The Truth About Auto Insurance Part 2

By Anthony Ray 7/9/2021

Let’s steer further into auto insurance. The car is washed and ready to go, so now what?

This segment is based on personal lines auto insurance and does not speak to business or commercial lines insurance. There are three types of auto insurance policies that are the most common. Every insurance carrier does not offer all three policy types in every state. The three types are auto, named non-owner, and broadform. Here is a description of each:

Auto Policy – This is a traditional vehicle policy. The other policy types are a lesser variation of this policy. The auto policy consist of three main coverages which are liability, comprehensive, and collision. An auto policy will cover cars, SUV’s, trucks, and vans. An auto policy comes in different types to include personal use, business use, and commercial use. The most common auto policy is the personal use.

Named Non-Owner Policy – This is an auto policy that is not associated with an owned vehicle. This policy is associated with the policy owner’s driver’s license. It is held by individuals who do not own a vehicle, but do drive on occassion. This may include the use of a family member or friend’s car who does not reside in the same household. This policy only carries liability coverage.

Broadform Policy – The Broadform Policy is an auto policy for owned vehicles and it only carries liability coverage. The Broadform policy will allow up to two drivers and four vehicles. It does not allow for comprehensive or collision coverage to be added. With this policy, you do not need to list the owned vehicles because the policy follows the driver and not the vehicles.

The Named Non-owner Policy and the Broadform Policy carry only liability. When a policy holder needs to add comprehensive and collision coverage, they will need to upgrade their policy into an auto policy. This can be done without having to purchase a brand new policy in most cases. The remaining length of your current policy term will dictate if a new policy will be warranted.

There are three main components of the traditional auto policy. They are liability, comprehensive, and collision.

Liability covers the policy holder when they are at fault in an accident. This covers bodily injuries and property damages that are a result of the accident. Bodily injury will pay for medical injuries and property damages will pay for damages to the property of others. These liability coverages will not pay for your injuries or your property’s damage when you are at fault.

The other forms of liability are uninsured and underinsured. These forms of liability will vary from state to state and are not available in every state. They will provide coverage to pay you for your damages and injuries resulting from an accident when the other party is at fault. The coverages are uninsured motorist bodily injury, uninsured motorist property damage, underinsured motorist bodily injury, and underinsured motorist property damage.

Uninsured Motorist Bodily Injury covers the policy holder in the event that they are involved in an accident and the at fault party does not have any insurance. This coverage provides payments for medical bills from injuries sustained in the accident.

Uninsured Motorist Property Damage provides coverage for your vehicle’s damage in the event of being involved in an accident and the at fault party does not have any insurance. An example of this is a hit and run accident and the at fault party is unknown.

Underinsured Motorist Bodily Injury provides coverage when the policy holder is involved in an accident and the at fault party’s coverage is insufficient to cover the whole cost of the expenses resulting from the injuries. For example, their coverage is for $25,000 and the cost of the medical expenses total $32,000. The difference of $7,000 would be covered by this coverage.

Underinsured Motorist Property Damage provides coverage for property damage to your vehicle resulting from the at fault party’s coverage being insufficient to cover the full extent of the cost of the damages. This coverage will make up the difference that the other party’s policy does not meet.

Comprehensive covers damage to your vehicle that are caused by acts of nature to include flood, hail, fire, and damages caused by an animal like hitting a deer. Theft and vandalism are also included in the coverage provided by comprehensive coverage.

Damages that are caused by acts of nature like flooding, hail storms, and fires are covered by comprehensive coverage. It is important to know that during severe weather that insurance companies can restrict issuing comprehensive and collision coverage. Hurricane season is a good example where people who don’t normally carry those coverages will add them only when there are severe weather advisories.

Collision covers damage to your vehicle. If you are involved in an accident and you are not at fault, then the at fault party is responsible for getting your vehicle repaired. In the event where the at fault party does not have insurance, then you can use your own coverage to get your vehicle repaired. (Uninsured Motorist Property Damage would cover in this situation, but remember this coverage is not available in every state.)

There is a term called full coverage. Technically, this is not a real coverage. It refers to having all of the coverages on your vehicle that will protect you if you are involved in an accident. These are additional coverages that you can add in addition to liability, comprehensive, and collision:

Medical payments provide additional financial assistance to the policy holder and passengers regardless of fault. This is a supplementary coverage that usually runs secondary to the policy holder’s health insurance.

Rental car coverage will provide a rental car in the event of the policy holder’s vehicle being damaged in an accident. A rental car is provided while the vehicle is being repaired.

Roadside Assistance is coverage for the policy holder’s vehicle that will allow for the vehicle to receive services that include providing assistance resulting from a mechanical breakdown, running out of gas, flat tire, vehicle lock out, and dead battery. This is usually referred to as towing services.

It is always nice to have help when you need it. A lot of people will decline roadside assistance, but it is significantly cheaper than paying for a tow truck out of pocket.

According to your insurance carrier, they may offer more products and services which can vary state to state. They may include:

Accidental death – It covers a select amount that is paid out in the event of the death of the policy holder or passengers.

Custom equipment – This provides coverage for aftermarket equipment installed after the purchase of the vehicle or equipment that is not factory installed (cargo equipment, radio equipment, wheels, electronic devices, etc.)

Loan/Lease Payoff (Gap Insurance) – This is usually purchased with a vehicle and included in the financing agreement. When added to your auto policy, this coverage will pay the difference of the value of your vehicle and the balance of your loan at the time of the loss. (The value of your vehicle at the time of the accident is calculated and could loss value. A side note: the value of your vehicle is never the same value of the loan.)

Personal Injury Protection (PIP) – PIP covers medical injuries of the driver and passengers regardless of fault. PIP is required in some states as a mandatory coverage. In some states, PIP can be offered in addition to medical payments or in lieu of.

Work loss or Loss of Use benefits provide coverage for the policy holder and may include passengers depending on the level of coverage. This will provide payments while the policy holder is forced to miss time from work as a result of an accident. Some payments go to provide services that the policy holder may not be able to perform as a result of injuries sustained from the accident. Benefits will vary from state to state and may not be available in all states.

A deductible is your portion that you must pay to get the claim paid by the insurance company. This amount is in addition to the premium that you pay for your coverage. I mentioned before that the insurance company’s goal is to restore you back to the place prior to the accident occurring. The deductible amount that you choose ranges from $100 to $2,000 depending on which state you reside. The lower your deductible will result in a higher premium being paid. The higher the deductible will result in a lower premium being paid. You must determine how much of a deductible you can afford to pay out of pocket in the event of an accident or a loss. The loss refers to theft, vandalism, or damage that occurs outside of an accident. These are covered by the comprehensive coverage. The most common amount selected for a deductible is $500. Most finance companies will limit the amount of a deductible being over $500 based on the terms of the financing agreement.

It is important to know the terms of your financing agreement. The finance company can mandate that you carry comprehensive and collision coverage as well as set the amount of your deductible.

There is some information that you will need in order to receive an auto insurance quote. You will need the names of everyone who will be driving the vehicle and all of the vehicle information of every vehicle that you would like to insure. Some insurance companies will require the names of all of the household members over the age of 15 years old. You will need the driver’s license numbers of all who will be a driver on the policy. Next, you will need information for all vehicles that you are looking to insure. You will need the VIN numbers. If you don’t have the VIN numbers, then collect the year, make, and models for all vehicles you wish to insure. Please get the specific model of each vehicle because this can affect the rate if the wrong model is given. Ensure to have your lien holder information if you are financing or leasing your vehicle. In most cases, the insurance agent will be able to Google their address if you don’t have it.

Once you have all of the drivers and vehicle information, you must decide what type of coverage you want to purchase. The minimum insurance required by the state is liability coverage. Anything in addition to liability in going to increase the price of your policy. This is where knowing what deductible that you can afford is going to come in if you are wanting to add comprehensive and collision coverage.

Finance companies ,in most cases, will require for comprehensive and collision coverage to be included on your policy if your vehicle is being financed. If you own the title to your vehicle, you are not required to carry comprehensive and collision. You need to know that you can afford to replace your vehicle yourself if you do not carry comprehensive and collision coverage. You need to know if the value of your vehicle or vehicles is worth putting the additional coverages on them or not. For example, you should not put comprehensive and collision coverage on a 20 year old vehicle unless it still holds a substantial value. If the value is very low, then the insurance company should advise you not to put such coverage on a vehicle. A good rule to apply is if the cost to repair is more than the value of the car, then liability coverage is all you should carry.

Check out The Truth About Auto Insurance Part 3. We will cover discounts and how to shop for quotes efficiently. Please submit any comments or send any questions to Follow Preparation With Purpose on social media – Facebook, Instagram, Pinterest, and Twitter.

References: Car Insurance Types of Car Insurance

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