Auto Insurance Demystified
Your mother never had to remember a dozen computer log-ins, a home security code, or a food pyramid that changes every time someone comes up with a new way to spell “low carb.” And yet, somehow, she still didn't know an actuary from an adjuster, pro rata from ex gracia. Take a hint from Mom: bookmark this page in case you need it. Then go shopping or to the gym.
Liability Coverage
Robert Blake to the contrary perhaps, you remember "don't do the crime if you can't do the time." With personal liability it's like, "don't be to blame if you can't pay the claim." That is, unless you're insured.
Every civilized state requires that a car owner have some minimum amount of liability insurance. Even the lower responsibility states (liability insurance not mandatory, NH, SC, TN, WI) require some kind of accountability. Texas, as you're aware, requires liability. And if you still owe money on your car (who doesn't?) your lender demands it.
Some Texas cities are getting tough on compliance, too. Get caught in Dallas, Irving, Mesquite or Garland with no proof of liability insurance and they can have your car towed away on the spot. You pay the towing and the impound lot as well as your ticket.
The Lone Star State requirement is 30/60/25. The numbers are not your bowling ball-shaped aunt's measurements. In thousands of dollars, the first number is bodily injury liability maximum for each person injured in an accident ($30,000). The second: bodily injury liability maximum for all persons injured in one accident. And the third: property damage liability maximum for one accident.
Liability insurance pays other people's (your victims') expenses for accidents caused by drivers under your policy up to your policy's financial limits. These may include the other persons':
- medical and/or funeral costs, lost wages, and compensation for pain and suffering
- car repair or replacement costs
- auto rental while their car is being repaired
- punitive damages awarded by a court
Liability insurance also pays attorney fees if they sue you and bail up to $250 if you get arrested. And it covers not just your self-obsessed criminal negligence, but that of your family members. And other people whom you give permission to drive your car, even if the deadbeats don't have their own liability insurance and aren't named on your policy.
In general, your auto policy covers your spouse, blood relatives, in-laws, adopted children and foster children living in your home, even if not named on the policy. Kids in school away from home are covered. Even the lying, cheating, money squandering spouse you've thrown out of the house in a full-blown separation is covered. (All of the above can be excluded by agreement with your carrier.)
Collision and Comprehensive
Your grandmother quoted the Book as saying, "love covers a multitude of sins." Or was it black, loose fitting clothing she was talking about? At any rate, most of us clay-footed mortals need total coverage for salvation.
Collision insurance pays the cost of repairing or replacing your car after an accident, regardless of who was driving or who was at fault or if you were having a really bad day. Payment is limited to your car's actual cash value, minus your deductible. Actual cash value is the market value of a car like yours before it became scrap metal.
Collision coverage is normally the most expensive component of auto insurance. By choosing a higher deductible, say $500 or $1,000, you can keep your premium costs down. However, keep in mind that you pay the amount of your deductible before the insurance company kicks in any money after an accident.
Insurance companies often will "total" your car if the repair costs exceed a certain percentage of the car's worth. The critical damage point varies from company to company, from 55 percent to 90 percent.
Comprehensive coverage will pay for damages to your car that weren't caused by an auto accident (collision). Damages from theft, fire, vandalism, falling trees, stampeding oxen and random flying debris on Halloween all qualify. Comprehensive coverage also comes with a deductible and your insurer will only pay as much as the car was worth at the time of the accident.
As a rule, insurance companies won't pay you more than your car's book value, You should probably have a rough idea what this is. Check the Kelley Blue Book or the National Automobile Dealers Association. If you keep your car in prime shape with regular maintenance or if you've added primo options, keep records. If your car is worth less than what you're paying for the coverage over the year, you're better off buying furniture or bribing public officials or doing something more constructive with the money.
Medical Payments and PIP
Medical payments coverage (MedPay if you prefer the jargon) will pay for your and your passengers' medical expenses after an accident. Whether you're driving your car or someone else's car (again, assuming you didn't steal it) or get flattened as pedestrians, your family is covered. The coverage pays regardless of fault; but if someone else is liable, you can bet your insurer will try to recoup the expenses from that scumbag or his insurance provider.
Personal injury protection (or the jovial-sounding "PIP" in insurance talk) is an expanded form of medical payments protection required in some states. Not Texas. Features include payments for lost wages and child care. An insurance company must offer you $2,500 in PIP and you can either buy more or waive the whole mess.
If you have a good health insurance plan, you don't likely need PIP or MedPay coverages. If you have decent disability insurance, you can pretty much skip the PIP. But don't take this for granted. There are health plans that won't cover expenses resulting from an auto accident. Read yours.
Uninsured Motorist
Uninsured and Under-Insured Motorist coverage (UM) pays for medical costs, funeral costs, and pain and suffering from any accident caused by a driver who has no insurance or not enough insurance to cover the damage. UM also pays for accidents caused by a hit-and-run driver if you reported the accident promptly to the police.
Bodily injury UM pays without deductibles for medical bills, lost wages, pain and suffering, disfigurement, and permanent or partial disability. Property damage UM pays for auto repairs, a rental car, and damage to items carried in your car. There's an automatic $250 deductible.
While it's impossible to get true totals, experts estimate that 18-23% of Texas motorists are uninsured. Nationally, the figure falls around 14%. (Louisiana, where they can impound your vehicle for being uninsured, stands at 8%.)
Texas law actually requires uninsured motorist coverage for property damage and personal injury. However, the statute allows UM and PIP to be waived in writing. Chances are, you'll be waiving. Recently insurers raised the rates for the uninsured motorist portions of Texas auto insurance by 23.5 percent, a bigger increase than in any other category. Just remember that if Joe Destitute, Uninsured Motorist clips your left fender, you may be hosed.
Auto Insurance Bells and Whistles
You can add on a variety of supplemental auto coverages to make things more convenient when trouble comes.
Rental reimbursement puts you back on the road in a rental if your car is wrecked or stolen. You want this. Can you imagine picking the kids up from school without a vehicle or showing up on foot on your day to drive the carpool?
Note: to get a rental, you have to make a significant claim (burned out lightbulbs do not qualify). Chances are, the car will have been damaged in an accident and claimed under your collision coverage.
Towing and labor charges get your car dragged in to the mechanic or body shop for whatever reason. This is a nice feature to have in your back pocket when all those lights on the dashboard come on at once. Helps with bad brain days, too.The plan includes a locksmith for when you've securely locked your keys inside and help, minus the nagging, when you've run out of gas. (Note: Pay your parking tickets. This doesn't include your car being empounded by the city.)
Contents coverage can replace your smashed or stolen stuff. Your regular policy won´t pay for tapes, CDs, cell phones, two-way radios or stereo equipment not permanently installed in your car. You can buy separate coverage for these items for an additional premium. If you have homeowners insurance, that may cover your possessions up to a point.
Gap coverage for your new car will pay the difference between the actual cash value you receive for the car and the amount left on your car loan if your vehicle is totaled in an accident.
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