I am often surprised to learn that my clients do not know what kind of auto insurance they have. Most people do not know what the different coverages are on their policies. Here is a quick explanation:
Bodily Injury Liability: This coverage protects you when you cause an accident and injure someone. It pays personal injury damages, so you do not have to. But see Policy Limit.
Property Damage Liability: This coverage protects you when you cause an accident and damage someone else’s car. It pays to repair or replace the other driver’s vehicle, so you do not have to. But see Policy Limit.
Collision: This coverage protects your car if you are in an accident, regardless of fault. It pays to repair or replace your car. But see Gap Insurance.
Uninsured/Underinsured Motorist (UM/UIM): This coverage protects you and your passengers if you are in an accident caused by someone else. Often times the other driver will have no insurance or a minimum policy that will not cover you for serious injuries-not even a hospital bill in some cases. This coverage is critical for your own protection. Why buy insurance for other people’s injuries but not for yourself? Make sure you have it.
Personal Injury Protection (PIP): This coverage will reimburse you and your passengers for medical expenses and lost wages if you are in an accident, regardless of fault. Usually, this coverage is $2,500-$10,000, depending on your policy.
Medical Payments (Med-Pay): This coverage will reimburse you and your passengers for medical expenses if you are in an accident, regardless of fault. Usually this coverage is $2,500-$10,000, depending on your policy. However, you have to pay it back if you make a claim against the other driver. This is why you want PIP coverage instead of Med-Pay coverage.
Policy Limits: This is the limit of coverage under each of the above categories. You will see numbers like $30,000/$60,000 listed on the Declarations Page of your policy, which means the limit is $30,000 per person and $60,000 per accident. This is the State of Texas minimum requirement. If you cause a serious accident and injure your passenger and 3 people in another car, you would have 4 different people making claims against you. Your insurance would only pay a total of $60,000 for all 4 claims combined and no single individual could receive more than $30,000. This coverage is not nearly enough to protect yourself on Texas roads. Get higher limits and make sure you have UM/UIM limits to match.
Gap Insurance: If your car is totaled, your Collision Coverage will only pay the fair market value of your car. What if you just bought the car and your car loan balance is higher than the fair market value of your car? You will owe the bank the difference. Worse, this situation comes up when someone else causes the wreck. Their insurance (Liability) is only responsible for paying you the fair market value and you will owe the bank the rest. The solution is Gap Insurance. It completely pays off your loan. The last thing you need after an accident and losing your car is an outstanding bank loan. Make sure you have Gap Insurance.
This list is by no means a comprehensive explanation of auto insurance, but it provides basic information so you can have an informed conversation with your insurance agent and get quality insurance that will do what it is supposed to do – help you when you need help!
Call your insurance agent before you get into an accident. Call your lawyer after you get into an accident.
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