Automobile accidents can have a catastrophic impact upon ones financial well being; however, nine times out of ten consumers simply accept the automobile insurance coverage that is recommended by their insurance agent. This is probably because most people do not believe that they will ever be in an automobile accident (because of their superior driving skills), because they do not fully appreciate the financial loss that they could suffer, or because being knowledgeable about the topic is not as sexy as being knowledgeable about the stock market. Notwithstanding this lack of sex appeal, this post will discuss a few of the basic automobile insurance policy features that consumers should be aware of when purchasing or renewing their automobile insurance policy.Auto policies are generally divided into four “parts,” namely Part A, Part B, Part C, and Part D. Part A provides liability coverage for both bodily injury and property damage inflicted on third parties. This coverage comes into play if the insured was negligent and that negligence caused harm to the person or property of another. This coverage generally extends to the named insured, his or her spouse (for 90 days past the date they cease to live with the insured), and family members who reside with the insured or his or her spouse. This coverage also extends to persons who are using the vehicle with the insureds permission. If a driver other than the insured has his or her own insurance policy for a different vehicle, the policy for the insured’s vehicle will cover any accidents involving the insureds vehicle.

Several hazards are specifically excluded from Part A coverage, including use of the vehicle for business purposes, intentional injury or damage, and damage to property being transported by the vehicle. Given the litigious society that we live in, it is essential to one’s financial well being that they carry adequate Part A coverage and that they not operate the vehicle in a manner that will cause damages to be excluded from Part A coverage. Part A coverage is expressed in the following format: $25,000/$50,000/$10,000. The first limit is the maximum amount that will be paid for all bodily injury claims; the second limit is the aggregate that will be paid for all bodily injury claims; and the third limit applies to aggregate property damage claims.

Part B provides medical payments coverage for the insured and occupants of the insured vehicle. This coverage is typically some set dollar amount for each injured person, such as $10,000 for each injured person. This coverage will pay out regardless of which party was at fault and it will provide for medical or funeral costs associated that occur within three years after the injury. Insurance companies will not write policies without this type of coverage (and the cost is minimal).

Part C provides uninsured motorist coverage. Uninsured motorists coverage is now required by most states. This coverage provides compensation to insureds who have suffered bodily injury in an auto accident with an at-fault motorist who had no insurance or was underinsured, for hit and run situations, or where the other driver’s insurance company denies coverage or becomes insolvent. Uninsured motorists coverage generally covers the insured and his or her family members and any other persons occupying the insured’s vehicle.

Part D provides coverage for damage to the insured vehicle. This includes direct and accidental physical damage (including theft) to the insured’s vehicle and any non-owned vehicle. The coverage provides for collision and comprehensive coverage. Collision refers to an impact with another vehicle or object and comprehensive refers to almost all other non-collision damage. Comprehensive and collision is relatively expensive, so many owners of older vehicles opt to forego this coverage and add uninsured motorist property damage coverage, which is substantially cheaper. Insureds that do this are saying that the cost of insurance payments exceed the cost of the vehicle and they gamble that their health insurance will cover any physical harm to themselves. This may be problematic for passengers who have no health insurance or for other types of property damage (such as damage from falling objects).

These are the major parts of most automobile insurance policies. Most Americans should also purchase umbrella liability policies. Umbrella liability policies provide coverage for catastrophic legal claims or judgments in excess of the insureds automobile insurance coverage. These policies provide coverage in $1 million dollar increments; however, they are relatively inexpensive.

With these concepts in mind you should be able to review your most recent insurance declarations page, realize some of the areas in which your coverage is inadequate or unnecessary, and call your insurance agent and demand an explanation!

By: Robert Klein
Klein & Klien Insurance Consultants
1811 Santa Fe
Houston, Texas 77703