In the first Auto Insurance 101 blog we discussed auto liability protection. This is a legally required auto insurance coverage regulated at the state level. The primary purpose of this coverage is to protect the insured from the financial impact of potential damage he/she might cause to someone else’s body or property. In this next section we will discuss the auto physical damage portion of the auto policy which is set up to protect the insured’s own vehicles.
Part 2: Physical Damage protection
Unlike auto liability protection, auto physical damage protection is an optional portion of the auto policy. As mentioned, the primary purpose of the physical damage section is to protect the insured’s owned vehicles. Although it is optional, for some this protection is extremely important as it is protecting a financial investment into a vehicle. For others, the vehicle(s) they own may not hold substantial monetary value and therefore, protecting that minimal worth does not make good financial sense.
The basic auto physical damage coverages are Comprehensive and Collision. With some carriers, there are additional coverages that can be purchased, but for the purpose of this blog, we will focus on these two.
Comprehensive coverage consists of occurrences causing potential damages to the vehicle that are not collision related (most of the time). Fire, vandalism, hail damage, and glass damage are a few examples. However, also included in this section is an “animal hit”. This is because when this type of loss occurs, it is considered the animal running into the vehicle.
Collision is very much defined as it is named. This is coverage that would respond when the vehicle collides with another vehicle or property.
Physical damage coverages do carry options for deductibles (many times they are required by the carrier). A deductible is the portion of the total damage that is paid for by the insured.
Example of a comprehensive deductible: Insured has a parked vehicle and a hailstorm comes through causing $5000 of damage to the vehicle. The insured carries a $500 comprehensive deductible and therefore the insurance company will pay for $4500 of the damages to the vehicle. Similar situation applies with collision coverage. Insured runs into a vehicle parked at a stop light. The damage caused to the other vehicle would be covered by the liability portion of the policy. The damage the insured caused to his/her own vehicle would fall under the collision coverage. If they carry a $1000 collision deductible, and the total damage to the insured vehicle is $4000, the carrier will pay $3000.
There is no deductible involved in the liability section of the auto policy. Because the deductible represents the amount of the claim the insured is willing to pay for themselves, the higher the deductible, the lower the premium.
Some additional coverages that may be offered if auto physical damage is purchased would be:
- Rental car reimbursement coverage – offered to the insured if their vehicle is damaged by a covered loss and is unusable. This would assist in paying for a rental car while the vehicle is being repaired.
- Full glass – this is a coverage that will offer a “no deductible applied” situation in the event insured needs to have glass replaced.
- Trip interruption – Insured is traveling and vehicle is damaged by a covered loss and this causes the insured to incur extra expenses (hotel, meals etc.) because the loss happened while he/she is away from home.
Some common questions regarding auto physical damage coverage:
When should I carry full coverage vs liability only?
“Full coverage” is often the term used when comprehensive and collision coverage is included on the auto policy. This is always going to answered based on the insured’s unique situation. Factors to consider:
- Age, condition, and value of the vehicle
- Deductible being used for that vehicle.
- Feasibility for the insured to repair or replace the vehicle if it suffers damages.
What should I carry for deductibles?
The answer to this would be to find the balance between a comfortable premium payment and the amount of out of pocket (often unexpected) that would be needed in the event of a covered claim.
Should I include rental car reimbursement on my policy?
Easiest way to answer this is to ask yourself if you did not have your vehicle available to you, would you be able to replace it with another with causing financial hardship? If the answer is no, then I would recommend including this coverage.
The purpose of the Auto Insurance 101 blog series is to offer some explanations and examples of both the Liability and Auto physical damage portions of the personal auto policy. Please make sure to check with your carrier or agent with regards to the specifics of your policy. If you’d like us to review your current coverages, request a quote here and an advisor will reach out!