Car Insurance Terms Explained

Insurance can be confusing with all of its industry lingo.  Here are some of the most common terms and their explanations:

car accident

Bodily Injury to Others:  This is coverage that pays if you are found liable for the injury or death of others in an accident.  We recommend 100/300 for limits.  This means that you have up to $100,000 in coverage for Bodily Injury that you cause per person, $300,000 per accident.  In the litigious society in which we live it is always smart to have protection from lawsuits.  Which is why many opt for 250/500 coverage and these limits are often required when you have a personal umbrella policy.

Personal Injury Protection or PIP: Is a mandatory coverage that pays for medical expenses and lost wages of the insured person and people in the vehicle.  PIP is a “no-fault” coverage which means it is paid out regardless of who is at fault in the accident.  The benefit of this is that you can get paid for medical expenses before it is determined who caused the accident, which could take a while.  You usually use your own limits and submit a claim to your insurance company, but there are always exceptions.

Damage to Someone Else’s Property:  This coverage protects you if you are found liable for property damage in an accident.  So if you are found at fault in an accident and you damage another person’s car and/or a utility pole this insurance will cover the cost of those things.  It states on the insurance forms that $5,000 is the minimum required limit, so why would you choose a higher limit?  Answer is simple, the cost of things damaged will almost always well exceed a $5,000 limit.  We recommend a limit of $100,000 or $250,ooo for this insurance coverage. The cost to increase this limit is not all that much, most of the cost lies in the minimum $5,000.

Collision: Collision is an optional coverage that pays, minus the deductible, to repair or replace your car if it is damaged in an accident.  If you have a lease you are required to have this coverage.  Choose your deductible by the cost of your car to repair and your ability to pay out of pocket expenses.  Most common deductibles are $500 and $1,000.  The higher the deductible, the more you can save on your premium.

Comprehensive:  This is also an optional coverage.  It will pay for damage done to your car not from a collision, minus the deductible.  Examples of acts covered by comprehensive are: theft, vandalism, natural disasters (hurricanes, storms, etc.), hitting an animal, fire, or falling objects.

Uninsured/Under Insured: This type of coverage pays if the other driver has no liability coverage or does not have sufficient liability coverage, respectively. We have an extensive explanation of how this coverage works:

Hope we have clarified some insurance lingo for you.  Always if you have any questions please call us and we can help explain!

When Should You Drop Collision On Your Auto Policy?

Dropping collision coverage on your auto policy can be an easy decision once you consider the various factors. The first things to check are the premium cost for the coverage and the actual cash value (ACV) of your automobile. To find an estimate of the ACV of your car it isn’t an exact science. It is a combination of looking at Kelly Blue Book value and what your car is selling for at local dealerships. The closer the premium is to your ACV the easier the decision is to drop collision. The deductible on the auto is also an important factor to consider.

car crash

A good example is: if the value of your car is $2,000 and the premium is $450 with a $500 deductible and you get into a single vehicle accident, you are already invested $950 on a $2,000 car and that’s just one year of premium. This is when you would consider saving money on your $450 premium and drop the collision. However, if you are living pay check to pay check the $1,500 ($2,000 ACV – $500 ded) you would get from the insurance company if the car was totaled would at least give you some cash to buy a new car.

Some times when your car is older and/or has very high mileage you can consider dropping collision because the older your car is the lower its actual cash value is. However, if you are very dependent on that vehicle and you must repair it for daily transportation, then the decision may be a bit more difficult. Also, can you afford the out of pocket cost of an accident or is it easier for you to manage paying for the collision coverage in small amounts throughout the year?

Everyone’s financial situation is different, so consider all the factors before deciding to drop collision. If you would like to talk to us about this decision, please call us! We are always happy to help: