The ACDs of Auto Insurance

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Insurance is boring to most people.  However, it can get quite interesting when you are involved in a traffic accident.  It can be mind blowing if all you do is pay your insurance bill, never read the policy (contract) and never ask questions of your agent or insurance company.  It can be even more frustrating when the other driver who caused the accident and received the traffic ticket is not insured.

My recent accident (rear ended by an uninsured driver), prompting by a fellow S2K owner (thanks, Julie) and story of a stolen S2K that was not insured for theft, are the reasons why I am providing some information others may find useful.

Since insurance policies are written by lawyers, it can very difficult to follow the contract language, even with a college education.  Insurance is also one of the most heavily regulated industries, so it is no wonder the process is so confusing and convoluted. However, your insurance company is not out to be unfair with you.  Quite the opposite, they are bound by the provisions of the policy, just like you and are interested in settling claims, based on the contract, as efficiently as possible.

Disclaimer:  I am not an attorney, nor am I a claim representative, nor am I a licensed insurance agent, nor do I play one on TV.  The information below is general and can vary from company to company and state to state.  It does not discuss everything, just the basics.  The policy is the legal contract that will ultimately determine the coverage provided your responsibilities under the contract and any claim settlement.

However, I do have a Chartered Property Casualty Underwriter (CPCU) designation (Google it) and have 29 years of experience in the insurance industry.  I will attempt to use everyday language to highlight some key points.  If I do not explain a term, just Google it.  In fact, there is a treasure trove of information online.  Personal Finance, Consumer Advocacy, your insurance company and other sites do a good job of explaining what you need to know.  Don’t forget the Department of Insurance site for your state, as they are also a good resource for information.

Here goes:  look at your auto insurance card – it should be in your car.  This is what the police ask to see (plus your driver’s license) when you get pulled over or are involved in an accident.  Be sure it is current (not expired).  It should have letter codes on the front and what the letter stands for on the back.  It will probably refer you to the policy for the definitions of those terms and for amounts of deductibles and/or limits.  Any letter code on the front is the coverage you are paying for.  Expired or no code = No Coverage.

A) Liability:  You will see this one.  That’s because it’s the law!  The financial responsibility laws of the state, that is.  This covers the other person (not you or your car) if you are at fault, i.e. you are “liable” for putting the other person back to pre-crash financial position.  Your Declarations Page or Renewal (sent by the insurance company or agent along with the policy) will provide more information like “limits” which is the dollar amount of coverage.  Keep a copy of the most current Declaration Page or Renewal and policy booklet and any endorsements (language that changes the language in the policy) included – all together.   Those pieces are all considered “the policy.”

States will dictate the minimum Liability limits that a driver must purchase (well, you can self-insure, but you have to prove you have the minimum amounts to pay for injury or damage if in an accident, and if you knew that, you probably would not be reading this – most of us buy a policy).  You need more than the minimum!   Imagine driving along and you accidentally run a new Pilot (might as well keep it in the family) off the road, totaling it ($28,500).  If you have minimum limits, you won’t have enough coverage and the other driver can sue you for the amount above what the insurance pays.

Drivers should buy at least 100/300/100 limits. “100/” = (up to) $100,000 for injury to each of the other people (not you) involved.  “300/” = $300,000 total for all people (still not you) regardless of the number.  “/100” = $100,000 for all other vehicles or other property (e.g. fence) damaged (not yours).  So, if you take out a 2015 NSX (about $130,000 – still keeping in the family and looking into the future), you still won’t have enough coverage!

C) Medical Payments:  Finally, you.  This coverage covers your injuries and/or funeral, regardless of who was at fault.  It is usually $25,000 but not mandatory and you can buy less.  This is what paid for my emergency room visit, pain pills (good ones), follow-up visit, etc. when I was rear-ended by that uninsured driver.  No deductible.  You can also buy uninsured motorist coverage.

D) Comprehensive:  Finally, your car.  Again, not mandatory.  However, if you have a loan, the entity loaning the money will require you get this.  This covers damage to your vehicle from things other than a crash, for example, theft or hail damage.  You will have to pay a “deductible” or your share of the loss.  So, if you get caught in a hail storm and the total damage is $1,000 and your deductible is $500, you pay $500 and the insurance company pays the other $500.  The larger the deductible, the less this costs since you pay a larger portion of the loss.  The amount of coverage is the “Actual Cash Value (ACV)” which is replacement value of the car new minus depreciation.  See KBB for your year, make and model. If you have a bunch of mods, keep all your receipts (even if handwritten from seller), and original parts.   If you have a lot of hail or other damage, adding up to more than the ACV, the insurance company could total the car, pay you the ACV and junk the car.  Receipts may increase your settlement.

G) Collision:  Also your car, but not mandatory unless you have a loan (same as above).  This also involves a deductible and ACV as described above.  However, this kicks in when your car collides with another car or an object or rollover and you are at fault.  (I rolled a Fiat when I was young and inexperienced – those roll bars are not just for looks).

EXCLUSIONS:  As you might expect, high risk activities, e.g. racing, are “excluded” = not covered.  My policy reads, “THERE IS NO COVERAGE FOR… 19. ANY COVERED VEHICLE WHILE IT IS: a. BEING PREPARED FOR, USED IN PRACTICE FOR, OR OPERATED IN ANY RACING CONTEST, SPEED CONTEST, HILL CLIMBING CONTEST, JUMPING CONTEST, OR ANY SIMILAR CONTEST; OR b. ON A TRACK DESIGNED PRIMARILY FOR RACING OR HIGH SPEED DRIVING.”  Try to get around that!  Well, you don’t want to be dishonest about anything related to getting a policy or filing a claim because you get into insurance fraud.  People go to prison for insurance fraud – don’t be a statistic or a story used to train new claim representatives!

Hope this helps in some way.  Now, put the top down and enjoy the ride.

M. Ruiz, CPCU, CLU, ChFC

Image courtesy of Tspencer227

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