Just What Insurance Coverages Do I Need?

woman looking at insurance coverage options on computer

Even though my granddaughter is getting a degree in neuroscience, her first encounter in attempting to buy car insurance for the old clunker car she purchased to get her around was humiliating to her.

“When I called an agent to get a quote he used terms I had no idea what he meant and with the condescending sound of his voice, I just hung up on him. Why did he have to be so rude? Moreover, the TV ad said I should only buy the insurance I needed. How do I know?”

As she described this experience to me over the phone, my thoughts went back on my 40 plus years of selling insurance–how many times did I leave an uninformed consumer with the same frustrated feelings. I wondered how many times I used terms familiar to me but foreign to them i.e., B.I., P.D., or P.I.P. limits. How about E.R.S. coverage. Have you considered comp and collision coverage and deductibles. What limits would you like for med coverage, etc.

With this thought in mind, here I want to help people like my granddaughter understand some of the terms and phrases necessary so they can make intelligent choices regarding their insurance needs. This may be particularly helpful for those who want quality insurance at the cheapest price without having to have an agent involved.

So, what is insurance? It is a means for an individual to ease some of the financial burden one experiences when involved in an automobile accident. By paying a premium to an insurer (insurance company), an insured (you) can guarantee a certain dollar amount will be paid by the insurer in the event of an accident that you may be involved in. Insurance then is a means of protection from financial loss.

Why Car Insurance?

Hopefully, one of the main reasons individuals purchase car insurance is to make sure they can financially take care of expenses they cause through their negligence, carelessness, or just misfortune to another party. It would be comforting to know as individuals we don’t want someone else to suffer due to our actions.

Unfortunately, the main reason for purchasing car insurance has to do with the law requiring us to show financial responsibility in order to qualify for the privilege of driving. This probably motivates most drivers more than their personal feeling of social responsibility. Every state mandates in one form or another a minimum dollar amount to be acquired to show financial responsibility. This can be done through an insurance policy, a bond, or a cash deposit set aside for that purpose. This is true in either a no-fault state or a tort (at fault) state.

Fear of being picked up and fined for not having insurance is perhaps another motivation for having car insurance. We all recognize that driving is a privilege and not a right; therefore, it can be taken away from us if we don’t meet requirements for maintaining that privilege.

Insurance Terms

Bodily Injury (B.I.) – is the term used in tort based insurance policies to describe physical injury to, sickness, disease, or death of a person. This provides coverage for a third party, the driver or occupants of the vehicle you run into. It does not provide any type of coverage for you. In some instances it may used to pay a claim made by a passenger in your vehicle. Minimum dollar amount required is established by the state the accident occurs in. It can vary from state to state and can also be influenced by whether you are in a no-fault or at-fault state. Your insurance company policy when issued will have a section stating your policy will be automatically adjusted to meet the requirements of the governing state.

Property Damage (P.D.) – in tort based insurance policies means injury to or destruction of tangible property, including resulting loss of use. Again, this is to protect against damage you cause another person‘s property and has no financial benefit to you. This provision also is required to have a minimum financial requirement established by law.

Personal Injury Protection (P.I.P.) – is the coverage you purchase in a no-fault state which covers your medical expenses. In a no-fault state each party in a claim submits their claim to their insurer who handle medical bills up to the amount you purchased. Again, the amount is established by law. You can in most no-fault states purchase B.I. for parties you may injure who file a claim against you if the underlying amounts for injuries have reached that financial threshold. (see article https://www.insuranceguidelocal.com/shedding-light-on-tort-based-and-no-fault-insurance) for additional details.) P.I.P. is not available in a tort state because comparable coverage is provided by U.M. (uninsured motorist) or U.I.M. (underinsured motorist) in those states.

Medical (Med) – is subject to limits in the policy, pays you, a relative, or any other person occupying a vehicle owned by you or a non owned vehicle being operated by you, necessary medical and funeral expenses resulting from bodily injury caused by an occurrence. It also pays your or a relative’s medical expenses when struck by a motor vehicle while a pedestrian, equestrian, or while on a bicycle or other vehicle. A point of clarification: relative is defined as a person related to you by blood, marriage, or adoption who is a resident of your household, including a ward or foster child. A relative attending college is still a member of your household up to age 25.

Unlike personal health coverage, this provision is a first dollar coverage, meaning you have no deductible or co-insurance payable before the benefit begins. It also is used before other health insurance benefits can be used. If by some chance bills are paid by another medical provider, that provider has right to be reimbursed up to the limits of your policy. I always recommend opting for the highest amount available in your policy, since it is usually affordable. Should you be in an accident where it become necessary to hire a medical malpractice attorney, having medical coverage in your insurance policy will help with those initial bills until your case generates compensation.

Some financial advisors will discourage you from carrying this insurance if you have other medical coverage, stating it to be duplicate coverage. Careful consideration of benefits should be given before you rush to judgement even when trying to buy cheap insurance. Particular attention should be given to the “relative” benefits not provided by other health insurance plans.

Uninsured Motorist (U.M.) – Your policy will pay damages you are legally entitled to recover from the operator of an uninsured motor vehicle because of bodily injury you sustain due to an occurrence. In most states this coverage is available only to assist in medical expenses and does nothing to pay for physical damage done to your property. This coverage can also be waived if you in writing acknowledge it was offered and you declined coverage. Experience has shown this to be a good coverage to have due to its low cost compared to benefits available.

Underinsured Motorist (U.I.M.) – If you have this coverage and your medical claim is more than the amount of bodily injury being provided by other party’s insurance, it will come in as excess coverage, picking up where other policy stops.This provision is not first dollar coverage then. It comes into play after other insurance has been exhausted.

Collision – This is a physical damage coverage which pays for accidental or direct loss to your insured vehicle and its equipment when it is hit by or hits another vehicle or when it rolls over. You will have a deductible which you choose and perhaps some betterment when there is a claim. Here is where discretion on your part becomes part of the buying process. If you have a loan against your vehicle, the lienholder will require you to keep your vehicle insured until it feels the loan has been sufficiently reduced. At that point you can decide if you still have enough equity in the vehicle to continue coverage. You may decide you don’t, at which point you can drop the coverage. If it is your only vehicle or if it is in excellent condition with low mileage, the premium you pay of a couple hundred dollars may be easier to pay than replacing several thousand dollars the vehicle may be worth if it were to be totaled.

Comprehensive – A physical damage coverage which pays for direct and accidental loss, or damage to your insured car not covered by collision coverage. Common among claims paid for under comprehensive is broken glass, hitting animals, theft, windstorm damages, vandalism, etc. This coverage would be one of the last to be dropped if you were attempting to lower your insurance premium when the budget is tight. Sometimes when a vehicle is being stored for an extended period of time and there is no lienholder, comprehensive coverage may be the only coverage you would want to keep on your vehicle since it would continue coverages you would be vulnerable to while your vehicle is being stored.

There are a few other items you could insure for; but if you were attempting to maintain a cheaper premium, the above would be the ones you would want to include in your deliberations. Happy premium deliberations!

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