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A "Crash" Course in Auto Insurance

May 18, 2000 Write an essay on this topic.

I used to be one of those people who got car insurance because the law said I had to. I wanted it cheap and easy. Give me the minimum (usually whatever the leasing company on my car made me have) and nothing else. Then, I started working for an insurance company (I'm not going to say who, I would rather not get hate mail:). I have seen what "minimum" insurance can do to people. The thing most people don't think about when purchasing insurance is that there are limits set on their insurance. You choose your own limits, and they determine how much your insurance company is going to pay in case of an accident. Often the bare minimum of limits is enough, but there are those accidents where more is better, and without it, you could be in big trouble.

I would like to start by covering some insurance basics. First of all, your policy: When you first decide to get insurance, don't just try to get the cheapest available. Look at your options and ask lots of questions. And don't settle for less than what you really want. There are lots of companies out there, search until you find one that covers all your needs. Many have "discounts" for multiple cars, good students, non-smokers, and also give you a better rate if they also insure your home. Take all those things into consideration. When you receive your policy, read it! I didn't even know what my policy covered until I started this job. I was lucky enough to have a good agent who made sure I had great coverage, but I may never have known until it was too late.

There are a number of parts to your insurance policy, and I will cover each one briefly. The first page is your declarations page. This shows what car is covered under the insurance, the named insured (presumably your or your spouse), the period of the policy (which is the dates your policy runs), and the coverages.

Then the policy gives you its terms. This tells you what the insurance company is going to do for you in the case of a loss. There are also certain conditions which you, as the insured, must do in the case of a loss. These are extremely important, so make sure you read those. They usually give you a certain time limit in which to report your claim. If you do not report in that certain amount of time, there is a good chance the insurance company will deny your claim. They also have the same obligation to handle your claim within a certain amount of time.

One thing that is important to remember: Even if the claim is not your fault, make sure you tell your own insurance company. There are several reasons why you should do this. First, the other insurance company may deny your claim, and by the time you know, your time limit to tell your own insurance company may be up. Second, your own insurance company can pay your claim then go after the other insurance company to repay them. This makes everything go a lot faster for you, since you don't have to worry about when the other company will pay you. Third, if you are partly liable, your own insurance company may have to pay your claim. And if you are in a "no-fault" state (one where it doesn't matter whose fault the accident is) your own insurance company is the one who pays your bills.

The next part of the policy will tell you what your coverages are. They are as follows:

(A) Liability: If the accident is your fault, or party your fault, you owe for the other person's damages, whether it be for their injuries, or damage to their car. If this is the case, then your liability coverage will pay for those. Depending on what company you go through, this may either be an aggregate limit (where you have a certain amount the company will pay throughout your term, no matter how many accidents you have), or a split limit (where it gives the limit per person/limit total for each accident/limit for physical damage per accident). No matter what kind your company has, you want to make sure you have enough liability coverage. It is not a good idea to skimp on liability. Of all the coverages, this is the most important to have, because what your insurance company doesn't cover, you have to. And when it involves other people, that could add up to a lot of money.
For example, if you are involved in a four car accident, and are liable, then you owe for all the damages. If your coverage is only 25/50/25 (25,000 per person, 50,000 per accident, and 25,000 for the damage to the cars), it's not going to go very far. You could owe thousands out of pockets, and really, who has that kind of money lying around.

(C) Medical Payments Coverage: This covers bodily injury to all the insureds involved in the accident. Most health insurances these days don't cover medical bills due to accidents, so this is a good coverage to have. When you decide on a limit for this, just remember, if you are in a bad accident, even the ambulance driver charges app. $500!

(D) Comprehensive: This covers your car if it is damaged by something other than a collision. This can be due to an earthquake, wind, hail, theft, deer, and others. There are some exeptions which should be listed in your policy. This coverage isn't a great necessity, but it is something to think about.

(G) Collision: This, of course, covers your vehicle if you are involved in an accident with another object. Usually a car, but could include telephone poles, houses, etc. Again, this is usually stated within your policy.

(S,T,Z) Death, Disability, Dismemberment, and Loss of Wages: This is an option which covers you if you cannot work due to the accident, or pays extra if you die, or lose a limb. The limits are usually stated in the policy, as well as the conditions. Each company deals with this differently. Again, this coverage is optional.

(R,R1,H) Rental and Road Hazard: This pays for a rental while your car is out of service, as well as giving you road service. Again, the the terms are stated in your policy.

(U) Uninsured, Underinsured: This covers you if you are hit by an uninsured motorist, and underinsured motorist, or a hit-and-run driver. Note though, that this only covers you if the accident is not your fault. It is a wise idea to have this because if you don't, you may end up paying a lot of bills out of your own pocket.

This is just a brief overview of what your policy should include. Each individual policy will vary, so you need to read yours carefully. All of the terms should be spelled out for you in easy to read language, but if you don't understand something, be sure to call your insurance company for help. Remember, you are paying for this coverage, so make sure it is what you want!

My main reason for writing this is to make sure everyone knows how important it is to know what kind of car insurance you have. Know your limits, talk about them with your agent, and most importantly, get what you are paying for. Don't let yourself get into a situation where you are bankrupt because you didn't have enough insurance. Don't realize how important this is after it's too late!

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