No matter if you are buying your first car insurance policy or you’ve been doing it for decades, it’s good to know the different parts of your car insurance policy and some basic terminology. I don’t expect you to be an expert, but I you understand a few basic concepts you’ll be well informed and able to make good decisions for you and your family or organization.
Car insurance has three main coverage parts: other people, you and your passengers, and your vehicles. I’m laying it out this way because people throw around the terms “liability only” and “full coverage” a lot. These often mean different things to different people. Truthfully, it’s a sliding scale from very basic to extremely broad.
Let’s dive in.
Part 1 – Liability Coverage – Other People/Property
This is what the State of Texas says you must have to legally drive a vehicle on a public road. It covers damage or injuries that you cause to other vehicles or people.
You own a vehicle that weighs somewhere between 2 and 4 tons and has the capability of traveling at high rates of speed. Such a large piece of equipment moving at even low speeds has the potential to do a large amount of damage if not controlled properly. As the owner of that vehicle, it’s your responsibility to make sure it does not cause damage to anyone or anything else. But the fact is we’re humans and we’re less than perfect and carry the potential to have momentary lapses of attention or judgement. We try to do the best we can. Some of us are more experienced or proficient than others, but the potential is still there. So, when someone has that momentary lapse of attention or mistakenly misjudges a situation on the road, causing physical and/or bodily injury, they are financially responsible for making that other person whole – you break it, you buy it.
The costs to fix injuries to people and damage to other vehicles can add up quickly. Liability insurance steps in and does two things. First, it covers those costs for you – up to your policy limits. Second, if you are being sued for the injuries or damage, the insurance company stands in to defend you but doesn’t charge you for the cost of the defense.
It’s generally sold in what is called “split limits.” That means it will cover up to a particular amount of injury costs per person, with a higher limit for all people you injured, then a specific limit for damage caused to property (cars, signs, buildings, whatever you run into). (Some personal and commercial policies have a single limit for everything.) For example, if you purchase limits of 100/300/100, your policy will cover up to $100,000 for injuries to any single person. If you injure multiple people, it would cover up to $300,000 for all people, but still no more than $100,000 for any individual, this could include your passengers. As for property damage, no matter how many cars you cause to pile up, your policy will only pay up to $100,000 to fix all of them. This does not cover your injuries or damage to your vehicle.
So if you call your insurance agent and ask for “liability only,” this is what you are getting. No coverage for injuries to you or damage to your vehicle.
Part 2 – Medical / Personal Injury, Uninsured Motorist Bodily Injury
When car accidents happen, people can be injured. The costs to cover those injuries could come from a number of different sources. It may or may not depend on who was at fault.
In part 1, we talked about how liability covers other people if you are at fault. In part 2, we have three different coverages that come into play in different ways and are triggered differently.
Let’s start with Medical Payments coverage. This is very straight forward. It does not matter who causes the accident. If you are injured in an accident and you have this coverage, you can claim against it. The amount of coverage here is typically fairly low – generally a few thousand dollars.
Personal Injury Protection (PIP) coverage is next. Most companies do not allow you to carry both Medical and PIP, because PIP works the same way as Medical, with one additional factor. It also has a lost wages component. So, if you’re out of work and lose pay for a period of time, you can claim that against your PIP coverage. The amount of coverage here is typically between $2,500 and $10,000. The State of Texas requires that if you do not purchase this coverage, that you sign a waiver stating you reject it. Always understand what you are signing. If it’s not clear, ask.
The last portion of this is Uninsured Motorist – Bodily Injury (UMBI) Coverage. To trigger this coverage, one of a few things must happen. Either you are injured in a car accident by someone who is not carrying any liability coverage, or you are injured by someone who does not have enough liability coverage. The first one is pretty straightforward. They hit you and send you to the hospital. They don’t have insurance. If you have this coverage, you can claim against it. If they have coverage, but it gets maxed out due to low limits or injuring many people, this gets a little messy. Their liability coverage will pay out until it hits either the individual limit or the group limit. If you still have more uncovered costs, you then go to your policy which will take over from there. Many times, a person’s health or medical insurance will get involved. If this is the case, they will coordinate with the liability coverage and the UMBI coverage until both of these are completely exhausted, at which point the medical insurance would kick in. It’s sold in limits just like liability coverage – usually split limits.
Part 3 – Your Vehicle
There are several parts to this coverage and two of them are the basis for the most basic formation of “full coverage.”
We’ll start with Comprehensive (aka Other Than Collision) Coverage. This covers your vehicle if it is stolen or physically damaged from something other than a collision. Things that can be covered here could be theft, vandalism, falling or flying objects, fire, flood, collision with animals, hail, etc. There’s usually a deductible associated with this, meaning you cover the first portion of damage, then the insurance company covers above and beyond that.
Once you have Comprehensive, then you can add Collision Coverage. This is pretty specific, meaning your vehicle collides with something else. This is typically another car, but it could also be trees, houses, curbs, fire hydrants and parking blocks. People run into all kinds of things. One thing to note here is that a collision with an animal or a flying object would not by covered here. Those would be covered by your Comprehensive coverage. Also important here is that this will cover your vehicle regardless of who is at fault. You can have your collision insurance cover damage to your car, even if the other person was at fault and has liability insurance. In this case, you’ll be responsible for your deductible and it will go on your loss record as a not-at-fault accident, but you can do it. It will take a little time, but you’ll probably get your deductible refunded through a process called subrogation where your insurance company claims against the other person’s policy and recovers your deductible and their cost to repair your vehicle.
If you purchase liability, comprehensive and collision coverages, you have the most basic form of “full coverage” you can buy. To go beyond this, you can add Uninsured Motorist Property Damage (UMPD), Rental Reimbursement and Roadside coverages.
Uninsured Motorist Property Damage Coverage is very much like UMBI in part two but applies to damage to your car. It comes into play either if your car is damaged by another driver who doesn’t have insurance or doesn’t have enough for the damage they cause. This acts like the other person’s liability coverage, so it would fix your car and provide a rental if needed. You may be wondering why you would carry this if you also have collision coverage. First, it probably has a lower deductible. The deductible here is $250 – always – and most people carry higher deductibles on their collision. Second, you must buy this to get the UMBI coverage in part 2.
Rental Reimbursement is the next optional coverage. It gets triggered only if your comprehensive or collision coverage is paying to repair your car. It will cover a set amount per day, usually $30 – $75 per day, up to 30 days. It’s one of those coverages you may never use, but will make your claims experience much more pleasant. Rental car costs can add up quickly and combined with your deductible can be costly.
The final optional coverage is Roadside Coverage. Most people use this for towing a vehicle that has broken down, but can also be used to get a jump start, cover a locksmith if you lock your keys inside your car, pay the delivery fee for gas if you run out, or change a flat tire on the side of the road. Different companies work this differently. Some have a maximum per event. Others have a mileage range they will pay for. It’s pretty cheap and it’s handy to have.
I put all of this out here so that you can be educated on your options. Insurance prices are rising. Knowing what you are buying could prevent you from overpaying because you bought something you didn’t really want or need. Many people go into the buying process blind and just buy what the agent shows them without understanding what they are getting. This could be expensive if you buy something you don’t need. Or it could be even more expensive if you don’t buy something that you do need.
You don’t need to be an expert, but having a basic understanding of the different parts of the coverage makes you an informed buyer.
If you’ve read this far and want to get a quote from me, follow this link to the home page, scroll down to the “hassle-free insurance quote” section and click the picture. We’ll be glad to help you compare.