Personal auto coverage tends to fall into one of three broad categories:
I. Damages to “others”
Bodily Injury Liability (BI)
Property Damage Liability (PD)
Liability coverages are the most important on an auto policy, because if not adequately insured, these exposures can be the most devastating that a consumer could face.
Auto insurance is required by law in the state of Washington. This mandate ensures that most drivers on the road are insured, but to what extent? The minimum amount of insurance required in Washington is only $25,000 of bodily injury to any one person, and $50,000 for combined injuries to all persons per accident. However, jury awards for medical and rehab bills; wage loss and any settlement for “pain and suffering”, can exceed $1 mil in serious accidents. A verdict of this magnitude renders even $300,000 liability limits obsolete.
The state minimum limit for physical damage to another’s property is only $10,000. Typically, this coverage pays for repairs to the other person’s vehicle. Luxury automobiles and SUVs routinely cost $50,000+; and commercial vehicles and motorhomes can run in the hundreds of thousands of dollars.
Consumers can typically secure up to $500,000 on a “combined single limit” for bodily injury and property damage liability on a personal auto policy. However, if you own your own home; or own a business; or earn an above average wage; or even have the potential to earn an above average wage, even $500,000 could be woefully inadequate in today’s litigious society. Our clients are usually shocked to learn how inexpensive a personal umbrella policy is. This policy adds increments of $1 mil to the liability coverages on your auto, home, etc policies, and in combination, can justify peace of mind while taking on the risk exposures we face from merely starting our car.
II. Injuries to “you and your passengers”
Personal Injury Protection (PIP)
Uninsured/Underinsured Motorist Bodily Injury (UM)
In many states, coverage for “medical payments” is offered. As the name suggests, it pays a small portion of the medical bills that an insured driver and his/her passengers may incur from being in a motor vehicle accident.
In Washington and a few other states, PIP laws have been enacted. This is a broader coverage. It not only pays for a greater amount of medical than most medical payments coverages provide, but also pays for a small amount of wage loss, incurred service needs, and even a small death benefit in the tragic event of a fatal accident.
Given that people can legally drive with such low limits, is reason to carry stronger limits of (UM). UM can do for you as a consumer, what your BI does for the other guy. Coverage is provided for you and your passengers, when you are injured in a not-at-fault accident caused by someone who either has no liability insurance, or limits insufficient to compensate your damages.
For example, you are driving down the road, obeying all traffic laws, when someone suddenly crosses the centerline, hitting you head on. Eventually a jury decides that the sum total of your medical bills, wage loss, and “pain and suffering” total $500,000. Unfortunately, the driver who hit you, only has $100,000 per person, not to exceed $300,000 per accident. If you purchased $500,000 of UM, you would collect $100,000 from the other person’s insurance company, and $400,000 for your company. At that point, your company would begin subrogation proceeding against the other party to recover their payment to you. However, if you only have $100,000 per person and $300,000 per accident of UM, you would only recover the first $100,000 from the other person’s insurance company. By purchasing only $100,000 of UM, you are defining the person who hit you as NOT underinsured, as his liability limits match your UM.
III. Damages to your vehicle
Collision
Comprehensive
Towing
Loss of Use (aka rental reimbursement)
Gap coverage
Collision is the easiest to understand. Coverage is provided when you are in an accident with your car, or should you flip it. The limit is the depreciated value of your car, less any applicable deductible. (The higher the deductible; the lower the premium.)
Comprehensive insures against many other things that can happen to a vehicle other than collision or upset. Examples include: glass repair or replacement; theft; vandalism; collision with an animal; being hit by falling objects; and flood claims.
Towing reimburses towing charges incurred following an accident or mechanical breakdown. Coverage may be written for a specific dollar amount, or for whatever it would cost to be towed to the nearest place where repairs can be made.
Loss of Use offsets the cost of a rental car when your car is in the shop due to a covered comprehensive or collision claim.
Gap coverage protects against a “gap” in value that can exist when a vehicle depreciates faster than the declining pay off balance on the loan or lease.
Other important considerations:
How your vehicle is titled and used makes a difference as well. Vehicles owned by corporations or used to deliver people or goods for a fee are often not covered by a personal auto policy.
Too often auto insurance is sold as
a commodity, with the result being that most consumers are
potentially substantially under-insured.
At EHL we take the time to give you the information
you need to make an informed decision on this
important aspect of your financial/risk management plan
