Car insurance is mandatory (unless you’re rich enough to insure yourself – but that’s not likely) and for good reason. It not only helps you cover repairs when your vehicle is damaged in an accident, but more importantly, it’s there to protect you whenever you are legally liable for damage done to other property or persons.
But do you really understand what your insurance coverages mean? I worked in an auto insurance claims center for nearly two years as a licensed claims adjuster, and from my experience, the most prominent issue with angry customers (and there were a lot of them) was simply not understanding auto insurance, or misunderstanding their insurance coverages.
All of my coworkers and I agreed that a LOT of the anger and hostility customers had for insurance and accidents could have been prevented if they had just learned what insurance was and how it applied. Seriously! Your insurance company is there specifically to help you through these trying situations, and yet many insured persons treat their insurance provider with contempt.
Accidents are already stressful enough, but combine that with ignorance about insurance and never reading your coverage contract, and it’s no wonder so many customers end up yelling at their adjusters and thinking auto insurers are out to get them! (Oh, the stories I could share… *sigh* but I won’t.)
Educate yourself, mama!
And do it before an accident happens. Don’t learn the hard way after you’ve already been in an accident and discover – surprise! – you never added collision coverage for your vehicle. Or you added it, but with a $2500 deductible you can’t afford. Or you did have collision, but never added rental coverage, and are now on the hook for 2 weeks worth of rental car charges. Woops!
PS: The term “full coverage” isn’t a real thing. Coverages are extremely customizable, and “full coverage” means different things to different people. So wipe that term out of your vocabulary!
Each and every state has different requirements and minimums for coverage. They also have different rules as to what coverages can be added, and what medical coverages are or are not available.
So today, we’re going to speak in a general sense about the different possible coverages and what they generally mean.
If you’re looking for more specific explanations, speak directly to your actual insurance company. Try asking hypothetical questions about different possible scenarios to see how they would handle such a situation. When it comes to coverage, they can usually answer. Some things, however, they simply don’t have the answer to. Liability decisions are case by case, and total loss value of a vehicle isn’t usually calculated unless the vehicle is actually totaled. And no, they can’t give you a ballpark.
Different Strokes for Different Folks
Each insurance company writes their contracts a little differently, so first and foremost – READ YOUR CONTRACT. Don’t give me that excuse “well I bought it all online and I didn’t see any contract”. Here’s some tough love mama: you’re an adult, and you need to take control in this case. Either find the contract and look over it online, or print it out and peruse it, or call up the insurance company to 1. Have them send you a copy, or 2. Have them go over it all with you over the phone.
Now I realize your auto insurance contract is going to have a loooot of information you either don’t have time to read, or don’t care enough to. So the most important sections to look out for are going to be the definitions section, and the exclusions section. These will tell you exactly how insurance terms are defined in your contract, and will show you if anything in particular is excluded from coverage.
Some other things I would suggest you keep an eye out for:
- Does your coverage extend to anyone who drives your vehicle with your permission? (This is usually the case.)
- Does the coverage extend to you if you are a passenger in anyone else’s vehicle? (Like in injury situations.)
- Are there any excluded drivers on your policy? (If they drive your car and get into an accident, repairs aren’t covered.)
While there are extra addendums for things like boats, RVs, and trailers, we aren’t covering that today. I’m here to explain general coverages for general vehicles like cars, trucks, and SUVs. Now let’s get started!
I want to reiterate here that these descriptions below are only general explanations. We won’t dive into actual liability decisions or anything too specific, so if you have any questions after reading this – don’t be afraid to call your insurance company! You’re literally paying them to help you, so have them help you understand anything that isn’t quite clear, especially when it comes to your insurance coverages.
I also want to make sure you know – whatever policy insures the actual vehicle applies first (usually the owner’s policy) and the driver’s policy, if different, applies second. So if you let your best friend drive your vehicle and she gets into an accident, your insurance will still apply first. (Unless, for whatever reason, you excluded her as a driver and now your insurance is refusing to pay up.) Your best friend’s insurance will be secondary, and apply only if needed.
What Applies for Other Vehicles, Property, and Persons
(Third Party or “Liability” Coverages)
Liability – Property Damage
Property Damage (PD) coverage applies to any vehicle or property owned by another person that was damaged due to you and/or your vehicle’s actions. If you are legally liable for an accident, this coverage will kick in for the property you damaged. It does not apply to your vehicle.
One thing to keep in mind when selecting the level of PD coverage, is your lifestyle. How expensive of property do you live, drive, and work around? If you’re in the rich downtown area more often than not where the standard car is $50,000+, the minimum coverage of $25,000 (in Texas) may not be enough for you.
Side note: If you crash into any of your own property, say, your house, or another one of your cars – that’s not considered “third party” property. You cannot be “legally liable” for your own property, so it wouldn’t be covered under your auto coverages.
Liability – Bodily Injury
If your vehicle is at fault, and one of your passengers or persons in the other vehicle are injured, you may be legally liable for those injuries. That’s when BI may kick in! Bodily Injury coverage an apply to any persons not responsible for the loss (the accident) that were injured, depending on your contract. In most states, this includes anyone in the other vehicle and any of your passengers. However, sometimes contracts exclude relatives who live with you.
Bodily injury coverages can be quite complex, and depend heavily on state requirements and exclusions – so read your contract or ask your insurance company if you have any specific questions.
What Applies for Your Vehicle and Persons
(First Party Coverage)
Before we get into the “first party coverages” (what applies for you and yours), let’s address deductibles. Most first party coverages have deductibles (Collision, Comprehensive, and Uninsured Motorist). They’re the amount you are willing to pay in order to get your car fixed after an accident. Your insurance company agrees to pay whatever goes over that number, for repairs. So generally, the higher your deductible, the lower your insurance premiums – because you’re telling the insurance company they won’t have to pay so much if your vehicle is damaged!
A lot of people think car insurance is similar to health insurance – it’s not. Deductibles, when it comes to auto insurance, apply per incident. Meaning, if you set your deductible to the outrageous $2500 or even $5000 – that’s how much you’d have to pay toward your repairs before your insurance pays anything else towards said repairs.
Side note: If your insurance coverage doesn’t kick in (meaning insurance doesn’t pay anything to repair your vehicle) they won’t be able to bill the other insurance company for it either, even if they’re at fault.
So maaaaybe rethink your high deductible and set it to something a little more manageable? Just in case (God forbid) you’d actually have to use that insurance one day?
Damage to Your Property
Collision coverage applies whenever your vehicle “collides” with something else. This includes other vehicles, rocks or boulders, trees, or that piece of wood that fell off a truck and landed in the middle of the road, etc. It doesn’t matter whether you were “at fault” or “not at fault” for the accident, collision coverage applies for your vehicle and yours alone.
A lot of people choose not to elect collision coverage saying that they don’t get in any “at-fault” accidents, so they don’t need it. However, you also have to consider the possibility of hit and runs, or your vehicle being hit while parked. If your state doesn’t offer Uninsured Motorist, Collision is what would apply. Or, if your vehicle hits something lying in the middle of the road, Collision would apply in that situation, too.
Comprehensive coverage covers “acts of nature”. This includes hail or weather damage, fire, theft, vandalism, water damage, lightning strikes, or falling objects. Basically, acts of God you have no control over, and the acts of criminals. Strangely enough, colliding with an animal is also considered an act of nature. It makes sense, though, because an animal is nature (ha) and there’s no telling what an animal will do around a road.
Keep in mind, we’re still talking about damage to your property, here. When it comes to vandalism, if someone breaks into your car and steals a bunch of valuables, it’s going to depend entirely on your contract and state requirements if any of those personal effects are covered, and to what extent. Either read your contract under “personal effects” or call your insurance company and ask about your state and contract coverage in these situations.
Rental reimbursement coverage, or rental coverage, is separate from Collision or Comprehensive coverages, but can apply if and when you use Comp or Collision. (You cannot use it by itself just because.) Many people don’t realize this – so make a note! If you want a rental car to get around in when you have to use your coverages and get your vehicle repaired, be sure to elect this.
Another thing you may not realize is that you get to decide what level of rental you’re insured for. Meaning, you can choose economy size, standard, truck, SUV, etc. So if you’re driving around in a 7 passenger SUV, for your own sake, be sure your rental coverage covers a comparable vehicle. Don’t get stuck in a dinky economy sized car!
Uninsured or Underinsured Motorist
Uninsured and underinsured are two different things. “Uninsured” applies when the other party (who was at-fault for the accident) didn’t have valid insurance coverage at the time of the accident, or fled the scene of the accident and no one knows who did it. “Underinsured” applies if the at-fault party doesn’t have adequate coverage for everything they damaged.
Every state handles these coverages differently (some states don’t offer them at all). It’s the state that usually sets the standard deductible for UMPD (Uninsured Motorist Property Damage). In Texas, it’s $250 per incident. And in most cases, a police report is required. Even if the other party isn’t there, or even if you’re no longer at the scene, you can still file a crash report! Contact your local police station to learn how.
Underinsured Motorist Property Damage (UIM) kicks in when the other, at-fault party doesn’t have enough coverage to cover a loss. For example, if your drunk neighbor comes flying through the neighborhood and hits 3 cars and 2 houses, they may have caused a lot more damage than they’re insured for. If that irresponsible neighbor only has the Texas minimum of $25,000 in PD, but damages total over $100,000, let’s hope you kept the Underinsured Motorist coverage for Property Damage.
Damage to Your Person(s)
Uninsured or Underinsured Motorist Bodily Injury
Take the same scenario from above, and imagine you were sitting in the first vehicle that drunk neighbor hit. Perhaps firemen extracted you, and you were care-flighted to the nearest hospital where you needed MRIs and CT Scans. Your medical bills would probably be totally outrageous. Thankfully, that’s when UIM (Underinsured Motorist) Bodily Injury coverage kicks in.
Of course, UMBI (Uninsured Motorist Bodily Injury) applies in a similar fashion. It kicks in whenever someone hits you and flees the scene, or didn’t have valid insurance when they hit you, and you’re injured because of it.
Remember – these coverages only apply when you are not at fault.
Personal Injury Protection (PIP) or Med Pay
Personal Injury Protection or Med Pay coverages would cover you and your passengers if any of you were injured in an accident, no matter who is at-fault.
However, these coverages vary greatly depending on your state and your contract. The only way for you to know if it’s offered in your state, or to be sure how it works and what’s covered, is to contact your insurance company directly.
Some states require it, some don’t offer it at all. In Texas, both PIP and Med Pay are offered, and to opt out, you have to sign a document specifically saying you declined the coverage. If you aren’t sure whether you have this coverage, contact your insurance company to find out.
Emergency Roadside Service (ERS)
Emergency Roadside Service, or Roadside Assistance, is an additional coverage many insurance companies offer for situations where other coverages wouldn’t apply. A flat tire, for example. Or when your vehicle breaks down and needs a tow. Be sure to ask lots of questions when learning what your Roadside Assistance covers.
Mechanical Breakdown Insurance
I’m not sure how many insurance companies offer Mechanical Breakdown Insurance (MBI) but they did offer it through the insurance company I worked for. It’s basically like an extended warranty on a new vehicle. There was an entirely different department that handled MBI claims, so I don’t know as much about it. However, I do know that it applies once a vehicle’s original warranty runs out. And supposedly, adding MBI is much cheaper than purchasing an extended warranty from a dealer.
Have you ever heard of Gap insurance? I bet you have when you bought your car. It’s actually offered by dealers any time you lease or finance a vehicle. Gap insurance protects you when you owe more than your car is worth. If you get in an accident and your vehicle is a total loss (meaning it would cost too much to repair, so the insurance company only owes you the actual cash value) Gap insurance kicks in to pay off anything leftover after insurance sends the money they owe toward your car loan.
It can be a huge lifesaver in a scary situation.
Does it all make more sense, now?
Hopefully these explanations of different coverages and what they mean help you to understand your auto insurance better! When it comes to car accidents, ignorance is not bliss. Educate yourself on the differences between Property Damage coverage, Collision coverage, Uninsured Motorist coverage, and everything in between. That way, if (God forbid) you do end up in a car accident, you’re already well-informed and understand that everything will be okay.
Car insurance is there to help you through unfortunate and unexpected mishaps. Don’t let a simple misunderstanding of your insurance coverages put you and your loved ones in a bind.
Good luck, mama! And have fun adulting!
(Check out other grown-up topics in our Adulting Series.)