When summer rolls in, there is a newfound freedom that comes with being on the road with tunes blaring. Whether you’re planning road trips, commuting to your job, or simply hustling on the side, understanding the nuances of auto insurance can save you from unexpected expenses and stress. Insurance carriers have their own policies, which means coverages can differ from one person to the next. This is a general guide to help you understand the personal auto insurance policy and some other coverage issues you may not know exist.
Understanding Basic Coverage
The personal auto policy, sometimes known as PAP, is a packaged policy, like homeowners’ insurance, in that the liability and the property damage coverages are bundled together in one form. The following discussion provides a review for loss exposures associated with individuals.
There are 4 fundamental types of coverage in the PAP:
Part A—Liability Insurance: This covers damages you cause to others in an accident. It typically includes both bodily injury and property damage liability.
Part B—Medical Payments Coverage: This reimburses you for medical expenses when you or passengers are injured while in a covered auto or injured as a pedestrian.
Part C—Uninsured Motorist Coverage: This protects you if you’re in a hit-and-run or an accident with a driver who doesn’t have insurance.
Part D—Coverage for Damage to Your Auto: This coverage is split into two categories: collision and other than collision, also known as comprehensive coverage.
a)Collision Insurance: This pays for damage to your car resulting from an impact with another vehicle or object.
b)Other Than Collision (Comprehensive): This covers non-collision-related damages, such as theft, vandalism, and natural disasters.
The Importance Of Underinsurance Motorist Coverage
One of the most crucial, yet often overlooked, aspects of auto insurance is Underinsured Motorist (UIM) coverage. It may look like uninsured motorist coverage, but these are two separate coverages; their differences can have a large financial impact on you if you are involved in an accident.
As mentioned above, in the event of a hit-and-run or a not-at-fault accident where the other driver does not have insurance, your policy’s Part C Uninsured Motorist Coverage will step into the shoes of the at-fault driver and pay your medical invoices. Part D Coverage for Damage to Your Auto will cover the damages to your car. But what happens when the responsible person has insurance, but the coverage is not enough?
Unfortunately, there are times when the injuries sustained in the loss are severe and exceed the at-fault driver’s policy limits. This is especially true in states that allow low liability limits, such as Pennsylvania, whose bodily injury limits per person are $15,000, $30,000 for all people injured in an accident, and $5,000 for property damage (such as your vehicle).
If you do not have Underinsured Motorist Coverage and had medical invoices in the amount of $50,000, the most the at-fault carrier could pay you is $15,000 (their policy limit). You would be responsible for the remaining $35,000 in medical bills. Likewise, if your vehicle is a total loss in this accident, the most you would receive from the carrier is $5,000 to obtain a new car.
In a perfect world, every driver would have adequate insurance, but the reality is different. According to the Insurance Research Council, about one in eight drivers is uninsured. Underinsured Motorist Coverage ensures that you’re not left with hefty medical bills or repair costs if you encounter an underinsured or uninsured driver.
Rental Car Coverage
Summer means travel, which might mean renting a car. It’s vital to understand how rental coverage works within your auto policy. Some policies cover rental cars only if your own car is in the shop due to an accident. The policy will discuss coverage for a “temporary, substitute vehicle” if the covered auto has a loss caused by a collision or other than collision accident. This means if you’re renting a car for a vacation or business trip, you might not be covered under your regular auto policy.
If your policy lacks comprehensive rental coverage, consider purchasing the insurance offered by the rental car company.
Gig Drivers
If you want to supplement your vacation fund with some side hustles, insurance on your car can get tricky. Gig drivers use their personal vehicles to offer rides to passengers or deliver food/drinks through app-based platforms.
The PAP won’t cover the car if you have an accident while you are on a gig (e.g. driving a passenger as a taxi service or delivering food). It may not provide coverage to the other vehicle or person(s) involved in the accident if you are at fault. Many of these app-based platforms have insurance you can take, but that policy doesn’t kick in until you’re “on the clock.” In other words, the policy is not in force unless you have a passenger or are delivering food.
Here are a few steps to ensure you’re well-prepared for gig driving:
Review Your Policy: Take a close look at your current auto insurance policy. Make sure you understand what is covered and identify any gaps that might leave you vulnerable. If you are a gig driver, you may need commercial auto insurance.
Review the Gig Policy: Some of the policies offered by the gig employers state they are “excess” of your policy. This means that their policy will only take effect after your coverage limits are exhausted.
Contact an Insurance Agent: If you have questions or need to update your coverage, reach out to an insurance agent. They can provide personalized advice based on your driving habits and needs.
In the End
Understanding the world of auto 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 surrounding gig driving, you’ll be well-equipped for the adventures summer has to offer.
Author Bio
Chantal M. Roberts, CPCU, AIC, RPA, is a self-described insurance nerd with over 20 years of experience as a multi-lined claims adjuster. She is also an award-nominated author who has previously written two books, one for mid-career adjusters, The Art of Adjusting: Writing Down the Unwritten Rules of Claims Handling, and a creative nonfiction story about Molière, A Love Story: How the Heartland Fell in Love With a 400-Year-Old French Comedic Playwright. Her new book, Once Upon A Claim: Fairy Tales to Protect Your Ass(ets) (May 11, 2024), provides consumers with a better understanding of property and casualty insurance and claims.
