1/25/2013 2:00 AM ET|
When car insurance can fail you
Bend a fender while making a delivery for work? Lend your keys to a cousin? Your coverage might depend on your state.
Insurance is supposed to serve as a safety net, but that net can have some unexpected holes.
Even if you have full car insurance coverage, you could have less protection than you think because of exclusions and limits lurking in your policy's fine print. Car insurance policies can vary considerably when it comes to who's covered and when.
"Insurance is not a commodity," says Bill Wilson, associate vice president of education and research for the Independent Insurance Agents & Brokers of America. "Buying an auto policy is not the same as buying a 2-pound bag of sugar."
Instead, he says, it's more like buying a bicycle. You have to evaluate features, the company's reputation and reliability, and match the product with the way you plan to use it.
That's why it's important not only to compare car insurance quotes but also to compare policy details before purchasing.
"You should always ask for a full copy of your policy and read through the whole thing," says Penny Gusner, consumer analyst for Carinsurance.com. "It's better to know what coverage you have than to find out you don't have the coverage you need after something bad has happened."
Here are six examples of how coverage might be less than you expected:
No. 1: Lower liability coverage for some drivers
In some states, insurance companies can include "step-down provisions" for auto liability coverage; those lower the policy's liability limits to your state's minimum insurance requirement when you let a driver who's not on the policy use your car.
Say, for instance, you have liability limits of 100/300/50 ($100,000 for bodily injury liability for one person, $300,000 for all injuries and $50,000 for property damage in an accident). You loan your car to a neighbor, who gets in an accident. Under a step-down provision, your liability limits for that accident would automatically drop to your state's minimum required liability limits. Those vary by state, but are far lower than 100/300/50.
"I'd call your insurance agent to ask, especially if you have a relative coming to visit who will use your car," Gusner says.
No. 2: Confusing underinsured motorist coverage
Underinsured motorist coverage kicks in when the at-fault driver doesn't have enough liability coverage to pay all your medical bills after you are injured in an accident. (Uninsured motorist coverage pays for medical treatment when the at-fault driver has no insurance.)
That might sound simple, but the payout for underinsured motorist coverage is complicated. Why? The amount paid from the at-fault driver's liability coverage is deducted from the amount you can claim against your own underinsured motorist coverage.
Say, for instance, you face $50,000 in medical bills for injuries after a car accident; the at-fault driver has $25,000 in bodily injury liability coverage, and you have $25,000 in underinsured motorist coverage.
The payment from the other driver's policy -- $25,000 -- would be deducted from what you can claim on your $25,000 of UIM coverage. The result: Your underinsured motorist insurance would pay nothing, and you'd be $25,000 short of the $50,000 you need.
Your underinsured motorist coverage must be higher than the at-fault driver's liability limits to do any good.
In some states, you can "stack" your underinsured motorist coverage -- meaning combine the limits on two or more vehicles you've insured to get more protection. And in Connecticut, you can buy "conversion" coverage, so payments from your policy are not reduced by payments from the at-fault driver's insurance.
Gusner says you should make sure you know how your underinsured motorist coverage works and evaluate whether you need to increase the limits on your policy.
More from Insure.com:
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My daughter was involved in a hit and run. Totally her car and another lady's car. The other lady sustained very serious injuries. She was also a single working mother. Apparently this 17 year old took his mothers van without consent, ran a red light, hit both cars and fled. Needless to say her AAA insurance had a clause that said no coverage unless their is consent or permission to drive the vehicle. She said she did not give permission. Guess what? My daughter and the other lady were out thousands and the kid walked free. We went through attorneys and every legal avenue possible. Nothing. Insurance is worthless. More people driving around without it than with it, especially the illegals. Talk about a joke!
But if you have insurance and it's your fault and you and your insurance company gets sued, your insurance will drop you like a box of rocks.
Fearing any problems, I don't let anyone drive my vehicle. Period. I use it for work from time to time, but am a social worker for the disabled making home visits and would never take a client in my vehicle for any reason - that's just asking for trouble. The only people in my vehicle are myself and my family.
It is possible to have outstanding coverage to prevent the type of tragedy spud52 speaks of, but it will cost you. I'll skimp on some things, but automobile insurance is not one of those areas. I'm 42 now, but when I was 18 years old I had a near fatal head on crash with a snowplow in my parents Lincoln Town Car - they had JUST raised their coverage a few weeks earlier after their agent told them that if they didn't consider it they could be bankrupted if there was ever a serious injury. They smartly listened and just in the nick of time too - my medical care came to $500,000, all of which was covered by their insurance. My left leg had to be amputated, I was hospitalized for 3 months and all of the subsequent costs such as my prosthetic limbs, were covered. Had they not listened they could have lost everything they worked so very hard for all their lives. Knowing what an accident can cost, having a good agent and good insurance is well worth the cost, at least for me. I'm not looking to giving up 15 minutes to save 15% or more - I want REAL coverage with a REAL agent who can explain what everything means, not a stupid reptile. I'm willing to pay 15% more if it covers me properly and my current insurance does very nicely. Give up dining out once or twice a month and devote that to good coverage. Get the absolute best coverage you can afford.
Don't skimp on your insurance and think twice about who you let drive your vehicle. If you're a good driver with at least decent credit you should get a pretty good rate. And if your state offers the every 3 year safe driver class like NYS does you can save even more. Giving up 5 hours on a Saturday saves me nearly $400 over the course of 3 years - well, well worth it.
So it is possible to have good coverage to protect yourself against the things spud52 is speaking of, but be prepared to pay. That being said, you'll be paying A LOT more without good coverage.
You get what you pay for, I have sold auto insurance for over 40 years, and I have seen so many clients refuse higher limits of protection on liability, if they are sued,uninsued motorist if they are hurt by a hit and run or uninsured driver, and underinsured coverage in case the other guy only has minimum limits.
Do not assume anything when it comes to insurance protection, ask questions, talk to a couple of insurance agents from different companies.
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