Top 6 Common Coverage Types
Understanding the different factors that may affect your auto policy premiums and coverages is critical to ensure that you have the right auto policy customized for you. Your policy should reassure you that if a car accident occurs, you and your family will not be left in a financially vulnerable position where you have to pay a large amount out of your own pocket. According to The CDC, the average cost of a single car accident in 2020 was around $78,000.
When policy shopping, make sure you understand the six most common types of coverage available to consumers on an auto insurance policy. Each type of coverage has a different limit and coverage trigger, but all of them are designed to protect you, your passengers, and your vehicle in case of an accident.
Bodily Injury Liability
If you, the policyholder, or anyone else that is either named on the policy or using the vehicle with your permission 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. Bodily Injury Liability can also pay the legal fees associated with being sued over an accident. This coverage is mandatory in Missouri.
Property Damage Liability
Similar to BI Liability, this coverage is designed to cover damages for the destruction of property you have caused in an accident. This policy type is usually triggered when you damage someone else’s vehicle, but also includes damages to public property such as 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 occur because of pretty much anything besides a collision with another vehicle. Some common triggers for this type of coverage include fires, floods, theft, vandalism, or hitting a deer. This coverage may also be triggered by a cracked or broken windshield, as long as 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. These expenses include medical necessities like X-Rays, Hospital Visits, Physical Therapy, and even at worst, funeral costs. Sometimes Medical payments coverage, also called med pay, only covers out-of-pocket expenses that your health insurance did not pay.
Uninsured/ Underinsured Motorists Coverage
Uninsured Motorists Coverage is intended to cover the personal injury damages caused if the policyholder is hit by either a driver who has no insurance at all, or a hit and run driver. Underinsured Motorists Coverage bridges the gap when an at-fault driver does not have sufficient policy limits to cover for the policyholder’s cost of medical bills and/or repairs. Uninsured motorist coverage is mandatory in Missouri whenever a liability policy is purchased. Underinsured motorist coverage is not always required, but since you buy both of these coverages to protect yourself and your family, it is wise to have as much coverage as possible.
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
- Ride-Sharing Coverage.
Deductibles & Premiums
Now that you understand the major coverages that you can use to build a strong 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 have to pay before the insurance company covers 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 on auto insurance premiums.
What if you are an insurance company who presents the bigger risk to your assets?
Higher risk factors mean higher premiums. For example, think about the likelihood of an accident happening because of a 17-year-old, driving a Ford Mustang, with no credit and a speeding ticket on their record in the Chicago suburbs, versus a 55-year-old, driving a Ford Edge in rural Missouri, with an average credit score and no moving violations on their record. The seventeen year old would definitely have the higher premium.
As we discussed last month, insurance should never be viewed as a “one size fits all”. When building an auto policy specifically, it’s important to be comfortable with the coverages, limits and deductibles you are paying for, and that those dollar values align with your financial situation and goals. For example, 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.
Auto Insurance is not only protection for your car, but also protection of your financial wellbeing. Each coverage discussed above should be used to your advantage. 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