A personal auto policy is designed for individuals and families who own private passenger autos. The policy can be amended to cover individuals (a husband or wife) who do not own an auto, but have an exposure while operating or using autos. It can also be extended to cover individuals who own other types of land motor vehicles, such as motorcycles, motor scooters and other recreational vehicles.
Liability coverage is the primary - and usually mandatory - part of the auto insurance equation. Liability means what the word implies: it saves your bank balance when you're liable for damaging someone else's car or injuring someone. Liability is usually quoted as a three-part number like "100/300/50." Respectively, that means for any one incident, you're covered for $100,000 in bodily injury per person, $300,000 in bodily injury total, and $50,000 in property damage. 100/300/50 happens to be the minimum coverage recommended by the industry. And while we all know how much to trust them, the numbers aren't such a bad idea for a typical person with a healthy supply of assets to lose. Without adequate coverage, one at-fault collision with a five-passenger BMW could mean kissing your beachfront mansion goodbye.
The other key insurance types are collision and comprehensive. While they have nothing to do with each other, they're often referred to collectively because they share two significant traits: they're expensive and they're usually optional.
Let's start with collision, which is not to be confused with liability. Liability pays the bills for damage you cause to the other party; collision covers damage done to your own car. If someone else damages your vehicle, his liability pays for repairs (assuming he doesn't hit and run), so if you can follow the aforementioned tip of not crashing, you generally shouldn't need collision. In simplified terms, buying collision insurance can be thought of paying someone to save you from yourself. The safer you drive, the less necessary it becomes.
Comprehensive coverage protects against any unforeseen disaster that doesn't relate to crashing, i.e. theft, vandalism, fire, ice, earthquakes, falling trees, volcanic eruptions, etc. Comprehensive coverage protects your investment in your vehicle by paying for losses resulting from fire, theft, falling objects, riots, storms, earthquakes, floods, collision with a bird or animal and other natural occurrences. Like collision coverage, comprehensive coverage generally includes a deductible. Comprehensive coverage is normally required if your vehicle is leased or if you have an outstanding loan on the vehicle.
The thing about both collision and comprehensive insurance is that when your car's value drops below a certain amount, neither coverage is worth owning. Consumer Reports recommends that when the cost of either premium amounts to 10% of your car's value, drop it. 10% is as good a number as any, but if you want to come up with your own magic mark, just ask yourself this unanswerable question: what is the likelihood that my car will get hit/stolen/destroyed/etc.? Collision and comprehensive are optional except in the case of new leased or financed cars you don't own. Understandably, no lessor or lender wants your problems to become his problems.
You can get an idea of the maximum you'd ever get for your car by turning to the big blue book to determine actual cash value. Actual cash value isn't the same as the replacement cost, which for some cars (ones with rare or expensive parts), might be a lot more.
The bottom line is that together, collision and comprehensive amount to a large portion of your total insurance. Dropping them can cut your bill to less than half. If you can't justify dropping them entirely, then at least keep your deductibles (the portion you pay in any claim) high. Diminishing returns comes into play, however: jumping from a $250 deductible to $500 saves a lot, jumping from $500 to $1,000 saves less, etc.
Uninsured/underinsured motorist coverage is required by most states. Uninsured motorist coverage protects you, members of your household and your passengers in an accident with a motorist who has no insurance or is underinsured. Uninsured motorist protection also covers you if you're injured by a hit-and-run driver. The coverage also applies to you and the members of your household as pedestrians. Coverage includes payment of medical costs, lost wages and pain and suffering. Again, it is required in many states. In some states or insurance policies, underinsured motorist protection is separate from uninsured motorist coverage.It is always a good idea to have this insurance coverage because approximately 17% of drivers on the road don't have any insurance, and a lot of the rest probably skimp by with the sometimes-inadequate state minimums.
Personal Injury Protection (PIP) or Medical Payments (MedPay) provides reimbursement for your and your passengers' medical bills and, in some cases, the resulting lost wages regardless of who's at fault. PIP coverage pays a broader range of medical costs than does MedPay coverage. PIP covers lost wages and the replacement of the services of someone injured in an accident. This is an option — one that those with good health insurance plans might not need to exercise.
Medical Payments coverage pays medical bills and funeral expenses for you or a passenger injured while riding in your vehicle. Coverage extends to you or a family member when riding as a passenger in someone else's vehicle or when struck by a vehicle when on foot. Costs are covered up to the amount specified by the policy.
Bodily Injury coverage pays for any person(s) injured or killed in an accident when you are at fault. Coverage includes medical expenses and lost wages. The extent of the coverage is subject to the limits and conditions of your policy.
In a collision where you are at fault, Property Damage insurance covers your liability for damaging another person's personal property, such as an automobile, house or fence.
An option for drivers of leased or financed cars is GAP insurance, which covers the difference between what the car is actually worth and what you owe. This might be an attractive proposition for a car with heavy depreciation, which is a symptom suffered by young cars in general. A $20,000 car might drop to $12,000 in market value after a year. If you total the car at that point, $12,000 is all you'll get from your insurance company, yet you're still obligated to the $16,000 in payments that still remains. Obviously, $4,000 is one gap you'll want closed.
We can help explain all of this in detail and customize it for your specific needs. Give Los Gatos Insurance Center a call today.