In March, I wrote about reducing the amount of automation in handling personal finances. Leaving your payments on auto-pilot is asking for trouble. Leaving your brain out of the decision-making process is a sure way to rack up overdraft fees when you don’t have enough funding to pay an automatic bill.

Also in March, I canceled collision coverage on my auto insurance. With a hefty emergency fund and a car that is no longer valued beyond $10,000, this is something I should have done a long time ago. My car insurance is deducted from my checking account every month, so I had not been focusing on this particular expense.

At this time, however, I decided to write an article about car insurance and that forced me to examine my own. I saw I was paying for unnecessary collision coverage, so I canceled it. The process was simple. I logged into my insurance company’s website, found the customer service phone number, and canceled the extra coverage within minutes. It was a surprisingly easy process.

I later received confirmation in the mail. My coverage was adjusted as promised.

Yesterday I received my renewal documentation in the mail, and somehow, collision coverage was back on my plan, and my total premium was higher than ever. Not knowing whether this was an error in the paperwork, I called customer service. Somehow, collision coverage was included in my renewal. The customer service representative suggested that by the time I removed collision coverage in March, and even though my renewal date wasn’t for another three months, my renewal paperwork had already been processed.

He was happy to remove collision coverage from the renewal and I should receive new paperwork in seven to ten days.

If my finances were fully automated, I might not have opened my renewal documentation and would have instead filed it away with the rest of my documentation. I knew that I had made a change recently, and when I received the mailing, I wanted to verify I the company renewed the plan as expected. I was surprised to find it did not, but glad I checked.

By the way, my insurance company, Liberty Mutual, is not a public company; I’m a customer and a stakeholder. Interestingly the company announced just yesterday that its property and casualty insurance subsidiary has filed for an initial public offering to access an influx of capital.

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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

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If you’ve been following along, you may know that I was in a minor car accident over the weekend. I visited an auto body shop that my insurance company deals with directly. The damage to the doors and fender will cost at least $2,500 to fix, $500 of which is my deductible. They will need to work on my car for a week, so I’ll need a temporary replacement. Liberty Mutual, my insurance company, offers reimbursement/payment for a rental car up to $30/day.

Assuming 7 days of using the rental car, Liberty Mutual will be covering at least $2,210. The $500 I have to pay is not a problem, I save extra in my “Car Fund” at ING Direct to cover such semi-emergencies. If I had to pay the full amount, I’d have to dip into my true “Emergency Fund,” which is something I’d rather not do.

A few years ago, this accident would have had me in a terrible position, not able to afford the deductible. Thankfully, I started getting myself financially in gear in 2002.

Elsewhere in the blogosphere, Chitown from Windy City Blues was also in a car accident recently, and Jim from Blueprint for Financial Prosperity doesn’t carry collision and comprehensive insurance.

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