I have worked in the auto insurance industry for just over 6 years and I have to say that I am actually surprised at the number of people who really don't know how their auto policy works. So, after a long hard day at my full-time job, I thought maybe I should talk a little bit about how insurance works. I thought that maybe, just maybe, if I could explain some things it might make my job (and your life) just a little bit easier.
First things first, I want the world to know that insurance companies are NOT out to get you. We do not sit around all day trying to figure out ways to make your life difficult or cause you unnecessary stress and anxiety. In fact, it's just the opposite. The vast majority of insurance companies really are the "good guys". It's also important to note that every state has a special governmental agency devoted to making laws and regulations that keep the insurance companies "in check." And the best part is that each state's Department of Insurance has a website that you, the consumer, can go to when you have questions about the insurance laws in your state. Just do a search for "Department of Insurance".
Let's pick apart your policy. (This is where I have to put the disclaimer that your policy may not have all of the coverages that I am going to list in this article, and there might be slight difference in limits or requirements based on your state's regulations and off course, the company that you purchase your insurance from). Basically, your policy coverages will be broken into two types: First Party and Third Party. First party coverage is designed to cover you and your property. Third party coverage is designed to not only protect you, but also to protect the person that you injure or cause damage to. I know that is a little bit confusing, but I hope that by the end of this it will all be much clearer to you.
Every auto policy purchased in the United States will have third party coverage. You may recognize the words "liability insurance". This is your third party coverage. This coverage provides protection for you and your assets in the event that you cause injury or damage to someone else or their property. The two line coverages within "liability insurance" are Bodily Injury and Property Damage. These coverages are not payable to you - instead they are payable to the person you injure. Let's say you cause an accident and the other vehicle is damaged and it's passengers & driver are injured. Your bodily injury coverage and property damage will provide coverage up to the limits of your policy. As an example, let's say you live in Ohio and you have state minimum liability coverage. This means that your policy will pay each person you injure a maximum of $12,500 each person - however, this only applies until a total limit of $25,000 is reached. So say that there are 4 people in the car, and each one is injured, once that $25,000 limit is reached, that is all your policy will pay. Conversely, if in Ohio, and you have state minimum limits and your negligence causes the other vehicle to be a total loss - pray that it's worth less than $7500 because that's all the policy will pay.
I am not going to go over all the possible scenarios - I just want people to have a basic understanding of how this works. For specific information about your policy, I encourage you to talk to your agent or insurance customer service representatives to find out how your policy limits work.
Now, first party coverage. These are the coverages that most people refer to as "full coverage". I encourage you to throw that term out the window. In reality, there is no such thing as "full coverage", because your auto policy does not cover everything 100%. Here's a brief description of each first party coverage that you might be able to purchase.
Collision - This is coverage for damages caused to your vehicle. It does not matter if you are or are not at fault for the damages. You can use this coverage to fix your vehicle damages. You will always have some kind of deductible with this coverage. A deductible is a pre-determined dollar amount that you have agreed to pay in the event of a loss. It will apply to each claim you file. The standard deductible amounts are $250 and $500. I always tell people that when trying to decide what deductible they want to choose, think about how much money you can come up with in an emergency. I personally have a $250 deductible. It's a lot easier for me to come up with $250 than it is to come up with $500.
Comprehension - This is coverage for damages to your vehicle that are a result of theft, fire, vandalism, flood, or other "acts of god", like animal hits. Again, you will choose a deductible when you purchase this coverage and the deductible can be a different amount than you collision deductible. (Mine is $100 because I know that it is more likely that my car is going be damaged due to one of these factors than in a collision - my driving record proves that).
Uninsured Motorist Property Damage - This coverage does exactly what it says. It provides coverage in the event that your vehicle is damaged by an uninsured motorist. Some states mandate a deductible, others don't. Some states allow you to purchase this coverage along with Comprehensive & Collision coverage, others don't. This is where you will have to talk to your insurance company for recommendations.
Uninsured Motorist/Underinsured Motorist Bodily Injury - Again, it does exactly what the name says.
Medical Payments - Available in different dollar amounts, this coverage provides you and your passengers some coverage for medical bills as a result of an injury due to a motor vehicle accident.
Personal Injury Protection - In some states, this coverage is available in place of medical payments coverage. It is basically the same thing.
Roadside Assistance - Some insurance companies offer this coverage as an added benefit for their customers. This is only for mechanical breakdown and things such as running out of gas or locking your keys in the car (because if you are like my husband, this happens several times a year). It is usually pretty cheap to purchase, but there are limitations. Quite honestly, I would rather have a membership to AAA, but for those that can't afford AAA this is a good alternative.
Rental Reimbursement - This provides you with a rental provided you are without your vehicle due to repairs required after a collision, comprehensive or uninsured motorist property damage loss. It does not provide you with a rental for mechanical breakdowns!
Okay, I think I have given you an overview of the possible coverage that you may have on your auto policy. Now I want to touch on what happens when you have an accident or a comprehensive loss. First, most insurance companies require you to notify them within 24 hours of the accident to let them know that a loss occurred (there are some exceptions, but for the most part remember to report it within 24 hours). This is important. Even if you don't think you are at fault or don't want to use your policy for repairs, still report it. I cannot stress this enough. You pay your insurance company to protect you - let them do their job by doing so. You can make it a lot easier by reporting the accident so your insurance company can go through all the proper steps in investigating the accident to determine if there is any kind of exposure to you. The insurance company cannot protect you in if they don't know that the loss occurred. In addition, there are provisions in your policy contract that stipulate exclusions that might go into effect if you don't report it in a timely manner.
Next, cooperate with your claims adjuster. They have procedures and steps they have to follow. Unfortunately, there will be times when coverage cannot be afford right away. There may be additional investigative steps that have to be taken and you may be asked to provide additional information like phone records, accident reports, witnesses, bank records, etc in order for the adjuster to verify facts of loss, date of loss, etc.
Stay calm!!! Insurance adjuster are highly trained professionals. They know the ins and outs of your policy. They are not trying to be jerks when they can't give you exactly what you want when you want it. They know that this is a stressful time, but they are human too and they have one goal - find coverage for your accident. Sometimes though, coverage just is not available and unfortunately, claims do get denied.
Lastly, remember that while this is a stressful time and accidents are hugely inconvenient, your insurance company is there to protect you and your assets.
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