Thursday, September 13, 2012

Understanding Automobile Insurance -- Removing Comprehensive and Collision

Automobile insurance is an unknown for some people who are otherwise savvy with handling money. If you have to rely on your agent to decide what car insurance to buy, you just need a short review to make your own decisions. 

Is it time to remove your comprehensive and collision coverage from your automobile insurance policy? My car is 16 years old, so you might think it's time. I finally got around to having the comp and collision cut, but I was hesitant. Here's what you need to know.

When you get car insurance, you get liability coverage for sure -- that's what every state requires in some form or another. That's to cover the other driver and his car. 

If you want insurance to cover YOUR car and to pay if you have an accident that's your fault, you'll need comprehensive and collision coverage in addition to liability. Collision coverage pays for your car if you hit something; comprehensive insurance pays if a tree falls on your car or if someone steals it. The policy usually says "fire, windstorm, hail, vandalism, theft" etc.

In the scheme of things, comprehensive and collision aren't worth a lot to you because of deductibles and value. Your comprehensive and collision may have a $500 deductible. That means you pay the first $500 before the insurer pays anything. Then, the value of your car is determined by mileage and Kelley Blue Book or value guides. Undoubtedly, your car is worth more to you than it shows in the book, but insurers work from the blue book value to pay if your car is totaled. They also get the salvage value of your car if you accept the figure offered.

So, if you have $25,000 in liability coverage, that's a significant amount, but if your car was worth $20,000 new and blue book price is $8,000 now, the insurer subtracts your deductible and offers you the blue book value. You might get $7,500 if your car is totaled.

What happens if you remove the comprehensive and collision coverage? First, if you have a loan on the car, you probably can't remove comprehensive and collision until the loan is paid in full. That's because the loan company wants to protect its interest in the vehicle. If you can remove the comprehensive and collision coverage and do so, you probably will also remove the towing and labor and rental reimbursement coverage, if you had those. 

Some insurers will let you keep towing and labor if you have other vehicles on the same policy (Geico, maybe) but you won't be able to keep the rental reimbursement coverage. Rental reimbursement pays for a rental car if your car is damaged and in the shop for repairs. This is helpful but not essential.

If the other guy follows the law and has liability insurance, his policy covers YOU if he's at fault. If he doesn't have insurance or has the minimum limits for your state -- and you have no way of knowing until you have an accident -- you may need uninsured motorist coverage.

If you have uninsured motorist and underinsured motorist coverage with your auto policy, that pays medical bills if someone uninsured or without enough insurance injures YOU. If you can't work, you may also get coverage from the uninsured motorist provisions.  This can really make a difference, particularly if you don't have good health insurance. Your policy may have medical payments coverage or PIP -- personal injury protection -- but those coverages are usually $5,000 or less for medical. You need more.

Uninsured motorist coverage usually can't equal more than your liability coverage, so if you have low limits on your liability insurance, you may not be able to get as much uninsured motorist coverage as you really need.  Increasing your liability coverage may cost less than you imagined. If you remove the comp and collision from your policy, ask your agent about increasing your uninsured motorist coverage with the money you save. If you have to increase your liability, that's ok, too, particularly if you own your home or have assets that could be taken if you have an accident and are sued. Use your insurance money where it works for you.

See you next time!


Central Texas bird in natural habitat
The cardinals are in Texas all year.