Mapping The Insurance Maze

Congratulations!!!!

After you have spent hours searching the internet, driving past dealerships, looking up google reviews, cruising different for sale by owners signs, you’ve found the vehicle that’s perfect for you. You’ve negotiated the numbers, signed all necessary paperwork, and about to receive your tags and keys, but the salesman asks you this one question, that most people either don’t think about, or don’t know….. “So who’s your insurance?”

“Huh…what???”

And so begins another process…except this one comes with its own set of confusing issues.

For many, insurance is that thing that you pay every month, but unless you’re in the field, or had/have someone thoroughly explain it to you, you have no idea really what it is, or what it does. You just know if you get in an accident, you need it.

Much of the general population is not aware that you have to have insurance for two reasons 1) because your lien-holder/loan-holder requires that you have it to protect the vehicle….and most importantly 2) because 49 out of 50 states (New Hampshire excluded) requires that you have auto insurance. So if you’re thinking about going without….Don’t Do It. 🙂

If you find yourself pulling that long stack of papers out of your glove compartment, and throwing it back in because the words make absolutely NO SENSE, I will hopefully being able to make some sense of it for you.

Over the next couple of posts, I’m going to break down what the coverage and numbers on your binder mean, and hopefully give better insight into this maze of insurance. 

I’d recommend grabbing your own policy out to follow along.

Ready. Set..GO!!!

OHHHH BUT WAIT! Before WE BEGIN…It is Important for me to state, that the information provided in this article, or any for that matter DOES NOT constitute a confirmation or extension of coverage from your policy. It IS IMPERATIVE TO CHECK WITH YOUR CARRIER, as different states and companies have different rules.

Ok Let’s Begin.

Below is an example screenshot, of the coverage section of a Binder. It is also knowns as a Declarations, or Dec Page.  Each company’s product may look different, so don’t be alarmed if yours does not look like mine.  

**For the Examples, I am going to give names to make it easier to identify**

The first line of coverage is Bodily Injury (BI) Liability. Bodily Injury (BI) coverage is typically coverage for “the other party”, not you. When I teach insurance to folks who are not accustomed to insurance, I dub it “them insurance” because it I insurance for them, and not “you”.

Example. 
Kim is driving on the highway. It’s raining hard, and she is having visibility issues. Kim doesn’t see the vehicle in front of her slowing down, and she runs into the back of Tim. Tim’s airbag deploys, and knocks him unconscious. He needs medical assistance. 

Kim’s Bodily Injury or BI, is the coverage that would begin to pay out for Tim’s injuries (in 38 of 50 states). This coverage also mandatory in most states. Note that I said “Kim’s BI” would pay for “Tim”, and not “Kim’s BI” would pay for “Kim”. 

To the right of this coverage, are two numbers ($250,000/$500,000). These numbers represent the Coverage Limits. Every policy has an allotted limit that you, as a customer/client will elect to pay for. This means, for any one (1) accident, the party that is hurt by “You”, i.e. “Them”, can request up to $250,000 for their medical bills, up to a total of no more than $500,000 per accident, regardless if that number is exceeded. 

**Note, The higher the limit means, more coverage. The smaller the limit means, less coverage. I am not telling you what to select or which way to go regarding selection of coverages…but what I will say, having more coverage and not needing it, is always going to be better than not having enough and needing it.**

Based on the example – Tim can request up to $250,000 from Kim’s policy, assuming he has sustained up to $250,000 worth of medical bills. 

“Well what do you mean regardless and maximum Mike? What if there are more people hurt?”

Let’s say Tim was riding in the car with his best friend, Jacob in the passenger seat. Kim slams into the back of Tim’s vehicle. In addition to Tim’s driver air bag deploying, his passenger airbag deploys, and breaks Jacob’s nose, an eye socket, cracks his chest and collar bone, and causes other soft tissue damages.

Tim and Jacob’s cost of injuries break down as follows: 

Tim      $285,000 in hospital and reconstructive surgeries 
Jacob   $210,000 in hospital and reconstructive surgeries
________________________________________________
Total    $495,000 

Assuming coverage is extended – Kim’s auto insurance policy would:

• be able to pay $250,000 for Tim, leaving a balance of $35,000.
• Her policy would pay the full $210,000.
• If Jacob’s costs were $217,000, Kim’s policy would pay up to $215,000, and stop. 

Why would the policy stop….because the policy has hit the BI limit of $500,000. There would be a remaining balance of $2,000. 

Well….what happens to the remaining balance????

That’s a different story for a different topic. We will take Claims in a later article.

The next line of coverage underneath BI is Property Damage, also referred to as PD. Property Damage pays for physical damage(s) you may have caused. 

Example. 

After colliding with Tim’s vehicle, Kim slid into the City’s guardrail, thus bending it in half. 

Tim’s vehicle repair cost totals $27,350. The cost to repair the city’s guardrail totaled $11,000. 

Both the City and Tim, are able to request up to the full amount of their repairs from Kim’s policy. 

Let’s say that both Tim and the City’s repair cost exceeded that amount together, what happens next, well that’s a claims question, of which we will address during an article I will discuss about Claims.

Annnnnnnd I think that’s enough for today. This is rather long, and I don’t want to send anyone into a snoozefest, so you have to wait for Part II to see about the next set of coverages.

~Til Next Time!