If you drive a car, you probably have auto insurance. Do you know, for sure, what it covers? Fortunately, you don’t need to be an insurance expert to understand your policy. Here’s a basic auto insurance primer in plain English.
Your auto insurance policy is like six miniature insurance policies wrapped up in one, each with its own special coverage. Some of the coverages are required by law, while some are optional. You’re charged a separate premium for each coverage, and added together, they make up the cost of your policy. Here are the six basic coverages:
- Bodily injury liability (BI). This covers you if you cause an accident in which someone else is hurt or killed, and is a mandatory liability coverage in Hawaii. As a general rule, you should carry coverage limits of at least $100,000 per person and $300,000 per occurrence (written as 100/300 on your policy). Your limit is the maximum your policy will pay for a given exposure. Depending on the assets you have to protect and what you can afford, higher limits may be appropriate.
- Property damage liability (PD) is pretty straightforward – it covers you if you damage someone else's property, whether it’s a vehicle, building, utility pole, or other physical property. This is also a mandatory liability coverage in Hawaii.
- Collision will pay for damage to your vehicle if you hit another car, a fire hydrant, or other object. This coverage isn’t required by law, but might be required by your bank if you have an auto loan. You can choose your deductible, which is the amount you pay out of pocket for a claim before coverage kicks in.
- Comprehensive covers you if your vehicle is stolen or damaged and doesn’t involve a collision. Damage could include fire, hail, theft, flood, earthquake, or falling objects. Again, this is an optional coverage, but your bank may require it on auto loans.
- Uninsured/Underinsured motorist (UM/UIM) covers medical and other expenses if you get hit by a driver that doesn’t have adequate insurance.
- Personal Injury Protection (PIP) is a mandatory coverage in Hawaii. It covers medical expenses you and your passengers incur if you get injured in an accident, regardless of fault.
Easy enough, right? But what about the contract? This is the part that confuses most people, but it’s not that difficult. There are five basic elements of a typical auto policy. The titles may differ from one insurance company to the next, but they all cover the same ground.
- Declarations. This outlines basic information such as name, address, make and model of your vehicle, VIN and policy number. Proofread it carefully for accuracy to avoid having a claim denied down the road for providing inaccurate information.
- Coverage Parts/Insuring Agreement. This tells you the coverage options and limits you’re buying for each type of coverage such as liability, medical, PIP, and comprehensive. Basically, this is the maximum amount the insurance company could pay in the event of a covered claim.
- Exclusions. This is crucial! This section tells you what’s NOT covered, so it’s important to review it carefully to avoid a costly surprise in the future.
- Conditions. This section outlines the legal responsibilities of the insured and the insurer, including premium payment obligations, instructions for filing a claim, and dispute resolution procedures.
- Definitions. Otherwise known as “the fine print,” this section defines terms and outlines your rights as the policyholder and the rights of the insurance company.