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Auto insurance policies typically provide coverage for your auto liability, medical payments, physical damage to your auto and related expenses. Traditionally, coverage has been written with “split limits,” that is, with separate limits applying to each person and each occurrence for property damage liability.
The following six sections describe the areas of coverage contained in an auto insurance policy.
Bodily Injury Liability
Bodily injury is our greatest exposure as a driver. It is, therefore, the most important coverage afforded by an auto insurance policy. It will pay for injuries to other people resulting from negligence. Payment is limited to the per person and per occurrence limits that you select.
An individual injured in an auto accident can claim medical and hospital expense, loss of wages or income and general damages from pain, suffering and mental anguish. These claims are difficult to estimate and can be astronomical. The minimum legal coverage required by most states does not come close to covering the risk of high claim awards common today.
Affluent persons are a “target risk” and need to consider higher limits. We recommend a minimum of $300,000 combined single limit. Rates will vary not only among states, but also among companies. Incremental coverage is usually not extremely expensive. Remember that liability limits should be the same for all cars insured by the same policy.
Property Damage Liability
Property damage liability will pay on your behalf, losses caused to property resulting from your negligence. Again, the minimum legal limit is not in line with claims settlements.
In addition to auto damages, this coverage covers losses that involve other personal assets such as buildings, fences, landscaping, etc. Damages could easily exceed the common $15,000 limit. We recommend at least $50,000. Costs to increase coverage to $100,000 are usually quite small.
Uninsured Motorist Coverage
This protection provides coverage for hit-and-run drivers or an accident caused by an uninsured motorist. It pays for both bodily injury and death for yourself and your passengers. In addition, you and your family are protected as pedestrians.
Uninsured Motorist provides coverage when the other driver is at fault and his vehicle is uninsured or is insured for bodily injury liability that is not high enough to cover your damages. In such a case, you collect the balance under your Uninsured Motorist Coverage.
Under-insured Motorist Coverage
Under-insured Motorist Coverage is available in many states and it provides higher benefits for you and your family if the other party is insured, but lower limits than what may be needed in the event of a claim.
If your policy does not provide this coverage, consider adding it. Many states require this coverage, but only in minimal amounts. You should purchase higher amounts of coverage.
Medical Payments
Medical Payment Coverage pays excess medical or hospital bills incurred by passengers who are injured in an auto accident. It also covers you or your family as pedestrians. Fault or negligence is not a consideration for coverage. Coverage is written on a per-person basis. We recommend you carry at least $10,000 per person.
Collision
This coverage pays for repair or replacement of your car regardless of fault, subject to deductible. If the damage is the fault of the other driver, your insurance company may subrogate against the other driver to recover your deductible and the amount paid to you.
The coverage is limited to replacement cost. As the car ages, the replacement value the insurance company will recognize diminishes. You should consider discontinuing collision coverage when the car’s value drops below $1,000, perhaps even $2,000.
The amount of an uninsured casualty loss in excess of $100 is deductible for income tax purposes. The best tactic is to take collision and comprehensive as long as the car is worth over $1,000, but with a high deductible, say $250 or $500 to hold down the premium.
After that, consider dropping collision and comprehensive coverage. This will give you reasonably low-cost protection when the car is most valuable.
Comprehensive
The optimal coverage is all-inclusive protection against acts of God and related damages caused by something other than collision. The most frequent claims are for theft, vandalism and the replacement of windshields or broken windows. Driving without comprehensive is a high risk if the car is valuable.
Not all insurance companies are the same. It pays to shop around. Insurance premiums can vary significantly depending on the companies. There are so many possible driver-car combinations that one company cannot have the best rates for every category.
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