It strikes fear into the heart of every teenager’s parent.
You’re sure it will be expensive.
You have to include all the drivers in the house, so there’s no getting out of it.
Your agent will tell you all about the coverage you need: collision, property damage, bodily injury, medical payments, and uninsured/underinsured motorist, but all you want to know is what it covers and how much it costs.
For most of us, auto insurance offers peace of mind so that if we wreck our car, someone hits us, or we cause an accident with bodily injury or property damage, we’re covered. If we have comprehensive and collision coverage, we’ll get our car back good as new after paying a deductible – because we have insurance.
“That’s correct,” says Bill Lawrence, CIC, and President of P/L/R Insurance. “But it’s important to understand what all those insurance terms mean so that you’ll know for sure what’s covered and what’s not. Sometimes it’s helpful to encourage clients to think of their auto policy as six separate policies. It’s easier to understand if we break it down.”
“You can replace a vehicle, but you can’t replace the people in it. Therefore, the most important components of your policy are the parts that take care of your passengers.”
Bodily injury liability (BI)
This coverage kicks in if you cause an accident and someone is hurt or killed, and most states require this component for every driver. We encourage our clients never to have limits less than $100,000 per person and $300,000 per occurrence – commonly known as “100/300.”
Property damage liability (PD)
PD is just what it sounds like: insurance pays for damage you cause to someone else’s property. Generally, “someone else’s property” is a car. Property damage liability can also cover buildings, utility structures, garage doors, and other property.
Medical payments coverage (Med Pay)
Med Pay covers medical expenses for you and your passengers for which you may not be “legally liable.” Med Pay will pay if you’re injured in a motor vehicle accident, no matter who is at fault. Med Pay may also cover other vehicle-related injuries – if someone smashes their hand in your car door or trips over a trailer hitch, for example.
“Protection for the people is our first concern,” Lawrence continues. “Coverage for the property damage caused by the at-fault driver is also essential. The next three components of an auto policy address those concerns:”
Also true to its name, collision coverage pays for damage to your vehicle if you crash into another car, a building, a fire hydrant, or some other object. A “deductible” usually applies to this part of your policy. Generally, the higher your deductible – the amount you pay out of pocket before the insurance covers anything – the lower your premium. Most lenders require this coverage if you have an outstanding balance on your auto loan.
The comprehensive component of your policy covers damage to your vehicle caused by something that is not a collision. For example, if you have hail damage or an ice-covered branch falls on your car, your car is stolen, or you hit a deer. There is also a deductible option on comprehensive coverage. Again, some lenders require this component if you have a balance on your auto loan.
Uninsured/Underinsured motorist (UM/UIM)
Despite laws in most states that require drivers to carry auto insurance, not everybody does. Uninsured or underinsured motorist coverage will pay hospital bills and other expenses if you get hurt in an accident caused by an uninsured driver.
Do just a bit of research, and you’ll see that even the highest minimums required by law (in Alaska and Maine) are 50/100/25. That’s $50,000 coverage per person for bodily injury, $100,000 bodily injury per accident, and $25,000 total for property damage.
Suppose you cause an accident that totals a $60,000 SUV and injures the five passengers inside. In that case, those minimums won’t give you nearly enough insurance coverage to pay the expenses you’ll have to cover.
“At P/L/R, we won’t sell an auto policy that offers less than 100/300/100 coverage,” Lawrence explains. “Our priority is to protect our clients from suffering a life-changing loss. We don’t sell policies that won’t offer our clients the coverage that they need.”