It is critical that you understand the different factors that may affect your auto policy premiums and coverages. Having the right auto policy customized for you is essential for making sure that if an auto accident occurs, you and your family are not left in a financially vulnerable position and having to pay a large amount out of your own pocket. According to The CDC, the average cost of a car accident in 2020 was around $78,000.
When shopping for auto insurance it is imperative that you understand the 6 most common types of coverage available to consumers on an auto insurance policy. Each coverage functions differently, and are all designed to protect you, your passengers and your vehicle at the time of an accident. These 6 coverages each have their own limit and coverage is triggered differently by each limit. They are as follows:
- Bodily Injury Liability – If you, the policyholder or anyone else named on the policy or using the vehicle with your permission who is not specifically excluded causes a car accident that injures another person, this coverage will help pay for the cost of their medical expenses and lost incomes due to the injuries you have caused. BI Liability can pay the legal fees associated with being sued over an accident. This coverage is mandatory in Missouri.
- Property Damage Liability – Like BI Liability, this coverage is designed to cover damages for the destruction of property you have caused in an accident. This most often triggers when you damage someone else’s vehicle, but also includes damages to telephone poles, posts, fences, buildings, signage, or another structure. This coverage is mandatory in Missouri.
- Collision Coverage – This limit is designed to reimburse the policyholder for damages to their own vehicle resulting from a collision with another vehicle or property, even if the policyholder is at fault.
- Comprehensive Coverage – The purpose of this coverage is to reimburse the policyholder for any damages to their vehicle that does not happen in a collision with another vehicle. This coverage is most often triggered by fire, flood, theft, vandalism, or collision with an animal, such as a deer. This coverage may also be triggered by a cracked or broken windshield, if the insurance company does not have a separate limit for glass.
- Medical Payments Coverage – this covers treatment of injuries to the policyholder and/or passengers in the car at the time of an accident. Most often these expenses include X-Rays, Hospital Visits, Physical Therapy and even at worst funeral expenses. Sometimes Medical payments coverage, or med pay, only covers out-of-pocket expenses that your health insurance did not pay.
- Uninsured/ Underinsured Motorists Coverage – Uninsured Motorists Coverage is designed to cover the personal injury damages when the policyholder is hit by a driver with no insurance at all or a hit and run driver. Underinsured Motorists Coverage covers the gap when an at-fault driver does not have sufficient policy limits to pay for the policyholder’s cost of medical bills and/or repairs. Uninsured motorist coverage is mandatory in Missouri when a liability policy is purchased. Underinsured motorist coverage is not required, but because you buy both of these coverages to protect YOU and your family, it is wise to buy as much as you can afford.
- Other Types of Auto Coverages Available to Consumers – Rental Reimbursement Coverage, Transportation Expense Coverage, Auto Gap Coverage, Towing and Labor Cost Coverage, Classic Car Insurance and Ride-Sharing Coverage.
Now that you understand the major coverages that you can use to build an auto policy it is important to understand other underwriting factors that will impact your premiums. A general rule of thumb is the higher the deductible, the lower premium. A deductible is the portion of comprehensive or collision damages you must pay before the insurance company has to pay anything. A lower deductible equates to more coverage, thus you will have to pay more in premium. In addition to the deductible amount, other factors such as age, marital status, location, number of average miles driven per year, credit score and driving record have significant impacts of auto insurance premium.
If you are an insurance company who presents the bigger risk to your assets? A 17-year-old, driving a Ford Mustang, with no credit in Chicago suburbs and a speeding ticket on their record or a 55-year-old, driving a Ford Edge in rural Missouri, with an average credit score and no moving violations on their record? Higher risk means higher premiums.
As we discussed last month, insurance should never be viewed as a one size fits all. It is important, when building an auto policy specifically that you are comfortable with the coverages, limits and deductibles you are paying for and that those dollar values align with your financial status and goals. The Missouri liability minimum of $25,000 may be enough to protect someone with limited assets from financial ruin, but is not much protection to a person with millions in assets. Likewise, someone with minimal assets does not need to pay expensive premiums for the highest levels of liability coverage. Because underinsured motorist, uninsured motorist, and med pay coverages protect you, it is wise to buy as much coverage as you can reasonably afford.
Auto Insurance is not only protection for your car, but also protection of your financial wellbeing, and each coverage discussed above should be used to your advantage to protect yourself. Talking about your insurance and financial goals with an expert will make sure you get the coverage you need and peace of mind as well.
Should you have any interest in discussing which coverages, limits and deductibles may be right for you please give me and my team at Cornerstone Insurance Group a call as we would love to help you protect your vehicle and financial certainty.
Written By: Maxwell Rowe, Consultant