Insurance can be confusing. I personally think the industry has done that to itself with commercials that talk about everything EXCEPT what’s really important to most customers and their families. What do you REALLY need to know? It seems like everything is a big SECRET. This will help you de-mystify the jargon and help you understand what is TRULY IMPORTANT TO YOU.
1. Cheap Car Insurance Is Good, Right? – I know. I’ve seen all the same commercials on T.V. that you have. Everyone tries to Out-Shout each other claiming they can save you hundreds on your car insurance. Price is important, but it’s not everything. I often tell clients that it’s the same as buying anything else: you always get what you pay for. If you were looking for a pair of sunglasses, and you found a pair for $5 at a convenience store – you’d expect to get a pair of $5 sunglasses. So when they were lost or broken or didn’t fit your face right, you’d be OK with that because you know you bought a pair of $5 sunglasses. However, if you bought a pair of prescription, designer sunglasses from your local optometrist for $200, you’d expect to get something that wouldn’t easily break, scratch and that would be very comfortable to wear. In essence, you’d expect to walk out the door with something of exceptional value. The same goes for car insurance and anything else you buy. Anyone can sell you a stripped down policy for cheap. And that’s just what you’ll get.
Fact. Cheap is just that: Cheap. Making sure you get the coverage you need at a price you can afford is the most important thing you can do before paying your next insurance bill.
2. What Is the Single, Most Important Coverage I Need? – Most States have mandatory, required liability limits for a reason: Promoting Public Goodwill! Liability is the part of your policy that pays for medical bills and property damage that you are legally responsible for if you are determined to be at-fault in an accident. However, most of these limits were established in the 1970’s, when the cost of healthcare and property were substantially less than they are now. (The average annual income in 1975 was $8,000! – My, how times have changed… ) The States have not kept pace on the required liability limits with the rising costs of healthcare or even inflation! When is the last time you heard of a lawsuit for less than $1 Million?? If you have $15,000 to $30,000 to throw at a lawsuit that size, where are you going to get the rest?? Liability limits are offered from the minimum State requirements all the way up to $2 Million for any bodily injury or property damage that results from a car accident. Without enough liability, you could be faced with financially devastating lawsuits if you hurt someone badly in a car wreck.
Fact. Liability is the least expensive coverage on your policy and does the most good for you. For less than $0.99 a day, you can purchase substantially more liability to protect your family from lawsuits and avoid the pain of bankruptcy.
3. What is Full Coverage? – There is no such thing as “Full Coverage”. If an insurance company sold you every coverage they had in their arsenal, there would still be things that wouldn’t be covered. An example of this is using the vehicle for illegal activity. Running from the police, smuggling drugs or other illegal substances or people, and intentional criminal acts are good examples of things that would never be covered if your vehicle was damaged or destroyed. In the 1989 movie “Steel Magnolias”, Shirley MacLaine’s character rams her car into another car that beat her to a parking space at the grocery store. The whole time, she’s saying “I’ve got insurance!” Intentional destruction of personal property is a real crime, and that would not be covered by any insurance company I know of.
There are really only two coverages you are able to purchase commonly referred to as “Full Coverage”.
Collision coverage is the first of these. Collision is the only place in your policy you can find money to repair your vehicle if you wreck it and it is determined to be your fault. In No-Fault States, like Colorado, if your vehicle is damaged in an accident, your Collision Insurance is the only place you’d find funds to fix your car, even if the accident was caused by another driver.
Comprehensive coverage is the second of these coverages, and it protects your vehicle from non-collision related losses like fire, wind, hail, theft, vandalism, falling objects like trees and falling rocks from a hillside, and hitting animals.
Typically, banking institutions force you to have these coverages while you are financing a vehicle so they (the bank) are financially protected from loss if your vehicle is wrecked or destroyed while they are still carrying the note on it.
Tip. If you’re vehicle’s book value is in the low thousands, you may want to seriously consider dropping these coverages. There is a point when your vehicle’s value no longer justifies you paying extra to protect the depreciated value. Your agent can help you determine what the value of your vehicle is and show you how much you are spending to protect that value.
4. If I Am Covered Under My Major Medical Provider, Like Blue Cross/Blue Shield, Do I Really Need Uninsured Motorist Coverage? – If you are paying someone else for health care coverage, why do you want to give another insurance company more money for the same thing? In most cases where vehicles are covered with Collision and Comprehensive, AND where you have health care coverage for you and your family with a Major Medical provider it doesn’t matter if an uninsured person hits you and hurts you. You know your medical bills will be paid anyway by your Major Medical provider.
Note. To make an informed decision about whether or not you should carry Uninsured Motorist coverage, talk to your agent about the actual risk you have right now.
5. I Have Expensive After-Market Rims and Tires or Stereo Equipment Installed in My Vehicle. Are Those Items Covered By My Policy? – I know clients that spend a substantial amount of money to “customize” their vehicle. Some spending upwards of $10,000 to obtain accessories that make their vehicle different. The basic rule of thumb to determine if these valuables are covered under your policy is simple. If they are installed in the same spot as the factory-installed stuff, you are covered. Rims and Tires are obviously going to be installed in the same location as the rims and tires that came with the vehicle from the factory. Stereo equipment can be installed in the same spot as the factory stereo, but some of the accessories, like amplifiers and speakers that are placed in other spots (under the seats, in the trunk of the car, etc) are NOT covered under your personal auto policy with any provider.
Tip. If you’re adding accessories to your vehicle, ask your agent if they’ll be covered or not.
6. Is My Tom-Tom GPS, Cell Phone, or Radar Detector Covered If My Car Is Broken Into and They Are Stolen? – Your policy only covers the vehicle. Personal property stolen from inside a vehicle is never covered under the vehicle policy. Only a Personal Property policy, like Homeowners, Renters, or Manufactured Home insurance will cover your personal property inside the vehicle.
Tip. As a general rule, most everything not factory installed in your vehicle is not covered in your car insurance policy. Ask your agent how your property policy works in conjunction with your auto to get you the most protection.
7. What Will Cause My Auto Claim To Be Immediately Denied? – Auto insurance companies all have the same basic set of rules for this they outline in the policy document. The main reasons your claim could be denied are 1) driving without a license or on a suspended license, 2) coverage was lapsed at the time of the accident, or 3) a newly-acquired vehicle was not added to the policy within the 30-day window after the vehicle was purchased.
Tip. Make sure you ask anyone that you allow to drive your vehicle if their license is active and valid, pay your premiums on time, and make sure you add any newly purchased vehicles to your policy as soon as you are able to contact your agent.
8. If My Car Is Totaled, How Much Will My Insurance Company Pay To Cover The Loss? – Generally, most major insurance companies cover your vehicle for its “Actual Cash Value”. Actual Cash Value is the depreciated value of your vehicle at the time of the accident where it was totaled. Every insurance company has their own system for valuing vehicles. The closest you will be able to get to this rate is by averaging your Kelly Blue Book values for Trade-in and Private Party. This will give you a great idea of the average value an insurance company will pay you if your vehicle is totaled. This is the highest value and the lowest value available to you as the owner of the vehicle. Some policies, usually for Classic Cars, allow you to insure the vehicle for Stated Value, or “agreed-upon value”. Most personal auto policies do not allow you to insure a vehicle for Stated Value.
Tip. Check with your agent to find out what your vehicle’s actual cash value is. No one likes sticker-shock when they receive a claim check for a total loss.
9. If I Need New Parts For My Car, Will My Insurance Company Pay For Original Manufacturer (OEM) Parts? – In the recent past, many insurance companies guaranteed OEM parts. When the major car companies foundered in the recession, many of them got stuck assuming those parts would be readily available. When insurance companies were faced with a national shortage of parts for vehicles made by companies that were now bankrupt, all of them changed the wording of their policies to change this in order to protect themselves from lawsuits. Now it is the norm for aftermarket parts to be used to repair vehicles, as they are more readily available and no noticeable difference is visible in the repairs most body shops make.
Fact. Many insurers now restrict or severely limit the use of OEM parts in their repair estimates.
Tip. If you’d like to know what parts are actually being used to repair your vehicle, the best option is to ask your body shop what kind of parts they intend to use for your repair. If OEM parts are available, you may consider asking your insurance adjuster to cover the extra cost for OEM parts.10. If I Am Killed In an Auto Accident, What Does My Family Get? – Most people assume if they are killed in a car wreck that their family will receive some sort of death benefit from the auto insurance company. That is simply not true. Some States offer a small death benefit in their medical payment/ personal injury protection coverages, but most do not. Medical Payments coverage will pay up to the policy limits for medical bills only.
Fact. Life insurance is the only way to make sure your family receives some cash if you pass away as a result of a car wreck.
Tip. Some insurance companies offer discounted rates on your auto insurance if you also have a life insurance policy with them, and vice versa. To make sure you are getting the best deal, contact your agent.
I know the world of insurance can be confusing, but it’s important to know the right questions to ask your agent so you are in a better position to make informed decisions for you and your family. Our belief is that when you are properly educated about insurance by a real consumer advocate, your experience with our industry as a whole will be much more satisfying for you.