When you purchase Auto Insurance, you want to make sure that you have the coverage you need in case you’re involved in an accident. That’s why you have Auto Insurance after all, right? As with most types of insurance, and most products in general, there are a variety of options to choose from. Choosing the best option for you and your specific situation typically isn’t as easy as buying the “typical” options because everyone’s needs are different.
”I want full coverage for my car.”
I hear this a lot. The term “full coverage” seems to be the standard phrase that people use when they might not be positive what all of the individual coverages mean and they just want to be sure that, no matter what happens, they’re covered.
What is “Full Coverage”?
Contrary to common belief, there is no such thing as “full coverage”. There are different interpretations of what “full coverage” means. If I ask people what they mean by “full coverage”, I commonly hear “I want Collision coverage”. However, this is only one piece of the puzzle. If I ask if they want coverage for hitting a deer, they say “of course”. Well, to be covered for hitting a deer, you need Comprehensive coverage, not Collision coverage. Then, I ask if they want their insurance company to pay for a rental car while their car is being repaired and ,again, they say “of course”. This is a different coverage that would be needed. What about being covered for damage to other people’s property that they’re responsible for, no matter how much the total damages are? Yes, they want coverage for that too. Unfortunately, you can’t buy unlimited insurance protection so that’s not even possible. It’s usually at about this moment that they realize they’d benefit from the advice of a professional to help purchase the appropriate amount of insurance coverage.
Three Categories of Coverage
With Auto Insurance, you can group all of the coverage options into three categories:
- Coverage for You and Your Passengers
- Coverage for Other People
- Coverage for Your Vehicle
Coverage for You and Your Passengers
Without getting too deep into the weeds on this topic, you are responsible for the medical expenses for yourself and any passengers in your vehicle whether an automobile accident is your fault or not. For this reason, it’s very important that you have adequate coverage in this area. There are a number of coverages available with various coverage amount options. These coverages include Personal Injury Protection, Additional Personal Injury Protection, Optional Basic Economic Loss, Medical Payments, Death Indemnity and a few others. Because of the laws in New York State, you need to use your Auto Insurance instead of your Health / Medical Insurance to cover the cost of injuries and treatments and it’s very important that you have an appropriate level of coverage. These coverages are often misunderstood and overlooked by consumers who are making their purchasing decisions by themselves.
Coverage for Other People
If you’re responsible for damages to another party resulting from an automobile accident, you need to have liability insurance coverage to protect your assets from a lawsuit. Most people do not expect to be sued for a lot of money nor do most people think about what’s at stake if they’re sued. You cannot purchase a policy which pays an unlimited amount if you’re sued so you need to select a coverage limit, which is the maximum the insurance company will pay on your behalf. Determining how much coverage is needed to protect your assets is an important part of putting together the appropriate policy for your needs.
Coverage for Your Vehicle
Most people are talking about coverage for their vehicle when they say “full coverage”. There are typically four main coverages that fall into this category – Collision, Comprehensive, Transportation Expense, and Towing. These four coverages are not mandatory and you can choose some or all of these options and vary your options for each of your cars independently.
Collision Coverage
Collision Coverage pays in the event your vehicle collides with something. This could be you hitting another car, another car hitting you or you hitting a fixed object. It provides coverage whether the accident is your fault or not. There is a deductible that would apply that is typically somewhere between $100 and $2,000. The most common deductibles are $500 & $1,000 but this is an option you would select when purchasing the policy.
Comprehensive Coverage
Comprehensive Coverage pays in the event your vehicle is damaged by something other than a Collision. This could be fire, theft, wind, hail, water, vandalism, falling objects, animals, etc. Similar to Collision Coverage, you choose a deductible when you purchase the policy. Also, most policies have an additional option to purchase which waives the deductible for glass coverage.
Transportation Expense
Transportation Expense (sometimes referred to as Rental Reimbursement) pays part or all of the cost of renting a vehicle for the period of time your vehicle is in the body shop being repaired due to a covered Collision or Comprehensive claim. Some insurance companies will even let you use this coverage to pay for other methods of transportation such as Uber, Lift, and Public Transportation if those are more convenient for you than renting a car.
Towing
Towing coverage pays the cost of a tow or roadside labor (jump start, tire change, lockout, etc) if your vehicle is disabled. There is typically a coverage limit which may range between $50 and $150 per disablement. There is usually no deductible for this coverage.
Full Coverage vs. Appropriate Coverage
Since we determined that you cannot purchase a policy that will completely cover you for any amount for any event that may happen, it might make sense to say “Appropriate Coverage” instead of “Full Coverage”. What is right for you, probably isn’t the same thing that’s right for your neighbor. You’re different people who are in different financial situations with different preferences. The best advice I can give is to make sure you understand the options that are available to you and how they apply to your specific situation before making coverage decisions.
If you’d like to have a conversation about your situation, please contact us, stop by our Clifton Park, NY office or call 518-877-7447 and remember, we never charge our customers for advice. Our expertise is complimentary.
John Lofrumento, CFP®, FSCP®, RICP®
President, The Lofrumento Agency
Clifton Park, NY / Ballston Lake, NY