When summer comes, accompanied by blaring music on the road, people will gain a new freedom. Whether you’re planning a road trip, commuting to work or just juggling a part-time job, understanding the nuances of car insurance can help you avoid unexpected expenses and stress. Insurance companies have their own policies, which means coverage may vary for everyone. Here is a general guide to help you understand your personal auto insurance policy and some other coverage issues you may not know exist.
Understand basic coverage
A personal auto policy, sometimes called a PAP, is a packaged policy, just like home insurance, with liability and property damage coverage bundled together in one form. The following discussion reviews the risks of loss associated with individuals.
There are 4 basic types of coverage under PAP:
- Part A – Liability Insurance: This covers damage you cause to others in an accident. It typically includes bodily injury and property damage liability.
- Part B—Medical Payment Coverage: This can reimburse you for medical expenses when you or a passenger is injured in a covered car or as a pedestrian.
- Part C—Uninsured Motorist Coverage: This can protect you if you are involved in a hit-and-run or accident with an uninsured motorist.
- Part D – Auto Damage Coverage: This coverage is divided into two categories: collision and non-collision, also known as comprehensive coverage.
- A)Collision coverage: This can compensate for damage to your car caused by a collision with another vehicle or object.
- b)Except collision (combined): This covers non-collision related damages such as theft, vandalism and natural disasters.
The Importance of Underinsured Motorist Coverage
One of the most important yet often overlooked aspects of car insurance is underinsured motorist (UIM) coverage. It may look like uninsured motorist coverage, but these are two separate policies; their differences can have a huge financial impact on you if you are involved in an accident.
As mentioned above, if there is a hit-and-run or no-fault accident and the other driver is uninsured, your policy’s Part C uninsured driver coverage will replace the at-fault driver and pay your medical invoices. Part D auto damage insurance will cover damage to your car. But what happens if the responsible person has insurance, but the coverage is insufficient?
Unfortunately, sometimes the damage caused by the damage is severe and exceeds the at-fault driver’s policy limits. This is especially true in states with lower liability limits, such as Pennsylvania, which has bodily injury limits of $15,000 per person, $30,000 for everyone injured in the accident, and $5,000 for property damage (such as your vehicle).
If you do not have underinsured motorist insurance and have medical invoices for $50,000, the at-fault carrier can pay you up to $15,000 (their policy limit). You will be responsible for the remaining $35,000 in medical expenses. Likewise, if your vehicle is a total loss in this accident, you can receive up to $5,000 from the carrier to purchase a new vehicle.
In a perfect world, every driver would have adequate insurance, but reality is different. About one in eight drivers is uninsured, according to the Insurance Research Council. Underinsured motorist coverage ensures that you won’t be left with huge medical bills or repair bills if you encounter an underinsured or uninsured driver.
car rental insurance
Summer means travel, and that might mean renting a car. It’s important to understand how rental insurance works within your auto policy. Some policies only cover rental cars if your own car is parked on site due to an accident. If a covered vehicle is damaged as a result of a collision or non-collision incident, the policy will discuss coverage for a “temporary replacement vehicle.” This means that if you rent a car for a holiday or business trip, you may not be covered by your regular car policy.
If your policy lacks comprehensive rental coverage, consider purchasing coverage from your rental car company.
Gig driver
If you’re trying to supplement your vacation fund with some side hustles, your car insurance can get tricky. Gig drivers use their personal vehicles to provide rides to passengers or food/drinks through app-based platforms.
PAP will not cover the car if you are involved in an accident during a show (for example, transporting people as a taxi service or delivering food). If you are at fault, it may not provide coverage for other vehicles or people involved in the accident. Many app-based platforms have insurance you can buy, but it only kicks in if you “come to work on time.” In other words, the policy won’t take effect unless you have passengers or are delivering food.
Here are a few steps to ensure you’re fully prepared for gig driving:
- Review your policy: Take a close look at your current auto insurance policy. Make sure you understand what’s covered and identify any vulnerabilities that could leave you vulnerable. If you are a gig driver, you may need commercial auto insurance.
- View gig policy: Some policies offered by gig employers state that they “exceed” your policy. This means their policy will not go into effect until your coverage limits have been exhausted.
- Contact your insurance agent: If you have questions or need to update your coverage, please contact your insurance agent. They can provide personalized advice based on your driving habits and needs.
in the end
Understanding the world of car insurance can be daunting, but it’s a critical step in protecting yourself and your finances. By recognizing the importance of underinsured motorist coverage, the nuances of rental car insurance, and the issues of gig driving, you’ll be better prepared for your summer adventures.
About the Author
Chantal M. Roberts, CPCU, AIC, RPA, is a self-proclaimed insurance geek with over 20 years of experience as a multi-line claims adjuster. She is also an award-nominated author and has previously written two books, one for mid-career adjusters, The Art of Adjustment: Writing the Unwritten Rules of Claims Processingand creative non-fiction stories about Molière, Love Story: How the Heartland fell in love with the 400-year-old French comedy playwright. Her new book, “Once Upon A Claim: Fairy Tales to Protect Your Ass(ets)” (May 11, 2024), helps consumers better understand property and casualty insurance and claims.
