Do you have enough car insurance?

Imagine that you are ready to leave your house and you open your door and the rain comes pouring down from the sky. Now you start frantically searching for your umbrella… ah, there it is! You step outside, open your umbrella and you are now protected against that pouring rain. If it were a sunny day with no rain in sight, you probably wouldn’t even care where your umbrella is or if you even had one! The same goes for insurance. Do you really care until you need it? Unfortunately, too many people don’t realize they don’t have enough coverage until an unexpected incident occurs and they need to file a claim with their insurance company.

So a logical starting point for determining if you have good insurance coverage is to understand the basics. To make sure you have the right coverage, you must first gain a solid understanding of the basics of auto, home, personal umbrella, and life insurance. For this article, we will focus on auto insurance coverage.

Motor insurance basically covers you for liability and material damage related to your motor vehicle. There are also other optional areas of coverage, but for our discussion let’s focus on the basics, which are the most important anyway. The first and/or second page of your car insurance policy are the declaration pages of your car insurance policy. The expense pages describe your automatic coverage limits in numerical dollar values.

Here’s an example of what you might see on your auto insurance claim pages:

– Bodily Injury/Property (BIPD) 250/500/100

-Limited or unlimited

-Medical (with) $5,000

– Personal Injury Protection (PIP) 250 w/250 Ded

-Uninsured/Underinsured (UM/UIM) 250/500/100

-Collision $500 (Coll) deductible

– Comprehensive (Comp) $500 deductible

-Rental Insurance (RI) 80%/1500

Let’s look at each of these coverage definitions and amounts in more detail.

The BIPD stands for Bodily Injury (BI) / Material Damage (PD). Basically, in the above example, this individual policyholder has liability protection for $250,000 per person or $500,000 maximum per incident, plus $100,000 in property damage to the other party’s vehicle in a collision. Liability coverage is protection for cases where you are found and proven negligent in an automobile accident and therefore become legally liable for the resulting compensatory and/or punitive damages to the other party or parties. The BI, or the BIPD, covers you for negligence on your part that resulted in bodily harm to the other party or parties. BI will also cover attorney’s fees in connection with any lawsuits filed against you by the other party. In the example above, this person has $250,000 in coverage for all-inclusive liability and attorney fees per injured person or $500,000 for the entire incident.

The PD, or the BIPD, covers damage to the other party’s vehicle as a result of your negligence; so in the example above, up to $100,000 in property damage to the other party’s vehicle or property. Now that we are aware of the litigious society we live in, we wonder if $250,000 per person or $500,000 per incident is enough BI coverage? This is a personal decision each individual must make, depending on their current net worth and net worth, and their knowledge of recent jury decisions and awards in BI cases. An important factor influencing this decision is knowing that you are confident for any amounts awarded in excess of your BI coverage amount, should the jury award compensatory and punitive damages in excess of your BI coverage amount. So, in this example, were the jury to award $750,000 to the person driving the other vehicle who sustained bodily injuries because you collided with them as a result of your negligence, you would be self-assured for the amount in excess of $250,000 which in this example case would be $500,000. If you don’t have the $500,000 to pay the award, the court has many other options to compensate the injured party, such as: garnishing your wages, selling part of your assets, placing a lien on your property, etc. Now, you can get an umbrella policy to cover you up to a certain amount on top of your underlying auto BI coverage. In a future article we will look in more detail at how an overarching policy works.

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Next we have the “limited right to sue” versus “unlimited right to sue” coverage. Basically, under the “limited” right to sue, you agree not to sue the person who caused the car accident for your pain and suffering unless you sustain one of the following permanent injuries:

– Loss of body part

-Significant deformity or scarring

-A displaced fracture

-Loss of a fetus

– Permanent injury


Please note that choosing this option does not waive your right to sue for economic damages, such as medical expenses and lost wages.

Under the “Unlimited” right to sue, you retain the right to sue the person who caused a car accident for pain and suffering for any injury. Most people will choose the “limited” option because it is much less expensive and allows the negligent party to sue for most serious and permanent injuries. However, many attorneys usually choose the “unlimited option” for their own personal coverage and pay the significant additional costs because they want the right to sue for any injury.

PIP coverage stands for Personal Injury Protection coverage. PIP is paid from your own policy. PIP covers medical expenses, and possibly lost wages and other damages. PIP is also referred to as “no-fault” coverage because the statutes that enacted it are commonly known as no-fault laws. PIP is designed to be paid without regard to “mistake”, or rather, without regard to legal liability. PIP is also referred to as “no-fault” because, by definition, a claimant’s or insured’s insurance premium should not increase as a result of a PIP claim. A PIP claim may be subrogated by your insurance against the other party’s insurance company if the other party was determined to be the negligent party to the accident. PIP is mandatory coverage in some states.

Uninsured/Underinsured (UM/UIM) is a coverage of your policy that can pay for injuries to you and your passengers, and possibly damage to your property, when as a result of a car accident the other driver is both legally responsible for the accident as determined to be “uninsured” or “underinsured”.

An uninsured driver is a person who does not have auto insurance, or had insurance that did not meet state-mandated minimum liability requirements, or whose insurance company rejected their claim or was financially unable to pay it. In most states, a hit-and-run driver is also considered an uninsured driver as it involves paying for injuries to you or your passengers.

An underinsured driver is a person who had insurance that met the minimum legal requirements, but did not have sufficient limits of coverage to pay for the damage caused by the accident. In these situations, UIM coverage can pay you for your damage. It’s important to note that uninsured and underinsured are separate coverages, although they can or must be purchased together in many states. Some states mandate the purchase of UM/UIM, but many do not.

With a collision cover you are insured for damage to your vehicle. It doesn’t matter if it’s a collision between your car and another car, or your car and a stone wall. You are covered if your car is damaged by driving into or colliding with something, whether you are at fault or not. Usually your deductible applies. If you collide with another vehicle and the other party defaults, your insurance company may subrogate the claim against the insurance company of the defaulting party to recover the claim amount.

Comprehensive (Comp) basically covers what collision coverage doesn’t. If your car sustains damage that is not the result of a collision with another motor vehicle or object, the extended part of your policy will pay for the damage. If you don’t have comprehensive coverage, you’ll have to pay out of pocket for any damage to your vehicle that isn’t related to a collision. These are the hazards usually covered by comprehensive car insurance: fire, theft, vandalism, broken or damaged glass, damage caused by animals, falling objects, storms (hail, wind, etc.), and water damage. Usually your deductible applies.

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Rental Insurance (RI) is coverage for renting a car while your vehicle is being repaired due to a covered incident. In the above example of values ​​on the return page, 80%/1500 means you have coverage for $80 per day and $1,500 maximum total cost to rent a car while your vehicle is being repaired. This is an optional coverage that many people take, but some don’t.

Well, that’s it! That’s the basis of understanding your auto insurance policy. Not so bad, right? Now that you understand the basics of auto insurance coverage, you can review and analyze your personal auto insurance policy coverage information while considering your personal finances to determine whether or not you have adequate coverage.

Stay tuned for future articles explaining the basics of understanding homeowners coverage, personal umbrellas, and life insurance. You never know when it’s going to rain!

Joseph Rubino, Agent

NJ Licensed Property & Casualty, Health and Life