America’s love affair with the automobile is over a century old. For most Americans it’s not simply a mode of transportation. It is a purchase of self-expression, and often a status symbol. But the romance can come to a screeching halt when trying to insure it properly with a personal automobile policy. The terms and conditions of any auto policy can vary from company to company and from state to state.
- Liability insurance: This coverage protects the owner against losses from legal liability arising from bodily injury or property damage caused by an automobile accident. The coverage can be a single limit ($100,000 for each accident) or split limits such as $50,000 / $100,000 / $25,000 (per person / per accident for bodily injury / property damage).
- Medical payments coverage: This provision pays medical or funeral expenses because of bodily injury. The coverage is generally in increments of $1,000 to $5,000 up to $25,000 per person per accident.
- Physical damage coverage: This section of the policy is designed to cover physical damage to the insured auto. Collision covers, as the name implies, collision losses. Comprehensive (also known as other-than-collision) insurance covers losses from non-collision incidents; such as theft, fire, or storm damage. Losses for physical damage are generally based on the cost to repair or replace the damaged or stolen vehicle.
- Uninsured/underinsured motorist: Even though many states have enacted financial responsibility laws, not all automobile owners comply. Uninsured motorist coverage pays for injuries sustained in an accident with an uninsured (or a hit-and-run) driver. In some states Underinsured motorist insurance covers the difference between actual losses sustained, and what an insured individual can collect from an at-fault uninsured or underinsured driver, up to policy limits.
- Selecting the right deductible can significantly alter your premium payments. The higher the deductible, the lower the premium. That being said, you need to determine if you have cash flow and a liquid emergency fund before purchasing a high deductible. Another consideration is that deductibles have certain break points where it isn’t an economic value to buy a high deductible. You need to let the math make the call.