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7 Deadly Sins of Buying Car Insurance - What are the Various Options for These Different Coverages? PDF Print E-mail
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7 Deadly Sins of Buying Car Insurance
What are the Various Options for These Different Coverages?
What are You Using Your Vehicle for?
Do you need it?
What if You Damage Another Vehicle When You're Renting a Car?
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What are the Various Options for These Different Coverages?

While there are six main coverages in an auto insurance policy, there are numerous options to consider for each coverage. How much contractors insurance auto coverage do you need?

Bodily Injury Liability — You can buy the minimum required by law, say $25,000 per person, $50,000 per accident. Or you can buy limits as high as $500,000, even $1 million. Remember that someone you hit can sue you for everything you have.

* Tip. If you have a home, own stock and have a decent income, you should probably buy, at minimum, limits of $100,000 per person, $300,000 per accident. If you have more than $300,000 in assets, you should buy higher limits or an umbrella policy. Consult with your professional agent about this!

Many contractors auto insurance companies now sell what are called combined single limit (CSL) coverages, which have no per-person limit. If you buy, say, $300,000 CSL, that means your policy will pay a maximum of $300,000. All of that could go to one person, if needed. Some companies include property damage liability in the CSL, which means that if you total someone's antique car, your policy could pay up to $300,000 for property damage. CSL coverage costs more than traditional limits, but it can be worth it if you have any significant assets.

* Tip. Many contractors insurance agents believe CSL is so important to have, they strongly urge their clients to buy it if it is available.

Property Damage Liability — Several years ago, $25,000 was considered the maximum most people needed for this coverage. Not anymore. There's a lot of $50,000, $60,000, even $70,000 cars and sport utility vehicles on the road these days.

* Tip. Because of all the super-expensive cars on the road today, you should seriously consider at least $50,000 of coverage, assuming you don't have CSL coverage; $75,000 might be preferred.

Collision — Consider how much you can afford to pay to have your car fixed if you have an accident. Auto policies have several deductible options.

* Note. Deductible? That's the part you pay before the insurance kicks in. You can buy deductibles of $100, $250, $500, even $1,000. Obviously, the lower the deductible, the more this coverage will cost.

Unless you're planning to have a lot of accidents, it's probably a good idea to have a deductible of at least a couple of hundred dollars. (By the way, the deductible does not apply if someone else hits you and that person's insurance is used to pay for your car's damages.)

Comprehensive — Like collision, there's a deductible with comprehensive, although it is often lower. For example, if you have a $250 deductible for collision, your comprehensive deductible will be, say, $100.

* Note. While collision and comprehensive will pay for the damage or loss to your car, neither coverage will pay for everything on or in your vehicle. Most policies exclude things like CB radios, two-way radios, car phones, cassettes and CDs.

Further, if you add special features to pickups, vans or SUVS, these things probably will be excluded as well. In fact, it's a good idea for you to talk to your contractors insurance agent about any high-tech equipment or special features you have added to your vehicle.

Many, perhaps even most, of these features aren't covered in the standard policy. It is possible, however, to obtain special coverage for the high-tech equipment or special features in your vehicle. Your contractors insurance agent can advise you of the options. Medical Payments (also called Personal Injury Protection) — In the state of Oregon you must buy this coverage, its state mandated by law. Now you can increase the minimum limits for pennies.

* Note. Unlike your health insurance, medical payments coverage can reimburse you for income lost as a result of injuries suffered in an auto accident. However, medical payments coverage is not nearly as comprehensive as most health insurance plans. Still, medical payments coverage, which usually costs less than $100 a year, is probably a good buy for most people.

In addition, medical payments coverage provides protection for passengers in your vehicle for medical expenses incurred and income lost. In some states, medical payments coverage is not relevant. These are states that have so-called no-fault auto insurance systems. Basically, regardless of who's at fault, your contractors insurance company pays for damage to your car and/or injuries you incur. Personal injury protection is included as part of your coverage.

Uninsured/Underinsured Motorist — For most people, it's a good idea to have the same limits for UM/UIM as they have for bodily injury liability. But remember, UM/UIM coverage is for you. It pays for your injuries and, in some policies, damage to your car if the person at fault in an accident with you cannot. Since you based your liability limit on what you have to lose, you should do the same with UM/UIM.

Who is Covered when You Buy Auto Insurance?

All the coverages in your auto policy apply when you are driving, but they also apply when other people are driving your vehicle. The coverages are actually for the car, not the person.

* Note. However, if someone is going to be a regular user of your car, that person's name needs to be added to the policy.

Your contractors auto insurance company wants to know who's going to be using the car. That stands to reason. After all, you could be a great driver, with no tickets or accidents. But your spouse, your teenage child, your reckless cousin could be a lousy driver. If you let these people drive your car without telling your insurer and these people keep getting in accidents, your contractors auto insurance company isn't going to be very happy. In fact, the company will probably cancel your policy.

* Tip. It's not wise to risk losing your policy by failing to disclose who's driving the insured vehicle. Keep in mind, however, that if you add drivers with lousy records or who haven't had much driving experience, your premiums will definitely go up.

Any parent of a driving teenager can tell you this. Teenagers are notorious for getting tickets and having accidents. They are also very inexperienced drivers. As such, when your child gets his or her license, your insurance premiums will go up when you add your child to the policy. If you buy all six of the major auto insurance coverages, your policy will cover you in most every instance in which you cause damage or injury to your car, yourself, your passengers, or drivers and passengers in other vehicles.

But not all.

* Note. The standard auto insurance policy has some "exclusions," which is insurance for, "We won't cover that." Here are some examples where your auto policy won't provide coverage:
  • If you intentionally try to cause damage to your car or another vehicle. This includes liability coverage.
  • If you are using the vehicle to transport other people for a fee. (This does not apply to car pools where the expenses are shared)
  • If you are using the vehicle for certain business activities. This does not include traveling to see clients or taking a standard business trip.

    For damage caused by normal wear and tear, freezing, mechanical or electrical breakdown, or road damage to tires.

    If your car is damaged because of radioactive contamination, intentional or accidental discharge of nuclear weapons, war, insurrection, rebellion or revolution.

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