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Monday, September 06, 2010
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Common Coverages

The following information briefly explains the components of the personal auto policy (PAP), as well as the persons and events typically covered under such a policy.

Anatomy of the personal automobile policy (PAP)
Declarations page: Your PAP is a written contract between you and your insurance company. The policy's declarations page contains accurate information concerning you (as the owner of the policy), the vehicles covered by the policy, and other identifying features.

Part A--liability coverage: Liability coverage insures you against injuries you cause to other people and damage you cause to other people's property in an automobile accident. Liability claims for pain and suffering can be virtually limitless, so this is one area in which you definitely do not want to be underinsured. The PAP separates liability coverage into two parts: bodily injury coverage and property damage coverage.

Part B--medical payments coverage: Medical payments coverage (med pay) pays medical expenses resulting from an automobile accident up to a specified dollar limit. The purpose of "med pay" is to provide payment for immediate medical treatment for passengers of your car who are injured in an auto accident. Because of this, there's no need to wait and find out who is at fault and ultimately liable.

Personal Injury Protection - (Minnesota) Coverage for medical, hospital, rehabilitation, loss of wages or loss of services costs resulting from injury to you or any resident family member. In case of death to the insured or a resident family member, death benefits and survivor benefits, if applicable, will be provided.

Part C--uninsured/underinsured motorist coverage: This coverage insures you against losses caused by someone who is completely uninsured or who has less than adequate insurance to cover the loss (underinsured).

Part D--coverage for damage to your auto: Part D coverage actually consists of two separate parts: collision coverage and comprehensive coverage. You can purchase either one or both of these coverages for each vehicle you own. In general, collision coverage insures you against damage to your vehicle caused in an accident. Comprehensive coverage insures you against all other physical damage to your car caused by such events as fire, theft, flood, and vandalism. These coverages can be written with or without a deductible (generally, anywhere from $100 to $1,000). The higher the deductible, the lower the premium, and vice-versa.

Part E--duties after an accident or loss: This part of the PAP deals with the specific procedures that must be follow in order to have your claim covered by the insurer. It contains a list of general and specific duties that must be complied with. It's essential to follow these procedures carefully, since timely payment of your claim may depend on your doing so.

Part F--personal auto policy provision: Part F of the PAP contains various provisions that limit and qualify the coverage provided in other sections of the PAP. Such provisions are commonly referred to as disclaimers. If the conditions set forth in this section are not met, the insurer may be able to deny coverage of a claim.

In addition to these basic parts included in every policy, there are certain optional coverages which can be purchased at an additional cost.

What's not covered

Exclusions: Your PAP identifies a number of events and situations that are specifically omitted or excepted from coverage. These are called exclusions. An example would be property damage and personal injury that you intentionally caused, or damage to a vehicle from normal wear and tear or mechanical breakdown.

Limitations: Your PAP also specifies certain caps on the dollar amounts of coverage you are entitled to receive under the policy. These are called limitations. Separate limits are generally set for liability, medical payments, uninsured motorists, collision, and comprehensive coverages.

It's important to read your PAP so that you're aware of all the applicable exclusions and limitations.

Individuals typically covered under a PAP

Named insured: One section of the declarations page identifies you as the named insured, meaning you are the individual who is primarily insured under the policy. As the named insured, you and your vehicles receive the most extensive coverage under your policy.

Spouses: Your spouse is generally entitled to receive the same coverage as you (the named insured) under your policy if he or she lives with you, even if he or she is not identified as a named insured on the declarations page of your policy.

Family members: Family members (as defined in your policy) are insured by your PAP as long as they own, use, or maintain the vehicle covered by the policy. In fact, family members generally receive almost the same extensive coverage that you do.

Other people: If your covered auto is involved in an accident, other people are insured under certain sections of the policy if: 
  1. they were using the covered auto (liability coverage), 
  2. they were occupying the covered auto (uninsured motorists and medical payments coverages), 
  3. they are legally responsible for the actions of any other person insured under the policy (liability coverage), or 
  4. they are entitled to recover due to any bodily injury suffered by you, your resident spouse, family member, or anyone using the covered auto (uninsured motorists coverage).
If a vehicle other than a covered auto is involved, other people are insured under your policy as long as: 
  1. they are not the vehicle's owner and they are legally responsible for the actions of any other person insured under the policy (liability coverage), or 
  2. they are entitled to recover due to any bodily injury suffered by you, your resident spouse, or relative (uninsured motorists coverage).

Towing Coverage

Towing and Labor coverage provides a large measure of additional security. If you add this option to your auto's policy. When you have this coverage the insurer will pay reasonable expenses incurred for:

  • towing your car to the nearest place where necessary repairs can be made during regular business hours
  • towing your car out if it is stuck on or next to a public street or highway
  • mechanical labor up to one hour at the place of its breakdown
  • change of a tire
  • delivery of gasoline, oil or loaned battery, but typically not the cost of these items
Policy Options

The coverage that your personal auto policy (PAP) provides can be tailored to meet your specific needs. Aside from any required minimum coverages that may apply (and subject to financial concerns), you can select the coverages and amounts you'd like. In addition to the various coverage options, there are also general policy options. Within certain parameters, you can make decisions here as well.

Choosing the policy period
Your PAP is only in effect during the policy period. This period of time is determined when you enter into the contract with the insurer. Typically, auto policies are in effect for one year. You may also be able to purchase auto insurance for longer or shorter periods of time.

Generally speaking, your premiums should be slightly lower when you purchase a policy with a longer period. With longer policies, the insurer can spread out the administrative costs of writing the policy over a longer period of time.

Canceling the policy
Although you can cancel your PAP at any time before the expiration date of the policy, insurers have procedures that must be followed in order to do so. If you ever cancel before the end of the policy agreement there may also be a cancellation fee or penalty.  Therefore, it's advisable to check first if you ever find yourself considering early cancellation.

Paying your premium
Insurers typically give you three general options for paying your insurance premium:
  • Pay the entire annual premium up front,
  • Make a down payment on the premium and then divide the remainder into monthly installments, or
  • Pay an equal monthly amount for 10 or 12 months.

Each method has pros and cons. Paying the entire amount up front might be financially impossible for you, but if you can afford it, you can expect to receive some savings. A payment plan, for most, is the preferred approach, but you can expect to pay an additional small service fee in order to enjoy this convenience.

Towing and Labor coverage (cont)
Optional towing and labor insurance provides coverage for emergency road service and towing. Under this coverage, the insurer will pay towing and labor costs incurred each time your "covered auto" or any "non-owned auto" is disabled, up to the policy limit. This coverage is available any time your vehicle breaks down and is not limited to accidents covered under your physical damage coverage.

The insurer will typically only pay for labor (such as changing a tire or jump-starting your car) performed at the place where your vehicle is disabled, not the repair work done at a service station.
  • Covered auto: This term includes all vehicles listed on the Declarations page of your policy. It also includes any passenger vehicles that you purchase during the policy period, assuming you give notice to your insurer typically within 30 days after you become the owner.
  • Non-owned auto: A non-owned auto is a vehicle that either you borrow or use as a substitute for your "covered auto." A borrowed vehicle is covered as long as it is not furnished or available for your regular use. (If a vehicle is furnished for your regular use, you should be listed on that owner's policy.) Substitute vehicles are covered when your "covered auto" is out of normal use because of breakdown, repair, servicing, loss, or destruction.

Transportation expense (rental car) coverage
This optional coverage pays a set amount per day for transportation expenses (including a rental car) if your car is being repaired because of an accident. This coverage is often limited, and does have a maximum amount of coverage stated in the policy. For an additional premium, the per-day and maximum limits can usually be increased.

Typically, the coverage applies only if your vehicle is unusable for more than 24 hours. The payment is further limited to the period of time reasonably required to repair your vehicle.

In order for the rental benefit to take effect, the theft or accident has to be one that is covered under the physical damage section of your policy. Depending on your policies specific details, this coverage may or may not apply to stolen vehicles.

Gap Insurance covers the difference in market value of the automobile and what is owed on the car in case of totaling of the vehicle.

We consider it essential to have for anyone that fits the following criteria:

  1. Has financed more than 70% of the MSRP of the automobile if new
  2. Has financed more than 80% of loan value of the automobile if used
  3. Has financed for a term longer than 48 months
 
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Rental Car Coverage  
Do I need insurance to rent a car?

When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough.

Before you rent a car:
  1. Contact your insurance company.
    Find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it's used for pleasure and not business. If you don't have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.

  2. Call your credit card company.
    Find out what insurance your card provides. Levels of coverage vary.

If you don't have auto insurance, you have two choices: you can buy coverage at the car rental counter; or you can purchase a a non-owner auto liability insurance policy .
Rental car counter insurance

Rental car counter insurance can provide the following coverage:
  1. Collision Damage Waiver (CDW).
    Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. This coverage generally costs between $9 and $19 a day. If you have comprehensive and collision on your own car, you may not need to purchase this coverage.

  2. Liability Insurance.
    This provides excess liability coverage of up to $1 million for the time you rent a car. Rental companies are required by law to provide the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy on your home/auto, you may consider forgoing this additional insurance. It generally costs about $9 to $14 a day. If you don't own a car, and rent cars often, consider purchasing a non-owner liability policy. This costs approximately $200 - $300 per year. Frequent car renters sometimes find this more cost-effective than constantly paying for the extra liability coverage.

  3. Personal Accident Insurance.
    This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance, usually costs about $1 to $5 per day, but may be unnecessary if you are covered by health insurance or have adequate medical coverage under your auto policy.

  4. Personal Effects Coverage.
    This provides coverage for the theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car, minus your deductible. You need to have receipts or other proof of ownership. This type of insurance usually costs about $1 to $4 per day.
Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.

The cost of insurance at the rental car counter will vary depending on the rental car company, state, and location of the dealer and the type of car you rent.

Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
Non-owned auto liability insurance

Instead of buying liability coverage from the car rental company each time you rent a car, you can purchase a non-owner auto liability insurance policy from an insurance company for about $300 a year which might be cheaper if you rent frequently.

In addition, if you're thinking of buying an umbrella liability policy, a non-owner auto policy may meet the underlying auto insurance policy requirements. Umbrella liability insurance provides high limits of liability coverage above basic policies. Most insurers will not issue an umbrella liability policy unless the basic policies meet certain dollar limits of coverage.

A non-owned auto insurance policy covers you for damage you may cause to some else’s car and liability for injuries to its occupants, or to pedestrian, in the event of an accident. The policy will also provide medical payments coverage for you and your passengers, and under-insured and uninsured coverage. This pays for the cost of an accident involving a hit-and-run driver or a driver who has little or no insurance.
However, non-owned auto insurance does not provide collision coverage. Collision coverage pays for damage to the car you’re driving if you crash into another car or object or the car rolls over. You have to buy this from the car rental company. However, some credit cards provide collision coverage if the rental car is paid for with the card—so check with your credit card company first.

Copyright 2007 by CCI Underwriters, Inc.
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