AUTO INSURANCE: WHAT COVERAGES DO I NEED?

by Eric N. Allen July, 2011

Everyone who drives a motor vehicle on public roads in Indiana is required to have liability insurance coverage. Purchasing insurance is thus a common experience for responsible citizens, and insurance companies spend significant sums of money competing for that business. However, a visit to an insurance company or agent can be a complicated experience as multiple types of coverage are offered for sale. So what is meant by the term "coverage", and what kinds of coverage do you really need?

An insurance policy is a contract between a purchaser and an insurance company that will require the insurance company to pay money upon the occurrence of any event that is "covered" under the policy. An event is "covered" if it is identified as an event in the policy to which the insurance applies. Automobile insurance policies provide coverage for damages suffered upon the occurrence of a covered event that resulted from the use or ownership of an insured automobile.

Automobile insurance coverages are divided into several categories. The most common coverages that are available for purchase are the following:1

Liability-Bodily Injury. This coverage is for damages for bodily injury to others for which you, as the insured, are legally responsible. If you are sued, it also pays for your defense and court costs.

Liability-Property Damage. This coverage is for damages due to injury to another person's property for which you are legally responsible. If you are sued, it also pays for your defense and court costs.

Uninsured Motor Vehicle. Uninsured Motor Vehicle Coverage provides coverage for you, under your policy, your spouse or resident relative if injured by a negligent driver who does not have any bodily injury liability insurance coverage.

Underinsured Motor Vehicle. Underinsured Motor Vehicle Coverage provides coverage for you, your spouse or a resident relative if injured by a negligent driver who has bodily injury liability insurance, but not enough to pay for your damages.

Comprehensive Coverage. Comprehensive Coverage provides coverage for a motor vehicle that is stolen or damaged by causes other than collision or upset. Examples of such causes could be fire, wind, hail, theft or vandalism.

Collision Coverage. Collision Coverage provides coverage for a motor vehicle car that is damaged by collision with another object.

Emergency Road Service. This coverage provides reimbursement to the insured for certain mechanical breakdowns or other events, such as locking your keys in your car.

Car Rental and Travel Expense. This coverage provides reimbursement to the insured for the costs of a rental car and other travel expenses incurred when you experience an event that is covered under your Comprehensive or Collision Coverage.

Medical Payments. This coverage pays for medical expenses incurred for reasonable and necessary medical treatment and rehabilitative services as the result of bodily injury to an insured arising out of the maintenance or use of a motor vehicle.

State law requires the owner of each licensed motor vehicle to maintain a minimum amount of liability coverage and uninsured coverage for that vehicle. The policy behind this requirement is that driving is a privilege, and as a condition of the right to exercise that privilege, the owner and/or driver of the motor vehicle should be required to maintain insurance coverage to protect anyone who may be injured by the actions of the driver.

However, we all realize that laws are not always followed and that a certain percentage of vehicles on the road are being operated without insurance. As a result, the law also requires each insurance policy to include uninsured motorist coverage, which is designed to provide a degree of insurance coverage for the insured in the event that another vehicle who is at fault for the collision does not have insurance. Beyond these required coverages, the remainder of the available types of coverage are optional (unless you have a loan on your vehicle, in which case the lender will always require collision and comprehensive coverage).

As consumers who purchase insurance products, we must always balance the cost of coverage against the anticipated benefits of purchasing any particular coverage. Obviously, if we somehow knew in advance that we were going to cause an accident that would result in great personal injury to someone else, we would purchase as much liability coverage as we could possibly afford both to protect that person and to protect our own personal assets. It is rarely advisable to purchase only the "state minimum coverage," unless you have no assets to protect, you do not believe you will be acquiring any assets in the future, and you don't care that someone might be severely injured and receive little compensation as the result of your negligence.

We have found that people rarely think about the importance of both underinsured and medical payments coverage. We strongly recommend to our clients that they purchase underinsured coverage in an amount at least equal to the amount they have purchased for liability coverage. The reason for our recommendation is that underinsured coverage is the coverage that truly protects you from a driver who has chosen to only purchase state minimum coverage.

Without underinsured coverage, you and your family could be financially decimated in the event of a traumatic injury to you or a family member caused by a driver who has only purchased the minimum policy coverage required by law. In that circumstance, your compensation would be limited to the amount that driver purchased for his or her liability insurance, plus whatever assets that the driver may have over and above what the law allows him to exempt from his creditors (which is generally very little for drivers who purchase state minimum coverage). By purchasing underinsured coverage, you protect yourself and your family (up to the limit of underinsured motorist coverage that you purchase) against the risk that an irresponsible, underinsured driver will cause significant injury to you.

This same recommendation applies to medical payments coverage. This coverage is a "no fault coverage," meaning that your insurance company will pay medical expenses for the occupants of your motor vehicle, regardless of whether the accident was your fault or the fault of another driver. Experience has taught us that while the cause of the accident may seem obvious to you, and in turn you feel that the insurance company for the other driver should be immediately paying your medical expenses, that rarely happens. The other insurance company may be in no hurry to respond to your request as you are not the insured under that policy, it may dispute your version of the accident, or it may simply refuse to pay you a portion of your claim until you agree to settle the entire claim.

In addition, some health insurance companies resist paying medical claims that arise out of motor vehicle accidents. As a result, without medical payment coverage, doctors and hospitals become impatient and begin pressuring you for payment of the medical debts. Because of that, some people feel pressured to settle their injury claim for far less than its true worth just so they can get their medical expenses paid. Having an adequate amount of medical payment coverage in your own policy takes away that pressure and gives you the time to settle your claim when you are ready to settle it.

Your insurance agent has probably encouraged you to review your coverage on a periodic basis and that is certainly good advice, because once a loss has occurred, it is too late to add a coverage type or to increase the amount of any coverage. Should you become involved in an accident and suffer either personal injury or property damage, do not hesitate to call us for assistance in understanding the coverages available to you or for representation on the claim.