Crash Course on Auto Insurance Coverage

Here's the second part of Vern Hayden's primer on how to deal with an auto accident.
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Wow! If there is any comfort in numbers, you made me really comfortable this week.

Thanks for all your email responding to last week's

column about what to do if you're in an auto accident. Some of you told me about accidents that were pretty bad, and I deeply appreciate the time you took to write.

I couldn't help but chuckle at the email that started, "My wife totals a car every third year ... always her fault." An interesting way to get a new car every three years. Just hope the body holds up. (You know I'm kidding, right?)

Then there was the message that almost got me down for a minute: "You shouldn't be wasting our time with articles like this. Cut out the clutter and stick with the stuff we care about." Not sure I've ever found unanimous approval on any subject.

Here are some helpful ideas about car accidents from your email:

  • Keep a disposable camera in the glove compartment. Take pictures of both cars and even the people involved.
  • Some states require every driver to carry an insurance card. The driver should be able to produce it.
  • Thomas Delosso, a body shop owner in New Jersey, urges people to include rental coverage in their policies. Policies can be purchased that will pay up to $30 a day toward renting a car while yours is in the shop for repairs. He suggests being aware of whether your insurance company requires the use of aftermarket repair parts, rather than original parts from the manufacturer. If you have a newer car, you may prefer new parts.
  • Trey McLendon of Texas loaned his car to a friend who had an accident. Unexpectedly, Trey ended up with the liability. "After research, I found that in my state, Texas, all liability in accidents follows the vehicle. ... Know the rules of your state," he urges.
  • Brett J. Bayer, an attorney, says, "I've litigated a large number of auto accidents in a variety of jurisdictions. You should be aware that the law varies greatly both in substance and procedure."
  • Have a good first-aid kit in the car.
  • You may not have to file a claim with your company if you're not at fault. I suggest that you always check in with your agent or company and get professional advice on this.
  • If there is any hint of a legal problem, you or the insurance company should retain a skilled attorney. Do this as early as possible.

My accident turned out to be a pretty simple process. I reported it to my company. The company spoke with the other driver involved, and after a couple of estimates from repair shops, it authorized the repairs. Fortunately, there were no claims for personal injury.

This experience did cause me to dig out my auto insurance policy and check it out. Just out of curiosity I asked 10 people what the three figures, 100,000/300,000/50,000, on an auto policy's declaration page meant. Two of them were pretty accurate, but the rest were almost totally lost.

So, here is a simplified ready reference guide to your auto policy. Every state is different, so when you start looking at details, check out your state's requirements. Also, for full details and answers to any legal question, be sure to check with your agent or insurance company.

Keep in mind that insurance is nothing more than an agreement to pay someone else to accept a risk. You have to decide which risks you can or cannot accept. For example, you could afford to pay the first $200 (a common deductible amount) of repairs to your car after a collision. You probably couldn't afford (or wouldn't want to pay) a $200,000 judgment for bodily injury incurred by someone in an accident caused by you. An insurance policy is a liability policy that will not only pay for judgments but also provide legal defense for covered claims, saving you from devastating legal bills. Most states require auto insurance. The minimum coverage requirements are generally not enough to provide adequate coverage.

Here are the main parts to an auto insurance policy. The amounts of your coverage generally are on separate pages called, "Declarations to the Policy." This summary serves only as a quick reminder and checklist for you.

Liability

There are two kinds: bodily injury and property damage. This is where you will see the 100,000/300,000/50,000 numbers I mentioned earlier. The first indicates the policy will pay up to $100,000 for one person's bodily injury. The second amount is a $300,000 maximum the company will pay for all people involved in an accident. The third number is a $50,000 maximum the company will pay for property damage. Most states only require coverage levels of 25,000/50,000/5,000, which are totally inadequate.

Medical Payments

A typical policy will pay up to $10,000 per person for medical bills. This coverage can go beyond your car, so check for other details. You can generally pick the amount of coverage you want.

Uninsured Motorist

This enables you to collect from your own insurance company if you are injured in a variety of circumstances, for example, if the driver who caused the accident flees the scene or has no insurance. It also could include being struck by a vehicle while riding a bike or crossing the street. It can also pay for pain and suffering, loss of income and permanent disfigurement. You also should ask your agent about

under

-insured coverage.

Damage to Your Auto

Collision coverage pays for damage to your car caused by a collision. "Comprehensive" coverage covers other types of damage to your car, such as vandalism or theft. This is part of your insurance where you pick a deductible amount such as $250 or $500 for both kinds of damage. The deductible is what you have to pay before the insurance kicks in. A higher deductible will lower your premium.

Other Special Coverages

  • Personal injury protection. For example, you could get coverage up to $50,000 per person or per occurrence. That includes medical expenses, some death expenses, loss of earnings and a few other reasonable per diem expenses. You choose a deductible, generally up to $200.
  • Rental reimbursement. The standard amount seems to be $15 a day, but try to get extended coverage to $30 a day.
  • Coverage for towing and repair costs while on the road should be considered, either through your insurance policy or through a provider like the American Automobile Association.
  • Full coverage for replacement of window glass. Considering the way trucks can throw debris into your windows, this is a must.

That's it -- your personal, but very general, checklist on car insurance. Believe me, this is a big deal. One of my handball buddies is a great trial attorney. He settled a case out of court for a little more than $12 million. The 33-year-old victim will have no financial worries, but he gets around in a wheelchair and has more ongoing treatments than I care to discuss. While he would gladly trade the millions for his original health, without the insurance involved in the case, his life would be very different today.

Next week, I will open the "umbrella" and give you some practical guidelines on insuring your home. If you have any specific questions or comments on homeowners' insurance, please email me at

hayden@cwixmail.com.

Vern Hayden is a certified financial planner with American Planning Group in Westport, Conn. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at

Hayden@cwixmail.com.