I talked with a prospective client last week. She’s rolling off her parent’s car insurance policy and having to buy her first car insurance policy. She’s a little nervous about the car insurance being added to her overall budget but is ready financially and can handle it.
I emailed her the car insurance quote and called to review them with her. She’s never had anyone explain car insurance to her so I outlined each section of a car insurance policy to her and explained what the coverage does and why I included it.
Texas car insurance policies have at least 7 parts to them.
- Liability coverage
- Uninsured / underinsured motorist coverage
- Comprehensive or other than collision coverage
- Collision coverage
- Medical or personal injury protection (PIP) coverage
- Towing & roadside assistance
- Other options
Liability Coverage: Liability coverage is what protects you financially when you hit someone and are at fault. It’s designed to pay for medical care if someone in the other car is injured from the collision, as well as to repair their car, provided it’s not totaled. These two types of coverage are referred to as BIPD or bodily injury / property damage.
Most people purchase BIPD in what is referred to as “split limits”.
- Split limits are represented with 3 numbers such as 50/100/50, 100/300/100, etc.
- The first number is the amount of medical coverage provided for any one person that’s injured in the car you hit
- If there’s more than one person, then the second number is the total amount that will be paid if more than one person requires medical attention, but no one receives a greater amount of medical coverage than the first number
- The third number is the amount of property damage coverage that will be paid
Liability coverage can be purchased as a combined single limit which is represented as a single number such as $250,000, or $500,000. This single number represents the total amount of coverage available on the policy and it can be used pay for injuries and property damage in whatever way needed.
Uninsured / Underinsured Motorist: This coverage is designed to protect you in the event the person that hits you either does not have car insurance or enough car insurance to pay for medical care and property damage to your vehicle. The only caveat is they have to be determined at fault. Given the number of uninsured motorists in the Dallas / Fort Worth area, I usually recommend it. This can be purchased in either split or combined single limits as outlined in the liability examples above.
Comprehensive: This is one of two deductibles in a car insurance policy. It pays for claims that typically aren’t related to an accident such as a tree limb falls on the car, a car fire, it’s caught in a flood, hail damage, and even when a rock hits the windshield. The one collision comprehensive coverage applies to is when an animal, such as a deer, is hit and damages the car.
Collision: The second deductible is collision which covers repairs to your car when an accident occurs, usually an at fault accident where you hit someone. Having collision coverage is typically referred to as “full” coverage. Deductibles for collision and comprehensive range from a low of $100 or so to as high as $2,000. Low deductibles increase your car insurance premium while higher deductibles decrease what you’ll pay for car insurance.
Medical / Personal Injury Protection: There are two types of medical coverage. Medical coverage or “med pay” goes strictly toward medical expenses you may incur as a result of an accident. Personal injury protection can be used for medical expenses or to replace lost wages, or to pay for services such as cutting the grass if you’re unable to as a result of an accident. Due to its flexibility, I usually recommend PIP.
Towing / Roadside Assistance: If you’ve ever needed a tow, locked your keys in your car, run out of gas, or needed help changing a flat tire, you’ll appreciate both of these options. They can be real handy if ever needed. Towing is typically sold on either a mileage basis or a dollar value for the two (25 or 100 miles, $75 or $100 for example).
Other Options: There are a number of options available on most car insurance policies including: GAP coverage, new car replacement, original equipment parts coverage, and more. What you pick, or not, is entirely up to you.
Have a question about your coverage? Share it with us in the comments section or on our Facebook or Google + pages. I’d love to hear from you!