Some companies advertise “cheap” car insurance coverage, but cheap coverage may actually cost you more in the long run than a better policy. Your insurance policy is only as good as the coverage it offers, so no matter what the price, a car insurance policy is a waste of money if it does not offer you protection when you are in an accident.
How do you know what kind of car insurance coverage you have? In order to determine this, you must look at the declarations page of your policy. This is sent to you every time you renew your car insurance. You can also request a copy from your insurance agent.
What is a Declarations Page?
A declarations page, or “dec” page, for short, is a legal, binding agreement between you and the insurance company. It outlines specifically what type and amount of coverage you have as well as the limitations on such coverage.
It is very important for you to understand what your dec page says so that you know what type of coverage you have and how much your insurance company will pay as well as how much you will be required to pay in cash deductibles if you have an accident.
Your dec page is divided into sections to make it easier to read. It should include, at a minimum, the following information:
Liability Coverage: Bodily Injury and Property Damage
If you are at fault in an accident, your liability coverage will pay the damages of the other party and possibly some of your costs as well. If you damage someone else’s car or cause them physical injury, your liability policy will be the one that pays the other person’s expenses.
Bodily injury coverage is part of your liability coverage that pays medical expenses for the victims of an accident you caused. Property damage, on the other hand, pays only for repairs to the other person’s vehicle or other property that is damaged as a result of your accident.
While liability coverage pays for physical and property damage, there are limits to how much the insurance policy will pay. You will probably see your liability limits expressed as three numbers divided by slash marks, for example: 50/100/25. This is the amount of liability coverage for bodily injury for one person, the amount of liability coverage for bodily injury per accident and the amount of property damage coverage, in that order. In this case, the person has up to $50,000 worth of liability coverage for one person, up to $100,000 worth of liability coverage for a single accident and up to $25,000 of property damage liability coverage. These represents the amounts of available coverage to compensate victims of an accident caused by the owner of this policy.
The state of California requires a minimum of 15/30/5 of liability coverage for anyone driving on our highways. However, considering that the average car repair bill can run thousands of dollars and the average hospital emergency room visit can easily cost $10,000, this is not very much coverage when put into perspective. Having such low insurance liability limits can put you at personal financial risk if you cause an accident and harm someone else. The amount of insurance that you need to protect yourself will vary depending upon your individual situation, but most attorneys recommend purchasing the most insurance that you can afford. If you have significant assets, such as a home, you may want to choose even higher limits or purchase an umbrella policy to cover all of your assets.
Medical Payments Coverage or MedPay
Medical payments coverage is not required in California but many people choose to take out this additional insurance. MedPay pays for your co-payments on health insurance or for medical bills for anyone involved in the accident, no matter who is at fault. It is a good idea to have at least $5,000 worth of MedPay coverage if you have health insurance, and more if you do not.
Uninsured/UnderInsured Motorist coverage or UM/UIM
While many states, including California, offer drivers the option of choosing whether or not to take out uninsured or underinsured motorist coverage, it is not really an option to have this coverage in today’s world. Too many drivers are uninsured, unlicensed or both and have little to no personal assets to collect if they cause an accident.
Most attorneys recommend that you choose UM/UIM coverage in the same amount as your liability limits.
Physical Damage Coverages or Collision and Comprehensive
Whether or not you choose comprehensive or collision coverage depends on several factors. If you have an old car that you can afford to replace, it does not make much sense to have collision coverage on the vehicle. On the other hand, if you rely on your transportation to get to and from work and you cannot easily afford to replace it if it is wrecked or stolen, comprehensive and collision can be a good buy.
Collision coverage pays to repair your vehicle if you were at fault in an accident. Comprehensive coverage pays if your car is stolen or damaged by something other than a collision.
All insurance policies include deductibles. If you are at fault in an accident or must make a claim against your own policy, you will have to pay this deductible. It is fine to set your deductible higher than the standard, but if you decide to do so be sure you have the cash on hand to pay that amount if you have an accident.
Ultimately, the amount and type of insurance you choose will be dependent on your financial situation. The more you have to lose, the more insurance coverage you need. If you are unsure of the amount of coverage that is appropriate for you, talk to an attorney or an insurance expert