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Auto Insurance Coverage

The reason for auto insurance coverage is not so much to protect you against loss or damage to your car, but to protect you against potentially devastating liabilities which you might incur in using your car, especially if you cause injury to another person while doing so. Even if you total your own or someone else’s car in a crash, that loss could pale beside the liabilities which you might incur if you ‘total’ another person. And it doesn’t even need to go that far. Simply causing moderate injuries to someone in a car accident can result in a substantial award for damages against you, comprising medical costs, loss of earnings, pain and suffering and more.

That’s why, in addition to understanding the different components of auto insurance coverage, it’s essential to understand the relative degree of importance of each in terms of protecting your financial well-being. This means that you need to think carefully about the levels of coverage you take, and ensure that you have adequate protection for the big-ticket, high-risk items, even if that means sacrificing coverage for nice-to-have add-ons. No one ever went bankrupt by not having rental car coverage, but many certainly do by not having adequate personal liability protection.

Major Components

The four major components of a typical auto insurance policy are as follows. In addition to describing each type of coverage and commenting on their relative importance, we have prepared short videos which illustrate the key points of each:

  1. Personal Liability for Bodily Injury and Property Damage;
  2. Medical Payments and Personal Injury Protection;
  3. Uninsured and Underinsured Motorist; and
  4. Collision and Comprehensive.

Additional Coverage

For an extra premium, most insurance companies offer the following additional coverages under their standard auto insurance policies:

  • Emergency road service;
  • Towing charges; and
  • A rental car while your car is being repaired.

Never accept emergency road service or towing coverage under an auto insurance policy, regardless of how cheap the premium might seem. The reason for this is that drivers use emergency road services and towing services much more frequently than they have car accidents. Frequent claims for these services, especially if combined with traffic violations or other adverse events from an insurer’s perspective, can impair your relationship with your insurance company and lead to premium increases or even cancellation of your policy. For the small number of dollars involved, it just isn’t worth it.

It’s better that you spend your premium dollars on membership of an automobile club such as the Auto Club of America, Better World Club or AAA. All of these clubs specialize in roadside assistance and towing services, and they provide these 24 hours a day, 365 days a year. You can use their services as much as you like and you won’t endanger your car insurance. Clubs such as these also provide a range of other auto services within their membership fees.

Rental car coverage is a different matter. If a car crash or other insured event means that you don’t have use of your car while it is being repaired, then clearly you have need of a temporary replacement. Car repairs can take a lot longer that you expect and a lot longer than you are told, for any number of reasons. Rather than carry that risk yourself, transfer it to your insurance company and let them supply a replacement vehicle in the meantime.

Rental car coverage is typically available in the form of a maximum dollar value of rental costs per day, such as $20, $30 or $40 per day. Choose coverage which would give you a better car than your own. For example, if the rental costs for a car similar to your own would be $40 per day, choose a $50 per day coverage. This won’t be lost on the insurance adjuster when he comes to deal with your claim. He will know what it is costing the insurance company every day that your car is still not repaired, and what effect any delay in settling your claim would have.

That said, it would be better to forego rental car coverage completely if that coverage meant that you could not afford more important types of protection, especially personal liability coverage. Don’t sacrifice essential types and levels of coverage for nice-to-have add-ons. Insure the big risk items first, then look at what additional auto insurance coverage you can afford.