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Car Insurance Coverage

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The first time I shopped for car insurance I didn’t know much about what I would be buying. I should have taken the time to learn more about the various types of coverage before shopping. As a result of my lack of preparation, I did a poor job comparing rates. I was slightly better armed after I purchased a new car six years ago. By then I knew a little more about car insurance. I worked with AAA to find the best rates offered to me in New Jersey and received rates from a variety of other companies for similar coverage.

Yet I am still not a car insurance expert. A quick conversation with my co-workers reminded me that I should re-evaluate my coverage. I am currently covered for much more than necessary considering the reduced value of my car and the savings I have available. I plan to change my coverage this week.

An easy-to-read guide to the various types of auto insurance coverage would have been helpful when I first received a driver’s license. Here is the information I had familiarized myself with when I first assumed the responsibility of a driver.

Liability coverage

Liability coverage pays other people when you are at fault — the cause of an accident. Liability coverage is usually mandatory. If you do not have liability coverage and you cause an accident (and the other individual involved does not have uninsured motorist coverage) you would be responsible for paying their medical bills and car repair bills out of your own pocket. You could be sued if you don’t have insurance, or enough insurance, to cover the expenses paid by the victim resulting from your accident.

Liability coverage is separated between bodily injury and property. Your bodily injury liability coverage will pay for the other individual’s medical expenses and there are coverage levels per person and per accident. For example, my maximum coverage is currently $50,000 each person and $100,000 each accident. That means I will be liable for any excess expenses above those amounts. Property liability insurance covers repairs. My maximum coverage is currently $50,000 each accident. The insurance industry refers to these numbers in shorthand: 50/100/50.

Collision coverage

Collision coverage pays you or pays directly to a repair shop for damage to your car regardless of which driver is at fault. A deductible must be met first. Currently, my deductible is $500. This is low considering a portion of my Emergency Fund is ready to handle incidents. This type of insurance is not required unless you are financing the vehicle and the bank requires it or you are leasing the vehicle. I will eliminate this coverage when I call to adjust my policy.

Insurance will only cover the actual cash value of your car minus the deductible. Assuming my car is now worth $6,000, insurance will cover at most $5,500 for collision, and I am paying $537 a year for that benefit.

Comprehensive coverage

Comprehensive coverage pays you or pays directly to a repair shop for any damage to your car that occurs at any time other than a collision. If your car is stolen, comprehensive coverage would pay you. We experienced a violent storm the past few days, and trees everywhere were uprooted. I didn’t personally notice any cars damaged by falling trees, only fences, buildings, utility poles, and roads. However, it’s likely quite a few people in the area experienced damage to their card. Comprehensive car insurance coverage would help them.

Like collision, comprehensive coverage is not required unless you have a car loan or a lease. I am currently covered with a $500 deductible. I will most likely raise the deductible on this coverage. I considered eliminating comprehensive coverage, but two issues are steering me towards keeping, First, I do not park in a garage, and while my neighborhood is usually quiet, I can’t control other people or nature. Second, I drive to New York City often and my car has already been broken into once.

Uninsured motorists coverage

Uninsured motorists coverage pays you if damage to your car cannot be reimbursed by the driver at fault because they fail to have adequate insurance. Although liability insurance is required for all legal drivers, not all drivers are operating a vehicle legally. There is some, but not complete, overlap with collision coverage. Uninsured motorists coverage might pay your collision deductible. Uninsured motorists coverage will also pay for bodily injury costs not reimbursed by the other driver’s insurance.

I currently have uninsured motorists coverage at the same levels as my liability coverage, 50/100/50.

Personal injury protection

Personal injury protection (PIP) pays you or a service provider for your medical, hospital, and funeral expenses. They may also pay for other family/household members and pedestrians involved in an accident. It’s a good idea to compare the personal injury protection benefits with those offered by your health insurance. If some of the benefits are duplicated, you may be able to justify lower PIP coverage.

If you drive passengers often, consider increasing your PIP coverage. I almost always drive alone, and I’m considering dropping PIP from my policy. Currently, I am covered for a maximum of $250,000 after a deductible of $250.

Other coverage

When my car was being repaired after the break-in I mentioned above, the rental car coverage was helpful. My insurance policy offers reimbursement for transportation expenses up to $30 per day or $900 per accident. This coverage costs me $35 a year. I will likely keep this insurance because its cost is low and I currently have no other convenient means of transportation.

Gap insurance usually is not associated directly with the other aspects of car insurance. It provides one specific benefit. For a driver whose vehicle is leased or finances, gap insurance will pay the driver the difference between the actual cash value of the car minus a deductible and the remaining balance due on the loan or lease.

For example, if you are upside-down, owing $20,000 on a car whose value is only $15,000, and the vehicle is totaled in an accident, your collision insurance will only cover $15,000. Without gap insurance, you would still need to pay what you owe without a car to show for it, and you’ll usually need to buy a new car as well. The gap insurance would cover the $5,000 difference.

Later this week, I’ll reduce my insurance coverage with my provider, Liberty Mutual, and soon after begin shopping around for better rates.

Photo: iboy_daniel, Eduardo Deboni, L. Marie, jeffwilcox, visualpanic, adrian8_8

Updated February 17, 2012 and originally published March 15, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar Anthony

Here are some additional comments and things to think about:

1. Uninsured motorists coverage: You have liability insurance to protect (or partially) protect yourself when you’re at fault and if you’re sued. Conversely, I declined “uninsured motorists coverage” because I could always exercise my right to sue. Besides, it’s illegal to drive uninsured. I hate to put it in these terms, but I will take my chances on this. IF I get in a car accident, IF it’s the other driver’s fault, IF they are uninsured, IF they aren’t FORCED to pay out-of-pocket for the accident, and IF I can’t settle with a lawsuit, then yeah, maybe uninsured motorists coverage is a good thing.

2. Personal injury protection: Keep in mind that some medical expenses can be handled through your medical insurance. I also declined this.

3. Flexo mentioned this: If you have a sizeable emergency fund (parts of it for car-related emergencies), then going with a higher deductible is a smart move.

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avatar RJ Weiss

I know insurance is different in each state, so I’m not sure if this is universal or not, but in Illinois there is both uninsured motorists and under insured motorist coverage. Referred to on your policy as UI/UIM.

Uninsured covers you in case the other driver has no insurance. Under insured mortorist covers you in case the other driver doesn’t have adequate coverage. It’s rare to have one without the other, but some of the cheaper policies skimp on one.

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avatar RJ Weiss

@ Anthony – You’re correct, you can always sue. However, if the other driver doesn’t have any assets, (very likely since he can’t afford insurance) what are you going to sue him for? Plus, isn’t easier and cheaper to just pay the deductible instead of going through court?

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avatar steveDH

I might recommend connecting with the Hartford through AARP…. oh wait – that’s just for us old folks ;-) Sorry. I would recommend both uninsured and under-insured if the cost is acceptable. Liability insurance should also be sufficient to cover any and all non-deferred assets, although some states protect your home as well. Those lawyers are good and getting at your “stuff”. As an aside, I lived in Germany for over six years and if you had an accident that was YOUR fault, but the other guy wasn’t wearing a seatbelt, you would only have to pay 50% of the medical cost. Loads more effective than a $5 ticket.

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avatar Luke Landes ♦127,495 (Platinum)

As a follow-up, I called today and canceled collision insurance. That should save around $500 per year.

Anthony & RJWeiss: Thanks for the additional thoughts surrounding uninsured and underinsured motorists. At the moment, I’m siding a bit with RJ. Although a lawsuit is an option in the rare event an at-fault driver isn’t covered, it’s expensive and timely, and unlikely to yield much.

steveDH: I’m wondering if I should increase my liability coverage.

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avatar Scott Swanson

PIP is by far the best deal in insurance which is why a lot of sales people will try to get a customer to decline. The reason it’s so cheap is that it’s mandated by the states. If you are in an accident it is gold and it costs so little, I wouldn’t cut it out.

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avatar Holly

There are many situations that may warrant the use of any of these protections, which is why it’s important to think it through carefully before cancelling. What may save you a few hundred dollars could end up costing a heap.

Last year I raised my deductible to $1000 on my 2002 minivan. No problem w/that and it saved me about $400/nnually. I had also considered cancelling comprehensive, but decided to keep it. Good thing I did since 5 mos. later I hit an enormous deer only 5 miles from my house; without comprehensive, I would’ve been out $6300.00 (which is what the ins. co. decided my van was worth after the $1000 deductible — it was totalled).

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avatar Mark

Uninsured motorists coverage pays you if damage to your car cannot be reimbursed by the driver at fault because they fail to have adequate insurance. NOT true.

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avatar Jane

Flexo, you may want to up your liability. Like all things in life the more assets you have the “harder” someone is going to came after you if you are at fault. When I last adjusted my coverage I upped my Liability to 1million and the difference was not that much more I don’t know what it was before, and I am in a lower insurance area than Jersey but I’m happy paying $150 a year for it. I also dropped both my comprehensive and collision figuring the $4,000 they’d give me for the car wasn’t worth it. My insurance company, USAA requires you to keep uninsured motorists coverage and like RJ said if they are “gaming” the system by dropping their insurance or say if they stole the car you can sue them, and you can get a settlement but don’t expect to ever see any money.

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avatar Jude

Hi all,
I have been struggling on find answers to the below questions about GAP- mostly historical… Can anyone offer any factual information on these please? Or direct me to where I will be able to find out the answers?

•What would GAP (insurance) cover have typically cost in 2003? (For a new car- average price at that time in the UK)
•In 2000, would this have been any different?
•What were the cheapest and most expensive insurers charging in 2003?
•What would be the maximum price for GAP that you are aware of currently?
•What was the average price for a new car in the UK in 2000 and 2003?

Many thanks

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