Key Consumer Issues - Auto Accidents & Insurance
Types of Auto Insurance Coverage
There are many kinds coverage you can buy for your automobile insurance policy. Below are descriptions of some of the more common types. Keep in mind that, with most of these types of coverage, you usually have to pay a certain amount (your deductible) before your insurance company will begin to pay. (This is not true for liability coverage). Also, insurance companies may define these coverages slightly differently and with different exceptions and limitations. Therefore, before you purchase a policy, make sure you know exactly what that policy will and won't cover.
Liability Insurance
In most states, auto owners are required by law to have liability insurance, which pays for damages and injuries to others if you're at fault in an auto accident. The minimum amount of coverage required varies by state. You can choose to buy more than the minimum if you like. In Georgia, if you own a car, you must have at least the following amounts of liability coverage:
· $25,000 to pay an individual bodily injury claim
· $50,000 to pay bodily injury claims if more than one person is injured
· $25,000 for property damage to others resulting from the accident
The amount of your liability coverage is the maximum amount your insurer will pay. So, for example, say you live in Georgia and carry only the minimum liability coverage required by law (the 25/50/25 noted above). You cause an accident in which another individual is injured and that person's medical bills and lost wages total $50,000. Your auto insurance company will only pay the first $25,000. You may then be held personally responsible for paying the remaining $25,000.
It is important to remember that liability insurance only covers other people. It does not cover you, your vehicle, or your property. However, as part of your liability coverage, your insurer is responsible for providing your legal defense if you are sued because of an auto accident.
Physical Damage Coverage
Physical damage coverage includes collision and comprehensive coverage, which you purchase separately. Collision coverage pays for damages to your vehicle from an auto accident, regardless of who caused it. Comprehensive coverage pays for damage to your vehicle caused by things like theft, vandalism, severe weather, etc. Depending on your policy, these coverages may also pay for certain items that were in your car at the time of the accident and were damaged as a result of it.
Medical Payments Coverage (also called "med-pay")
Med-pay coverage pays reasonable and necessary medical expenses for you and your passengers if you're injured in an accident, whether the accident was your fault or not. It may also pay medical expenses if you're hurt as a passenger in someone else's vehicle and they don't have insurance that covers your injuries or their insurance will not pay any medical bills until your medical treatment is completed. Med-pay coverage also covers funeral expenses where fatal injuries occur in an auto accident.
Personal Injury Protection (PIP)
PIP pays for expenses related to injuries you and other individuals insured by your policy suffer in a car accident, regardless of who was at fault. In some states, you are required by law to carry this coverage.
Uninsured/Underinsured Motorist Coverage (UM/UIM)
This coverage pays for property damage and medical bills resulting from an accident caused by an uninsured driver or a driver without enough coverage to pay all of your damages. Some states require you to carry UM/UIM coverage or to turn it down in writing when you buy your policy. In Georgia, this coverage is automatically included in your policy unless you reject it in writing.
Rental Car Coverage
This coverage will pay reasonable rental car expenses if your car is damaged or stolen.
Towing and Labor Coverage
Pays for towing expenses if your car is disabled.
Audio & Non-OEM (Original Equipment Manufacturer) Coverage
Covers loss or damage to special items you may have installed on your vehicle such as audio equipment, wheels, and hub caps. These items are not usually covered by standard policies.
Gap Coverage
Pays the remainder of your car loan if your vehicle is totaled and the insurance payout does not cover it.
Choosing Your Auto Insurance Coverage
Thinking about the following questions may help you decide what types and amounts of auto insurance coverage to buy:
1. How much is your vehicle worth?
This is important if you're trying to decide whether to buy physical damage coverage. If your car is worth a lot of money, it probably makes sense to have collision and/or comprehensive coverage. You want to be sure you have enough coverage so you don't have to pay a lot of money out of your own pocket if you're in an accident and your car is damaged or totaled. However, it's possible to over-insure your car too. If you have an older car that isn't worth much, you may pay more for physical damage coverage than the insurance company will pay you if your car is damaged or totaled in an accident. (When older cars of less value are involved in an auto accident, insurance companies often decide to "total" them, even if there has only been minor damage. The amount they pay you for the totaled car is based on the fair market value of the vehicle just before the accident. Since cars depreciate relatively quickly, an older car may only bring you a payout of a few hundred dollars.)
2. Can you afford to pay for repairs or to replace your car, if necessary?
This question is related to the question of how much your car is worth and involves considering the cost of physical damage coverage, whether you can afford to pay out of pocket to have your car repaired or replaced, if necessary, and how much risk you're willing to tolerate. Remember: you might be in an accident with an uninsured driver; in a moment of distraction, you might cause an accident; or a random act (fire, theft, severe weather, tree falling) might occur that damages your car. If one of these incidents occurs, will you be able to afford to cover the loss on your own?
3. Do you own your car outright or are you still paying it off or leasing it?
If you have not completely paid it off, the lienholder (company you got the loan from) or the leasing company has a financial interest in your vehicle and may require you to carry certain amounts and types of insurance coverage. You need to check your loan/lease agreement to see how much and what types of insurance are required. Also, be aware that if you're in an accident and your vehicle is totaled, you still have to pay off the rest of your loan. Most lease companies purchase "GAP" insurance that pays the remainder of your lease in the event your car is totaled.
4. Do you have assets you need to protect if you are found liable for an accident in which there are a lot of damages/injuries to others?
Thinking about this question will help you decide how much liability insurance to buy. Most states require motor vehicle owners to have a certain minimum amount of liability coverage, although you can choose to buy more. If you have an accident and are found liable, the damages and injuries to other people involved may quickly exceed the minimum coverage amounts required by law. Your insurance company only has to pay to the limits of your policy, and you're responsible for paying for any additional damages above and beyond the limits of your coverage.
5. Do you have health insurance?
The answer to this question may help you decide whether or not to buy med-pay coverage. If you have health insurance, and you're injured in an auto accident, your health insurance will pay for necessary medical care, although you will still be subject to your health plan's co-pays and deductibles. With med-pay coverage your accident-related medical treatments will be covered, after you pay your deductible. If you don't have health insurance, this may be critical. If you do have health insurance and you also purchase med-pay coverage on your auto policy, it may be like having double coverage, although your med-pay may cover your health insurance co-pays and deductibles.
6. Is your vehicle your only means of transportation or do you have a backup/alternative if you lose your car for a period of time?
If your car is a critical part of your life (necessary to get to work, transport your children, etc.), and you don't have a backup vehicle/form of transportation you can use if your car is in the shop for awhile, you might want to consider getting rental car coverage. If you have a backup or can afford to pay out of pocket for a rental car, you may not want to pay for this type of coverage.
7. How much can you afford to pay in deductibles? Is it better to lower your insurance premiums by choosing higher deductibles or is your financial situation so tight that you wouldn't be able to come up with several hundred dollars at once if involved in an accident?
One way you can keep the cost of your insurance down is to choose higher deductibles for your policy. The deductible is the amount you have to pay when you make a claim, before your insurance company will start to pay. For example, if you choose to purchase comprehensive coverage with a $100 deductible and a tree falls on your car, you will have to pay the first $100 worth of repairs, but then your insurer will pay the rest. Basically, if you have to make a claim, your out-of-pocket expenses will be limited. However, choosing such a low deductible will increase the cost of your policy. You might consider choosing a higher deductible, which will make your insurance cost less but force you to pay more out of your own pocket if you have to make a claim. Ask your agent to give you prices for the same types of insurance with different deductibles. Then, think about whether it will be harder for you to pay a higher insurance bill now or, possibly, to have to come up with a large amount of money if you have to file a claim.