Automobile Liability Insurance…
We get many calls about automobile insurance claims for personal injuries (PI) or property damage sustained in a vehicle collision. Many people have only a vague idea of what laws apply or even what auto insurance covers. Entire books have been written about the subject, but here I will address only some basic issues, starting with a general discussion of the separate types of insurance collectively called “car insurance.”
Liability. This protects your assets from a lawsuit for monetary damages claimed by the “other guy” allegedly caused by your driving mistake (negligence), even if the other guy is a passenger in your car. Texas requires this coverage as a prerequisite for the privilege of being a licensed driver. You have to show proof of liability coverage when you renew your license, get stopped by the police, get the annual license plate renewal sticker, etc. So, if you drive a car ever, whether it’s your car or someone else’s, you should have liability coverage. Unfortunately, there are many drivers in Texas that don’t have it, and drive illegally, which is why it’s wise to have uninsured/under insured coverage, which I’ll discuss below. Texas requires a at least 25/50/25 ($25,000 in coverage per person, $50,000 per incident, and $25,000 for property damage), but that is a legal minimum — and often not enough. It takes only a short stay in intensive care to rack up $25,000 in hospital bills. I recommend at least 250/500/250 if you can possibly afford it.
If you have the minimum coverage — $25,000 per person —- and you cause injuries to one person over that amount, the injured person may seek to recover the excess over $25,000 directly from you. The liability insurance company would be on the hook for up to $25,000, but anything beyond that would be your problem. If you didn’t have the money to pay it, your license could be suspended until you paid it (that can be forever). Anybody who can afford it and/or understands the risk buys liability coverage in higher amounts. Personally, I carry an extra “umbrella” policy which increases my liability protection and is not very expensive.
Property damage coverage pays for the damage to the other guy’s car or its contents. Texas requires at least $25,000, but I suggest more. If you total someone’s Lexus or Mercedes, or both in the same collision, the loss could exceed $200,000.
Personal Injury Protection (PIP). This covers medical bills and lost wages for each person in your car up to the policy limits (the maximum is $10,000. It would reimburse dollar for dollar medical bills and lost wages for up to three years regardless of who caused the collision. In fact, even if you recover damages from someone else’s auto insurer because he or she caused of the collision, PIP is still paid to you by your insurer if you remember to file a claim! This is not a double recovery because there are two policies and two separate premiums being paid. Texas law encourages this type of coverage, and requires a written waiver to decline it. Too many Texas drivers unwisely waive PIP, but it comes in handy when it takes months or years to determine who, if anyone, is liable for the bills. This type of coverage is even more important if you don’t have a good hospital/medical care insurance policy.
Med Pay. This also pays for medical bills, but not lost wages, for up to 12 months. Also, if the other guy’s liability coverage pays for your injuries, you generally don’t get to keep the Med Pay as well. In my opinion, PIP is vastly superior to Med Pay coverage, and I would recommend the former and decline the later.
Comprehensive. This primarily covers losses due to theft, vandalism, and hail damage; and there is a deductible, usually $250 to $500; but the deductible can be increased or deleted depending on your financial situation. Generally speaking, the more valuable the car, the higher the premium. Also, some cars are frequently stolen, so they cost more to insure against theft.
Collision. If you don’t own your car outright and it’s totaled or damaged, you will still owe the bank or finance company that made you the loan. This coverage protects you by providing the funds to pay off the loan. The more valuable the vehicle, the higher the premium. The deductible also affects the cost. No matter how much you like your car, it has a “market value” based on age, mileage, condition, etc. If your car has a low market value, is paid for, and you can afford to replace it, it may decide to do without this type of coverage.
Uninsured/Under insured. This coverage is to pay you for your injuries, including a loss of income, caused by the negligence of the “other guy” if he has no insurance or not enough of it. For example, if you are parked at a traffic light and someone rams you from the back, that is a classic case where the other guy is negligent, and you should have a good claim for damages. If he didn’t have liability coverage, or if his liability coverage is less than your damages, you may collect on your policy under the uninsured/under insured coverage. Many Texas drivers are uninsured, so this coverage is very important. You may have policy limits up to the limits of your bodily injury/property liability coverage.
Texas Liability Insurance Card. If you have auto insurance, your insurance company will provide proof of coverage which should be in your car and wallet or purse at all times. This document usually breaks down the types of coverage and policy limits. If you don’t understand each type of coverage you carry or how much each costs, ask your agent.
Discounts If your family has more than one vehicle, you usually get a multi-car discount. Some insurers will offer a discount if you also purchase your homeowner’s insurance from them. Ask about other discounts, such as for anti-theft devices, taking Defensive Driving and Drug & Alcohol Awareness, paying annually or by electronic debit from your checking account, and “longevity” discounts if you have been with the same insurer for a long time. Your rates are also affected by your driving record. It may be wise to get estimates from several companies, but when you have claims, your insurer may be less inclined to cancel you if you have been with them for a long time.