Auto Insurance

Understanding auto insurance

BI? UM? PIP? Trying to make sense of your automobile policy coverage options and the limits that you need? We can help!

We’ve covered the basics below, which provides the information you need (including acronyms!) to understand your automobile insurance policy and coverage options.

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Auto insurance basics

An automobile insurance policy is designed to provide you with a level of protection against property, liability and medical costs if you are involved in an accident.

  • Property coverage pays for damage to or theft of your car.
  • Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
  • Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

Comprehensive and collision coverage

Though state laws may not require you to purchase both collision and comprehensive coverage for your policy, doing so can protect your financial well-being. Read on to learn more about these types of coverage.

Collision coverage

Collision coverage pays for the cost to repair damages to a vehicle due to an accident, either with another vehicle or an object. Typically, you will collect only the actual cash value of your car versus the replacement cost value. Gap insurance protects you in the event you owe more than your vehicle is worth.

  • Collision coverage is generally the most expensive portion of a car insurance policy.
  • Premiums are based on a number of factors, including your deductible, driving record and the type of car you drive. If your driving record is fairly clean (no or very few tickets or accidents), your premiums will be lower because you are less likely to have a collision.

Comprehensive (Other Than Collision or OTC)

Comprehensive coverage pays for damage to your vehicle that is caused by theft, vandalism, fire, natural disasters or hitting an animal.

  • Comprehensive coverage comes with a deductible and the insurer will only pay as much as the vehicle is worth at the time of the incident.
  • To calculate how much your car is worth, look up the Kelley Blue Book value or the National Automobile Dealers Association’s Official Used Car Guide value. If your car is low in value, the yearly premiums for comprehensive coverage may not be a sound investment.
  • Comprehensive coverage has many limitations, so it’s best to review your policy carefully to make sure you are properly covered.

Selecting deductibles

Collision coverage is generally sold with a deductible of $250 to $1,000; comprehensive insurance is usually sold with a $250 deductible. When deciding on a deductible that’s right for you, take into consideration your available cash, disposable income and the value of your vehicle.

Selecting liability limits

Most states require car owners to purchase a minimum of bodily injury and property damage liability insurance. In the event of a serious accident, you want enough insurance to cover a judgment against you in a lawsuit, without jeopardizing your personal assets, such as your home and savings.

Benefits of raising your limits

While it can be tempting to pay the lowest amount possible for auto insurance, doing so can leave you exposed to serious financial risks. Securing higher limits can offer sound financial protection and provide you with peace of mind in the event of an accident.

If you get into an accident, there’s a chance you could be sued. When this happens, minimum liability coverage may not be sufficient to cover the damages, and you could end up paying thousands of dollars out of your own pocket.

What’s more, if you cause an accident and your liability limits are too low to cover the expenses, the other party might go after your assets in court.  To protect yourself, it’s important to think critically about how much coverage you need and to secure the proper limits.

The higher you set your coverage limits and the lower you set your deductibles, the less you’ll pay out of pocket after a claim. Be sure to determine how much you can comfortably afford when setting your coverage limits and deductibles. Raising your limits and paying a little more each month will allow you to get the most out of your investment.

Liability protection

Bodily injury liability (BI)

Mandatory in most states, this covers injuries that you, the designated driver or policyholder cause to someone else. Claims for bodily injury include medical bills, loss of income, or pain and suffering. It does NOT cover the cost of damage to your vehicle, or to you or other people on your policy.

Property damage liability (PD)

Covers you or someone driving the car with your permission if the car damages someone else’s property. It also provides you with legal defense if another party files a lawsuit against you.

Medical payments (MP) or personal injury protection (PIP)

This no-fault coverage provides medical expenses to you and your passengers injured in an accident. Medical payments may also cover policyholders and their family members when injured while riding in someone else’s car or when they are hit by a car while on foot or bicycling. If you and your regular passengers already have health insurance that covers similar expenses, medical payments coverage may be unnecessary. Check your health insurance policy for details.

Uninsured or underinsured motorist coverage (UM or UIM)

This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver. Underinsured Motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.

Top ways to save on your auto insurance premium

  • Consider raising your deductible.
  • Keep up your good driving record.
  • Drive less to qualify for a low-mileage discount.
  • Drive a car with safety features such as anti-lock brakes, airbags, etc.
  • Install an anti-theft device.
  • Ask about our multi-policy discounts.
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Customize your policy

When it comes to auto insurance, you have many options. Contact us today. We will be able to discuss different ways to customize auto insurance policies—including adjusting collision, comprehensive, medical expenses, uninsured motorist and no-fault coverage. We can also recommend specific policy limits given your situation.

Additional coverages available

  • Rental car
  • Accident and minor violation forgiveness
  • Total loss deductible waiver
  • Glass and windshield
  • Road service
  • Medical payments
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Home and auto bundle

Home and auto insurance protects the policyholder from large expenses resulting from loss, damage and injury associated with his or her home, property and automobile. The two types of insurance—homeowners and automobile—are separate products but are frequently bundled, or purchased together, which usually results in a discounted rate.

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