement without you having to personally contribute or have a judgment against you. There is no protection from a judgment and it will hang over you until it is paid. This is the ultimate in bad credit. You will not likely be able to get any type loan, a mortgage, or a government job, etc with a judgment against you. Again, more is better.
Can the Insurance Company Deny me Coverage?
Every state regulates auto insurance and every state is, therefore, different when it comes to how the coverages are applied and who can make a claim under the policy. So, look at your policy contract or call your company or agent if you have a question about whether or not a particular situation is covered.
However, I can assure you that if you pay a premium and are not in violation of your policy contract, coverage (as deemed by your state) must be granted. We are living in a litigious society where class-action suits are becoming more prevalent and jury awards more outrageous. As a result, most insurance companies are going to do everything they can to avoid anything that may be considered an Unfair Claims Practice. Not only are there laws against it, but the mere mention makes bottom-feeding attorneys begin to salivate.
Will Modifications to my Vehicle be Covered?
If you have modifications on your ride that you want covered you have to declare them to the insurance company and then follow whatever their standard operating procedure is for them to consider coverage. If they agree to cover the mods and accept an additional premium from you, they also must pay for those items should they be damaged or lost due to a covered peril. About this there can be no argument as long as you follow the procedures as described by your company.
How much is my car worth?
Your auto insurance carrier considers the vehicle's actual cash value at the time of the loss. Actual cash value is defined as retail value minus depreciation minus wear & tear minus pre-loss damages. That goes for those modifications as well. Your 18" rims depreciate. Your ultra-performance tires wear and your ground effects suffer curb rash. This all means that at the time of the loss, you are likely not going to receive a dollar for dollar reimbursement for these items. However, the value of the items will have to be considered in valuing the entire vehicle. There is a limit to this of course. We have all seen cars on E-bay that we find disturbing. If that is your car, you have likely destroyed its value to a point where minor damage will total the car. Be safe; make sure your auto carrier knows what they are insuring! Failure to do so will be your loss, not theirs.
Don't I need an attorney if I'm in a car accident?
Depends. If the injury is minor, probably not. Personal Injury attorneys are extremely expensive to hire. They receive 1/3 of any settlement that you are awarded. That's like using a real estate agent to sell your $100,000 home and then giving them $33,000 for their help. Or buying a car for $1,000 and giving the bank $333 for setting up your loan. In my experience in settling bodily injury claims where there are minor injuries, the client/injured party LOST money by hiring an attorney.
For example, I offer you $6000 as settlement of your claim. You then hire an attorney. After he sends me a letter and a demand for $25,000, we settle your claim for $7500. The attorney gets to keep $2500 as his 1/3 and you get $5000. The attorney got a higher settlement than you were originally offered but in the end you lost $1000. What is even worse is you probably could've gotten the $7500 on your own. So, in essence, hiring the attorney cost you $2500.
In other cases where there is a serious injury or worse, death, an attorney might be someone to at least consult and is sometimes necessary.
Again, the answer to this question remains; it depends.
"All insurance companies do is rob their insureds, get rich & then deny claims", many people say...
Everyone has this attitude unless they work for an insurance company or have a loss where they are responsible for injuring another person and are facing the potential of life long payments for their split second moment of stupidity.
Truth is, most insurance companies loose money on the premiums they collect. They pay more in claims than they bring in. They are profitable only because they invest the money wisely and keep the dividends the money makes before it has to be paid for claims & expenses.
Conclusion
It is my hope that you are more educated than before about Auto Insurance basics. If you have further questions, please start a thread.
