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The Auto Insurance Dilemma - Which Coverages Should You Carry?

  Florida's Financial Responsibility Law requires everyone who owns and operates a motor vehicle in this state to carry Personal Injury Protection (PIP) and Property Damage (PD) liability coverage.

  Personal Injury Protection or “PIP” coverage is also referred to as “No-Fault” coverage because Florida is a “No-Fault” PIP state. If you are injured in any type of accident involving a car (even if you are not in a car), regardless of fault, if you own a car and have your own PIP policy, it will pay 80% of your medical expenses (minus any deductible you chose when you bought the policy). This means even if you crash into a tree and injure yourself, your own PIP policy owes benefits. PIP will also pay for 60% of any wages you lose as a result of injuries sustained in a motor vehicle accident. All medical and lost wage payments are made until your policy limits are paid. Most PIP policies in Florida have a $10,000.00 limit, however, some companies sell extended PIP with higher limits.

  When you purchase a PIP policy, you will have to choose whether you want a PIP deductible. Your insurance agent should advise you that you can pay a little extra money and have no PIP deductible (this means PIP will start paying your medical bills at 80% and your lost wages at 60%, as soon as they are incurred). However, if you want to save a little money and bear some additional risk, you have can choose a $500.00 or $1,000.00 deductible (this means you will be personally responsible for the first $500.00 or $1,000.00 of benefits that would be owed, but for the deductible. A deductible is fine, until you are injured in a motor vehicle accident. A PIP policy with a $1,000.00 deductible will not pay any money benefits until after $1,000.00 of medical expenses and/or lost wages are incurred. Once the deductible has been satisfied, the policy will pay 80%, up to the policy limit. As you can see, if you are injured as a result of a motor vehicle accident, your deductible choice makes a significant difference in how your personal finances are effected.

  Property Damage Liability coverage is the only other type of motor vehicle insurance, other than PIP that is actually required for owners of motor-vehicle registered in the State of Florida. Also known as PD, this coverage pays for any damage you cause to someone else's property, with your car. Unlike PIP, PD claims are fault based. This means your PD coverage owes benefits only if the accident is your fault. However, if your property is damaged, your PD policy will not pay for any damage to your car. Only if another driver causes damage to your car, will you be entitled to make a PD liability claim against the PD insurer of the driver that caused your property damage. If a car accident is your fault, your PD policy will pay to repair the person whose car you damaged, as well as any other property you may have damaged, like guard rails, light posts, fences, etc., up to your policy limits. You are personally responsible for any property damage you cause beyond your policy limits. Your PD policy will also pay for a replacement vehicle for the individual whose car is out of commission while it is being repaired. However, if you cause a “total loss” to another vehicle, your PD policy will pay for the fair market value (FMV) of the car only. FMV is what the car could have sold for the day before the accident. FMV should never be confused with replacement cost.

  PIP and PD are the only two coverages which are required under Florida law. However, there are a number of other coverages which are available and recommended, depending upon the type of car you drive, as well as your personal financial situation. For example, Medical Payments coverage compliments PIP coverage and is offered by many auto insurers. Also commonly referred to as “Med-Pay,” this coverage will pay your 20% share of medical expenses not covered by PIP, up to the maximum amount of coverage you choose when you bought your policy. Med-Pay will also to continue to pay or provide benefits for 100% of your medical expenses, even after your PIP coverage is exhausted, until it is exhausted. Med-Pay is very inexpensive and is highly recommended if your insurance company offers it. Always ask your agent if it is available and if so, to provide you with a quote for it.

  Bodily Injury Liability coverage (BI) is similar to Property Damage Liability, except it pays for damages you cause to other people (personal injuries), not their property. BI is available in limits from $10,000.00 up to millions. Your personally financial situation should be considered when choosing the amount of BI coverage you carry. This type of coverage is very important because if you hurt someone badly, you can be held personally responsible for whatever personal injuries they incur. These damages can be many thousands of dollars and the last thing you want is your driving privilege suspended or a huge judgment against you which could have been avoided if you had purchased BI coverage.

  Not only are vehicle operators responsible for bodily injury and property damages, but so are vehicle owners. This is because under Florida law, a motor vehicle is considered a dangerous instrumentality. This means under Florida law, a car equals a gun. Therefore, you need to be incredibly selective who you let drive your car.

  Once you make the decision to purchase Bodily Injury Liability coverage, you must next consider Uninsured/Underinsured motorist Coverage (UM). UM is very similar to BI, except it is even better because it insures you, your family and your vehicle occupants from physical injuries caused by another driver with no insurance or not enough insurance. UM will pay for bodily injuries you incur because of another driver’s fault. UM coverage is available when a person that causes personal physical injuries to you, a family member or a person that occupies your vehicle has no bodily injury liability insurance or not enough bodily injury liability insurance. This is why its called uninsured/underinsured motorist coverage. This coverage insures you, your family members and your vehicle occupants from dangerous uninsured and underinsured drivers. This coverage is extremely desirable since many South Florida drivers have no BI coverage or too little coverage. However, you can only buy UM if you first buy BI. Additionally, you can only buy UM coverage in amounts no greater than the amount of your BI coverage. For example, you can not insure yourself, your family members and your vehicle occupants until you first insure everyone else you could possibly injure and cause damages to.

  You can insure your own car from theft, fire or other damages by purchasing Collision and Comprehensive coverage (C&C). C&C covers your car if it is stolen or damaged by anyone, including yourself. For instance, if you crash into a tree or if your car is stolen, this is the only portion of an auto policy which will pay to repair your car or pay you the FMV of your car. If you don't have C&C and you damage your car, it catches on fire or it is stolen, you are uninsured for this type of loss and you lose your property with no compensation. This type of coverage is highly recommended for high value vehicles. Conversely, it is not recommended for low value vehicles because it could cost more than some cars are worth. In fact, if you buy a new car and finance it, most finance companies will require you to carry C&C - to protect the collateral for the loan. When you purchase C&C, you will have to choose a deductible. The deductible choices will typically range from $250.00 to $1,000.00. The higher the deductible, the lower the cost of the premium. This is a decision you will need to make based upon your personal financial situation and the amount of risk you are willing to bear.

  Most companies also offer replacement vehicle (rental car) coverage. Replacement Vehicle coverage is very inexpensive and will pay for you to get a rental car if your car is damaged and out of commission, as well as while it is being repaired, no matter who caused the accident. However, if your car is put out of commission as a result of the negligence of another driver, the other driver’s property damage liability coverage should pay for your loaner car, as long as it is not a total loss. Usually Replacement Vehicle coverage has a daily limit on the amount it will pay, as well as the maximum it will pay for each incident. This coverage is highly recommended because it is inexpensive and invaluable if you have no other means of transportation. Look at the available limits very carefully and consider buying the maximum available benefits.

  Towing and Storage coverage is inexpensive and a good choice if you do not already carry some type of rode side assistance coverage, such as AAA. If you do have some type of rode side assistance coverage, such as AAA, you do not need Towing Coverage. Towing coverage will pay for the cost of a tow truck to tow your car after an accident, as well as to temporarily store it at a tow yard. If your car ever ends up getting towed to a tow yard, do not leave it there. In fact, get it out as soon as possible. Either have it towed to the place where it will be repaired or to your home, if you have no other options.

  As you can see, I have only touched the tip of the auto insurance iceberg. Although this information will provide you with a general overview of the various components of an auto insurance policy and several recommendations as to how to proceed when buying a motor vehicle insurance policy, every insurance company has its own policy with different nuances. Question your insurance agent and learn how these different coverages will effect you after an accident. If you have questions, you may contact the author directly for a free consultation regarding any potential case or regarding your personal automobile insurance policy.

 
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