Skimping On Car Insurance Can Put A Dent In Your Wallet

Knowing how to choose and understand your automobile insurance coverage can have extremely important consequences. After reading this column, review your policy to insure it meets your needs.

Most young adults, after obtaining their license and first car obtain the minimum amount of automobile insurance coverage. Why? Two basic reasons, the first being lack of money. The more insurance, the greater cost. When you are in high school or college there are numerous ways on which to spend your money besides on insurance you believe is not needed anyway. The second reason is a simple lack of understanding of what you are purchasing. Unfortunately, years may pass before you actually look at what you purchased. Usually, by that time, you are looking at what you purchased because you probably need that insurance. Be smart. Ask your agency to explain your coverage and if he suggests additional coverage. Below is some guidance as a head start.

In Massachusetts, automobile insurance has two major components: Compulsory Insurance and Optional Insurance. Compulsory Insurance is what you must have in order to drive a car in Massachusetts and there are four sections: Bodily Injury to Others (part 1); Personal Injury Protection (part 2); Bodily Injury Caused by an Uninsured Auto (part 3); and Damage to Someone Else’s Property (part 4).
Bodily Injury to Others (part 1) pays for damages (i.e. medical expenses, pain and suffering, lost wages) to anyone injured or killed by your car in any accident that occurs in Massachusetts. The minimum, which most people have, covers $20,000 per person and up to $40,000 per accident.

As you can see by the amount of the minimum coverage, if there is a serious accident, you could and likely will, be sued for much more, especially if you have assets, making your personal assets subject to a large suit. As such you should buy higher limits under Optional Injury to Others (part 5) explained below. You can select limits as high as your money can buy. Commonly, limits of $100,000 per person and $300,000 per accident are commonly purchased.

Optional insurance (part 5) is also needed if you drive outside Massachusetts (i.e. Rhode Island) or if you drive with guests in your car.
If you own a business and utilize the car in your business, greater insurance in not only recommended but is virtually mandatory to protect the assets of the business from suit.
Personal Injury Protection (PIP) (part 2) pays up to $8,000.00 to you or anyone you permit to drive your car, anyone living in your household, passengers and pedestrians, no matter who causes an accident for needed medical expenses, replacement services or 75% of lost wages.
Bodily Injury Caused by An Uninsured Auto (part 3) protects you, anyone you permit to drive your car, household members and passengers against losses caused by an uninsured or unidentified driver (i.e. a hit and run driver). If damages are greater than the minimum limit of $20,000 per person and $40,000 per accident, a good possibility in a serious accident, you need to purchase greater insurance under part 12 – Bodily Injury Caused by An Underinsured Auto.

Damage to Someone Else’s Property (part 4) pays for damage to another person’s property, when you, a household member or another authorized driver cause an accident. The minimum coverage is only $5,000. Since automobile and property repair will easily cost over $5,000 in most accidents it is highly recommended you increase your limit to at least $50,000.
With regard to the various Optional Insurance Coverage you could purchase there are eight different parts.

Optional Bodily Injury to Others (part 5) extends your liability protection from the limit of $20,000/$40,000 noted above under Bodily Injury to Others (part 1), up to the amount you purchase under this part. This option also covers accidents outside of Massachusetts. If you have assets to protect, or have a conscience and basically care about the welfare of the public in case of an accident, you should buy higher limits under this option. Further, by law, if you wanted to purchase greater insurance under Bodily Injury Caused by An Underinsured Auto (part 12) you must purchase greater insurance under part 5. I guess you are not allowed to care more for yourself under part 12 than to the public at large under part 5.

Medical Payments (part 6) covers medical expenses for you, your household members and passengers, over and above the amounts covered by PIP no matter who caused the accident.
Options 7 through 11 do not affect your potential liability in the event of an accident so I will not discuss those parts which are, respectfully: Collision; Limited Collision; Comprehensive; Substitute Transportation; and Towing and Labor.

Option 12, Bodily Injury Caused by An Underinsured Auto, is a major option to consider. This pays for bodily injury damages to you, household members and passengers, unless they have a policy of their own, or are covered by a Massachusetts auto policy of another household member with similar coverage when an accident is caused by someone without enough bodily injury coverage (parts 1 and 5). It only pays you the difference between the total amount collected from the bodily injury liability insurance covering the owner and driver of the other car, and the limits you purchase for this coverage.

Automobile may be more confusing than you thought. Educate yourself, call or visit your insurance agency, review your coverage selections page, have your agent explain each provision and then ask yourself if you need more insurance.