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
Over the next several weeks, we’ll examine each of these sections and talk about limits, what you have to have and ways to maximize your savings without exposing you financially.
Liability coverage is the minimum coverage required by the state of Texas. This coverage protects,
- The person you hit with two types of coverage
- Medical coverage
- Property damage
- These two types of coverage are referred to as BIPD or bodily injury / property damage
Two types of limits: BIPD is purchased in either split limits or combined single 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 (think in terms of the other car)
- 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
- Combined single limits are represented as 1 number such as $250,000, or $500,000
- In the case of combined single limits, the total number is the amount that will be applied toward any medical and property damage
- It’s more flexible than split limits
- Most people who buy this type of coverage purchase higher limits such as $250,000 and $500,000
How much coverage do you need? Texas at the very least requires all car owners to carry liability coverage. The limits of liability for split limits are;
My rules of thumb when discussing car insurance coverage with a prospective client are;
- Unless you can afford nothing else, 30/60/25 is not enough coverage. What does a new Honda Accord, Toyota Camry, Ford Taurus or Chevy Impala cost, let alone a trip to the emergency room?
- The minimum I recommend is 50/100/50 and the cost difference is typically less than $10 a month for this level of coverage than the minimal amount.
- If you’ve bought your first home or have a combined household income greater than $50,000 I typically recommend 100/300/100. This is because you’re beginning to accumulate assets (property, contents, and investments) and you need to protect yourself financially in the event of a lawsuit.
- When the household income is $100,000 or higher, I recommend 250/500/100 and an umbrella.
- Own a business or have a job description of lawyer, physician, dentist, etc., then we typically recommend 500/500/100 with an umbrella policy.
- If you’re buying a new car or financing a previously owned car, you’ll need what is referred to as full coverage (we’ll dedicate a full post to explaining that). You may also be required to carry 50/100/50 or 100/300/100.
Have a question about your coverage? Share it with us in the comments section or on our Facebook page. Next week we’ll look at uninsured and underinsured motorist coverage.