When it comes to property & casualty insurance, many people shop for price. Most of us have seen the popular Progressive commercial with the “price gun” where the customer names the price and the policy is built to match.

Unfortunately, this type of insurance policy leaves a lot to be desired. If your only concern while looking for insurance is how much it will cost you in premiums, you run the risk of being underinsured, which you won’t feel the impact of until it’s too late.

The point of insurance is to protect you from the possibility of financial hardships due to catastrophes. What you should be concerned about is how well you are being covered for each possible scenario. This isn’t to say premiums aren’t important. You should definitely price shop among as many different insurance companies as you can to find the best deal and make use of as many discounts as you can, but just be sure you’re shopping for the correct coverage.

Today we’ll cover how to structure an auto policy to protect you better.

Split Limits vs. Single Limit Coverage

Something to note about the liability coverage on auto insurance is there are two different types of coverage: split limits and single limits.

While liability coverage is often sold as single limit (this coverage pays for any injuries and property damage you cause in an accident up to one single limit), it is most commonly sold as split limits. Split limit coverage has three limits that you must choose. The first is what pays for injuries you cause to one person in an accident (per person), the second pays for all the injuries you cause in an accident to more than one person (per accident), and the third is any damage you cause to property. We prefer single limit coverage, but not all insurance companies sell auto coverage as single limit.

If your insurance company doesn’t offer single limit coverage, be careful when choosing split limits. The common coverage often has per person coverage set lower than per accident, however per person coverage is the most likely to be used up.

Here are a couple of examples. Say you have $100,000 per person, $300,000 per accident split limit liability coverage. You injure one person in an accident who is awarded $200,000 for their injuries by the court. You would be fully covered by your $300,000 per accident coverage, right? Unfortunately, it doesn’t work that way. The insurance company would pay the $100,000 per person coverage, and you would have $100,000 out of pocket expense. Same situation, except you injure two people. One is awarded $50,000 and the other $150,000. What happens here? The $50,000 is fully paid by the insurance to the first person because it is under the per person limit, but only $100,000 will be paid for the other person and the $50,000 will be out of pocket for you.

Scary, isn’t it? But the likelihood of these type of situations can be greatly reduced by increasing and matching both the per person and per accident liability coverage.

Basic Coverage

Collision – Pays for damage to your car resulting from a collision or accident. Everyone should have this coverage, except perhaps in cases of old, high mileage cars.

Comprehensive – Coverage for almost everything other than collision or accident, such as wind or hail damage, broken windshield, and theft. As with collision coverage, everyone should have this unless the car is not worth the cost of coverage.

Bodily Injury Liability – Covers you and other designated drivers if you cause injury to another person. A common coverage is $100,000 of bodily injury protection per person and $300,000 per accident. We would usually recommend that you have at least $500,000 for single limits and $500,000 per person, $500,000 per accident for split limits.

Property Damage Liability (split limits) – Covers damages that you may cause to someone else’s property, i.e. vehicle, fence, landscape, etc. You should match the other limits at $500,000 of property damage protection.

Medical Payments or Personal Injury Protection (PIP) – Covers medical payments and possibly lost wages of someone injured in an auto accident. There are state laws that will typically dictate how much of this coverage is needed.

Uninsured and Underinsured Motorist Coverage – Reimburses you if an accident is caused by an uninsured or underinsured driver. A common coverage is again $100,000 per person, $300,000 per accident.

  • Uninsured Motorists – Covers you if you are involved in an accident with a driver that has no liability coverage or is unidentified (hit and run)
  • Underinsured Motorists – Covers any gap that may occur when your injury’s cost exceeds the other driver’s auto liability coverage.

Make sure to match your Uninsured and Underinsured coverage to your liability coverage for bodily injury (at least $500,000 for single limit and $500,000 per person, $500,000 per accident for split limits).

Not all insurance companies offer underinsured coverage, so be wary of working with a company that doesn’t offer this important coverage.

Building the correct policies for insurance can be frustrating. It involves a lot of leg work and if you’re not careful, you may end up falling through the many gaps that policies can have when it comes time to file a claim. Next week we’ll talk about homeowners insurance.

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