Insurance101 – Part 3 – Auto

In our last 2 blog postings, we considered the implications of a Forbes article citing studies that indicated Americans Don’t Understand Insurance.  While the original article referred specifically to health insurance, some further research suggested it holds true for home and auto insurance as well, so our second installment dealt with home insurance concepts.  Today we round out the set with auto insurance.  

Forty-seven states require that you have at least some kind of car insurance, Washington State is one of them and state law requires all drivers to carry auto liability insurance and proof that they have insurance.  Washington law requires that anyone who drives a motor vehicle in our state carry liability insurance with liability limits of at least $25,000 for injuries or death to another person, $50,000 for injuries or death to all other people and $10,000 for damage to another person’s property.  There are alternatives if you don’t want to carry Washington auto insurance.  If you have $60,000 you aren’t using, you can pay a deposit to the Washington State Treasurer and avoid insurance all together.  Or, you can purchase a liability bond of at least $60,000. In our experience, these alternatives are seldom used.

So, only liability insurance is required in Washington State and it comes in two basic varieties – bodily injury liability that defends you if you are held liable in an auto accident in which other people are injured or killed and property damage liability that helps repair or replace autos or other property if you are in an accident.  Your liability insurance also pays for legal costs associated with defending you against lawsuits related to accidents.  If the minimum $25,000 doesn’t seem like enough to do that appropriately, you are likely right.  You probably want to purchase more than the minimum required coverage. 

Beyond the state required liability insurance, your insurance choices become a matter of your risk tolerance.  Commonly, auto insurers offer collision, comprehensive, uninsured and under-insured motorist, and medical payments coverage as part of an auto insurance package.  You can elect different levels of coverage and differing levels of deductible to help control your costs.

Collision insurance repairs or replaces your car if it is damaged in an accident and comprehensive insurance is what covers you against damage from theft, fire, flood, vandalism and other non-accident related events.  Uninsured and underinsured motorist coverage insures you against losses caused by other drivers with little or no auto insurance and many policies also cover things like lost wages and coverage for your passengers.  Finally, a medical payments coverage or personal injury protection covers medical or funeral expenses for you and your passengers.   All of these coverages can be varied as to the policy limit and collision coverage includes a deductible amount that you must pay before the insurer pays.  You can set the deductible higher or lower to exercise some control over your premium payments – the higher the deductible, the lower the premium. 

These insurance coverages reflect a typical “package” of insurance but there are other provisions that can be added to a basic policy to tailor it to your needs and these are often included in your package.  Roadside assistance usually covers towing, minor repairs and fuel delivery, even if there was no accident and rental reimbursement pays an amount to rent a car when your car is out of service due to an accident. These coverages are often inexpensive but they do add a small amount to your total premium and they are optional.  

When evaluating your insurance needs, bear in mind that your liability coverage should be sufficient to protect your assets in most circumstance.  If you have a $300,000 home and a vacation condo, you may want a lot more than minimum liability coverage because you will be responsible for expenses of claims that exceed your policy limits. If you can tolerate an out of pocket expense of $1,000 for a deductible, it might be wise to invest your savings from that in increased liability protection.  

As always, if you need sound advice, call Homer Smith Insurance.  We can help you work through these questions. 

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