Auto Insurance Guide for Different Coverages Part 2

Uninsured Motorist (UM) Coverage

Required minimum: not required
Recommended minimum: $100,000 per person/$300,000 per accident

Uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage are two of the most important coverages you can have for you and your family. These are the coverages that I often write and lecture about. UM coverage protects you if you are injured by someone who is driving without insurance. Let’s say you were seriously injured in a car accident. The driver that hit you has no insurance, is under the influence of drugs, and had escaped from jail. Right after the accident, he is going back to jail. He has no assets. He has no money. He has no prospects of ever acquiring any money or assets.

How are you going to be compensated? If you don’t have UM coverage, you are NOT. If you do have UM coverage, you can make a claim against your insurance company up to the limits of your per person coverage. My recommended minimum is $100,000. If your entire family is in the car and injured, you can make a claim against your insurance company up to the limits of your per accident coverage. My recommended minimum is $300,000. Many years ago, UM/UIM coverages were required in the state of Pennsylvania. The cost of this type of insurance is fairly reasonable.

In my opinion, insurance companies were not making enough and/or losing money on selling this type of coverage. They lobbied state lawmakers into not requiring this coverage in Pennsylvania. While insurance carriers have to “offer” this type of insurance, it is not required. Since they don’t make enough money on this type of coverage, they don’t want to sell it. I recommend that you get as much as you can afford.

Underinsured Motorist (UIM) Coverage

Required minimum: not required
Recommended minimum: $100,000 per person/$300,000 per accident

UIM coverage is similar to UM coverage. The difference is it protects you when a person who causes injuries to you or your family does not have enough insurance to compensate you or your family for the injuries. If you look back at the required coverage to drive in the state of Pennsylvania, you will see that anyone can drive legally as long as he carries at least $15,000 worth of coverage for any individual he might injure in a car accident or $30,000 for everyone he might injure in a car accident. In a serious car accident with injuries, this will not come close to compensating you or your family.

If you have UIM coverage, you can make a claim against your own insurance company for payment up to the limits of your policy. As with UM coverage, insurance companies must offer you this type of insurance, but it is not required, and you do not have to take it. Also, as with UM coverage, it is my opinion that insurance companies were not making enough and/or losing money on selling this type of coverage, and they lobbied state lawmakers into not requiring this coverage in Pennsylvania. Like UM coverage, I recommend that you get as much as you can afford.

Stacking

Required minimum: not required
Recommended minimum: We recommend that you elect stacking on all vehicles on your insurance policy up to the limits of your UM/UIM coverage.

Stacking is the cheapest way to maximize insurance coverage that protects you and your family. It applies to UM/UIM coverage. For a very reasonable cost, it allows you to multiply your UM/UIM coverage by the number of vehicles on your insurance policy. For instance, let’s say you have the recommended minimum UM coverage of $100,000 per person/$300,000 per accident. You have two vehicles and elect stacking. You have doubled your UM coverage to $200,000 per person/$600,000 per accident.

Likewise, let’s say you have the recommended minimum UIM coverage of $100,000 per person/$300,000 per accident, and you have three vehicles. If you elected stacking, you have tripled your UIM coverage to $300,000 per person/$900,000 per accident.

Funeral Benefits

Required minimum: not required
Recommended minimum: $1,500

This coverage helps your family pay funeral expenses in case of a fatal accident. It’s obvious that this amount of money is not going to cover all of your funeral expenses, but it is so cheap you might as well get it.

Collision Coverage

Required minimum: Pennsylvania state law does not require this coverage. This coverage is usually required by any bank/institution that is going to finance your vehicle by way of purchase or lease.
Recommended minimum: There is really no such thing as a recommended minimum for this type of coverage. Some of the issues involved in collision coverage are discussed below.

Collision insurance pays for damage to your car that is caused by some type of collision or overturning. You are asked to select a “deductible” for this coverage. This means, your insurance company will pay the fair market value of fixing or replacing your vehicle, minus the deductible that you select. For instance, if you have $1,000 worth of damage to your vehicle with a $500 deductible, your insurance company will pay you $500. Depending upon the age, condition, and value of your car, you may not need collision coverage. It may cost you almost as much for the insurance as the insurance will ever pay if you are involved in a collision.

This is something you should consider if you buy an older car or are driving one. If you do get this type of coverage, you have to decide what type of deductible you want to select (the higher the deductible, the cheaper the cost of the coverage). Likewise, the higher the deductible, the more you are going to be personally responsible for if your car is involved in a collision. I’ve heard many insurance experts suggest a $500 deductible as the best selection. My suggestion is to ask about the cost of your insurance policy with various deductibles and decide what is best for you. Also, keep in mind that the insurance carrier is only obligated to pay the fair market value to fix or replace your vehicle.

If you have a car that is worth $2,000, the insurance carrier will not have to pay $4,000 to fix it. It would simply be responsible for giving you the fair market value of $2,000 minus your deductible. You should also know that UM/UIM coverage does not pay for damage to your vehicle. UM/UIM coverage only applies to claims involving injuries or death.

Comprehensive Coverage

Required minimum: Pennsylvania state law does not require this coverage. This coverage is usually required by any bank/institution that is going to finance your vehicle by way of purchase or lease.
Recommended minimum: As with collision coverage, there is really no such thing as a recommended minimum for this type of coverage.

The same concerns that apply to collision coverage apply with comprehensive coverage. Comprehensive insurance pays for damage to your car when it is stolen or damaged by flood, fire, or some other peril. It does not pay for your car when it is involved in a collision.

Miscellaneous Coverage

Required minimum: none of these are required.
Recommended minimum: With the exception of gap coverage, we really don’t have a recommended minimum for these types of coverages. We recommend that you get a quote for these coverages, and decide what you can afford.

The major miscellaneous coverages that are offered by auto insurance carriers in the state of Pennsylvania are rental car coverage, towing and labor coverage, gap coverage, and customize parts and equipment coverage.

We strongly recommend you obtain gap insurance when you finance or lease a vehicle.

First of all, gap insurance is cheap. Second, without gap insurance, you take the chance that if your car is totaled in an accident after the insurance company pays the fair market value of the car, you will still have to make payments on a loan or a lease for a car you no longer have. Remember, as we said, the insurance company only has to pay the fair market value of your car.

Let’s say you purchase a new car and finance nearly the entire cost. Once you drive the car off the lot, it is subject to depreciation. What is considered a new car to you is still a used car to the rest of the world. If you get in an accident and your car is totaled, the fair market value of your car may be less than what you owe on it. Without gap insurance, you are going to have to pay off the loan or continue making payments until the loan is paid off.

With gap insurance, your insurance company will pay the difference between the value of your car and the amount you owe. Obviously neither situation is pleasant, but at least with gap insurance, you won’t be making payments on a car you no longer have. The need for gap insurance can be even more critical if you lease a car. Over my years of practice, I have seen leasing contracts where a new car is totaled near the beginning of a three- or four-year lease, and the leasing/finance company takes all the insurance money and then claims the lessor still owes them thousands of dollars.

The majority of leasers are usually misinformed about their leasing contracts since they are very rarely read in-depth like they should be before they are signed. Unfortunately, if you signed that contract, you are responsible for the terms of the contract. Again, this situation can be avoided by the purchase of gap insurance, and we strongly recommend it.

Your Auto Insurance Guide - Part 2: Know the Different Coverages