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October 2008 |
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Does Your Car Insurance Policy Need a Tune Up? (Part 1 of a 2 part series) Are your car and the family it carries properly insured? Keep in mind, "properly insured" doesn't mean "do you have enough insurance?" Some people have too much. Knowing your way around a policy and the balance of coverage you need could save you money and give you a little more peace of mind because you've considered what you will and won't have to face in the event of an accident. This isn't a complete "how to" for buying auto insurance, but it should make you a smarter shopper. Many pieces to one policy An auto policy really is a clump of different insurances supposedly tailored to your wants and needs. That's probably why it's so complicated. There is liability insurance, collision insurance, comprehensive and other optional add-on insurances. So let's break it down. Liability insurance is required in most states and covers the medical treatments and lost wages for the other people hurt or the repair of property damaged in an accident in which you are found to be at fault. Liability insurance doesn't cover you. People who cause accidents are liable for injuries to other people and other people's property and that's why the law almost always requires you to carry liability insurance. But how much do you need? Well, that's based on your personal risk tolerance. But keep in mind that only having what the law requires might not fully shield you. Medical bills can climb into the hundreds of thousands of dollars. And if you only have the required minimum — probably $20,000 to $40,000 — the other party might sue you for the rest. The thing to think about: Liability insurance is not just a matter whether you have it, but how much you have.
After liability insurance, a policy usually includes collision and/or comprehensive insurance. Collision covers your car when it strikes another car or object and it's your fault. (If it's another driver's fault, their liability insurance should cover your car.) Meanwhile, comprehensive insurance covers your car if it's damaged or lost for most events other than a crash such as theft, vandalism and natural disasters. The important thing to know is that collision and comprehensive insurance are totally optional. Insurance is supposed to cover you for catastrophic loss. For many, losing a $4,000 car is a drag, but won't have them filing bankruptcy. The thing to think about: At a certain point it's foolish to insure a junker. PIP, MEDPAY, UM, UIM PIP and MEDPAY are pretty much the same thing — personal injury protection. Required in many states, PIP covers your medical expenses and lost wages in an accident. This protects you if you cause the accident. If somebody else causes the accident, presumably they're insurance will pay for your medical bills. But what if they don't have insurance? Well, there's insurance for that too. UM/UIM is shorthand for un-insured and under-insured motorist insurance. If you get injure by an uninsured motorist, the law will deal with that driver, but there'll be no insurance company for you to chase compensation — unless of course you have UM/UIM coverage. The important thing to think about: Do you need both of these? There are numerous add-on insurances that we will touch on next month as well as how to get cheaper rates! |
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