It’s a fact – collisions are the number one cause of death in the United States for people age 4 to 35. There are almost 20 million car collisions each year, so if you haven’t been involved in a collision yet, the odds are stacking up against you.
It’s critical to know what your own insurance policy covers now, before you’ve been in a collision. Most people don’t even read their own auto policy until they’ve been in an accident. By then, it may be too late. Pull out your own insurance policy now and follow along while the most common coverage options are explained.
Liability, the basic coverage required by many states, provides you with protection against property or bodily injury damage you cause.
Coverage is generally provided not only for you, but also for family members who live in your household. People who drive your car with your permission may also be covered.
Typically, you’re also protected when you use a vehicle you don’t own (for example, if you borrow a friend’s car).
Your insurance policy has a dollar limit, known as your “policy limits.” Many states have minimum liability requirements of $25,000; however, depending on your assets, you may want to consider purchasing more protection. Policy limits work like this – if, for example, your limits are $25,000, and you cause $75,000 worth of damage, your carrier will pay the first $25,000 of damages and you will be personally responsible for the additional $50,000. This is why it’s critical to have insurance policy limits that you’re comfortable with.
These are general guidelines. Make sure to read your entire policy for any exclusions or situations that your policy does not cover.
What happens when you are involved in an automobile collision with a driver who is at-fault but does not have auto insurance? In those circumstances, you would look to your Uninsured Motorist, or U.M., coverage.
Closely related to UM is another form of coverage called Under-Insured Motorist, or UIM. This type of coverage applies in situations when you are involved in a collision with an under-insured driver. You will typically collect the insurance coverage the at-fault driver has, then you will make a claim against your own UIM coverage. For example, if the other driver’s policy limits are $25,000, and your damages are $100,000, the UIM coverage on your own policy would pay the additional $75,000, depending on your UIM policy limits.
UM and UIM typically apply only to bodily injury claims.
While many states require insurance companies to offer UIM coverage, you may not be required to purchase it.
Collision coverage pays for the damage to your vehicle when you’re involved in a collision with another vehicle or object.
Collision coverage is not mandatory. You may choose to purchase this coverage depending on the value of your vehicle. The collision portion of your policy will typically include a deductible. That’s the portion you are responsible for in the event of a loss.
Comprehensive covers those damages to your vehicle that are non-collision related, such as fire, wind, hail, vandalism, or theft. Typically, a deductible applies to this coverage.
Another item to look for in your policy is towing coverage. Immediately after the collision, your car may not be drivable – or you may be injured. If you purchased towing coverage and your vehicle needs to be towed, your insurance company will pay, usually up to a limit of $50 – $75.
If you have Rental Reimbursement Coverage, your insurer will provide payment for a rental car while your vehicle is being repaired. You should expect to rent a comparable vehicle to your own. There is usually a daily limit and a maximum total rental expense. For example $30 per day and $900 per incident.
Personal Injury Protection (PIP) or Medical Payments (MP)
A very important part of your insurance policy deals with medical coverage. After a collision, there may be an immediate need for medical payments. You need to understand what coverage you have – before a collision occurs.
If You Have PIP
Your insurance company is required to offer Personal Injury Protection or “PIP” and must obtain your written refusal if you decide not to purchase it. “PIP” benefits include payments to you, your family, or your passengers for medical bills, lost wages, and home nursing care. Your PIP coverage may also provide protection when you are riding in someone else’s car or even when you are injured as a pedestrian. Medical payments coverage is similar to PIP but usually only pays for medical bills, not the other expenses covered by PIP.
In order for PIP or MP to apply, the medical treatment must be related to injuries caused by the collision and the treatment must be reasonable, necessary, and provided by a licensed practitioner.
You should not hesitate to utilize your PIP or MP coverage if you need treatment. However, if you receive compensation for your injuries from the person that caused the collision, you may need to reimburse your carrier for their payments.
If You Do Not Have PIP:
If you do not have PIP or MP coverage, look for payment of your medical bills from your own health insurance. The same principle of reimbursement applies if you are able to recover compensation from the at-fault party.
If you do not have health insurance, you may be able to locate a provider to treat you on a “lien basis.” This means the provider will not require payment for services until you are able to recover compensation for your injuries. Remember, you will owe the provider even if you never recover any compensation.
While it is possible to ask the other party’s carrier to pay for your treatment, it would be unusual and may only occur if it is absolutely clear their insured is completely responsible for the collision.
If the other party’s carrier does agree to pay for your treatment, they may require that you provide a recorded statement describing the collision and your injuries.
This is extremely important: You should not provide a statement without first consulting with an attorney.
An umbrella policy is sometimes referred to as an “excess” or “catastrophic” policy. It is an additional layer of liability protection on top of your regular insurance.
For example, if you have auto insurance liability limits of $100,000, you may be able to purchase an umbrella policy that will cover you for an additional $1 million of liability protection. In order to purchase an umbrella policy, most insurance companies require at least $100,000 in underlying limits – and some require even more.
An umbrella policy would not only cover car collisions, but also other instances where you have become liable. Umbrella policies generally provide coverage after your primary insurance has been exhausted. Be sure to check your umbrella policy for exclusions.
You can sometimes obtain much higher protection on your automobile policy for a relatively small increase in premium cost. You should definitely consider increasing your limits if you have assets to protect – here’s why:
If you cause an accident, you never know what a jury may award the person you injured. With low liability limits, a jury could easily give an award that exceeds your limits – leaving your assets vulnerable to collection. Many attorney have had experience with collecting money from people over their insurance limits. This is not a pleasant experience for the person who has to pay out of their own pocket – most of the time because they didn’t realize they only had the minimum insurance limits required by law.
The other reason you may consider increasing your limits is to make settlement attractive to the injured party. If you have seriously injured someone and your limits are $300,000, the injured person (and their lawyer) may be willing to take this amount to settle the entire case, even though their serious injuries might entitle them to more. A very important secret for you to know: your insurance company cannot pay the injured person the $300,000 unless the injured person agrees the case is over! Therefore, having high limits could be enough incentive to get you out of a very large potential judgment.
- A CNN article which describes how insurance companies like State Farm and Allstate are saving billions of dollars by underpaying accident victims;
- An Insurance Journal article which covers consumer group and whistle-blower allegations that insurance companies are manipulating computer claims programs they use to underpay injury claims; and
- An internal (and formerly confidential) Allstate memo which describes their tactics to keep your settlement value as low as possible.
Disclaimer: The information contained herein is provided as a free service to consumers and does not constitute legal advice. Nothing contained herein should be relied upon as a substitute for competent legal advice from a licensed professional attorney.