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Car Insurance: A Crash Course

It’s not only about the car: auto insurance protects your financial security. What you need to know.
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Most consumers tend to approach auto insurance with an eye to the vehicle insured. What’s the deductible? Would my repairs be covered in the event of an accident? There are, however, four components to insurance. The first two involve the vehicle, of course, but the second two help you by protecting you financially. My agent, Nathan Lamb, whom you may have met in last week's Insurance Checkup Time, explained it all this way. It's important to note that I live in Michigan, one of twelve states with "no fault" laws governing the way auto coverage works. The laws in your state and therefore, the insurance coverage, may be different.

1. Collision Coverage

Collision insurance, as its name implies, covers you if you hit something. If you’re at fault, your rating will be affected, likely making future coverage more expensive. The type of collision coverage you chose will depend on a variety of factors, including the age of the car and your tolerance for risk.

In Michigan, a “no fault” state (offerings vary state by state), there are three types of collision coverage.
    1. Regular collisionpays for damage to your car from an accident. Regardless of who is at fault, you are responsible for the deductible.
    2. Broad collisionalso pays for damage to your car from an accident. It absolves you of paying the deductible if you are not more than 50 percent at fault.
    3. Limited collisioncoverage says that, if you’re at fault, the policy won't cover you at all; if the other party is at fault, your insurance covers the damage, although you still have to pay the deductible.

2. Comprehensive Coverage

"Comprehensive" insurance covers acts of God, things like hail damage, a tree falling on your car, or a deer trying to jump in for a ride. It will trigger payment of a deductible, as our recent story on a flying-tire incident unfortunately highlighted.
Check your liability. No one likes to think about the Worst Day, but it is, in fact, that day for which you really have insurance coverage.,

3. Property Protection (PPI)

Property protection insurance covers damage to other people's property. Say you blow a tire driving down Main Street, lose control, and hit someone’s front porch. That’s when property damage coverage comes into play. In Michigan, the state minimum is $10,000; most insurers recommend coverage for $1 million.The increase in coverage generally costs only a couple of dollars a month, and, think about it, $10,000 doesn’t cover you for much if you’ve inadvertently done structural damage to the house when you "parked" on the porch.

4. Residual Liability

This coverage, known as Residual Bodily Injury and Property Damage Liability insurance, covers you if you are found responsible or get sued as the result of an accident. In Michigan, the state minimum follows the 20/40 rule; you must have coverage for $20,000 per person and up to $40,000 per accident. Such minimal coverage, however, does not protect you from what Nathan calls “the Worst Day” event. Black ice prevents you from stopping at an intersection and when you slide through, you hit a car with four occupants, causing injury, or God forbid, death. You are at fault; they sue and win a $250,000 judgment per passenger. You are now responsible for $1 million. Under 20/40, which may have seemed the best option because of the minimal monthly premium, you are covered for only $40,000. The other $960,000? Your responsibility, and you could work for rest of your life, with 25 percent of your wages garnished, until you have settled that debt. Check your liability. No one likes to think about the Worst Day, but it is, in fact, that day for which you really have insurance coverage., Image at top from SarapulSar38/iStock/Thinkstock

Related stories:

Insurance Checkup Time - January 29, 2014

A Smartphone App for Insurance Claims - June 27, 2013
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