Auto insurance is one of the cornerstones of people’s concerns. Scarily enough, not many people really seem to know what they’re paying for.
Considering how much time we spend in our cars, how debilitating and damaging accidents can be, and the last time someone almost cut it too close on the road, is it any wonder auto insurance is required by the state of Arizona just to operate a vehicle?
At Bow Tie Financial Group, we like to break auto insurance down into two categories: critical and convenient.
Critical coverages are the backbone of your auto insurance. They’re the ones that protect your assets from being forcibly taken away should the worst happen.
Liability is the main coverage, it’s the one most people think about other than “full coverage” (which is a myth, but we’ll touch on that later). When you see three numbers, like 15/30/10, 100/300/100, or 500/500/500, that’s liability
The first slash
The first slash is how many tens of thousands your insurance will pay out in the case of bodily injury per person that you hurt.
Simply: if you hit a car with three people in it and have 15/__/__ coverage, it will pay up to $15,000 per person you injured. If you have 100/___/___ coverage, it will pay up to $100,000 per person you injured. 500/___/___ will, appropriately, pay up to $500,000 per injured person
The second slash
The second number in the trio is how much your insurer will pay for bodily injury per occurrence, or as some people say, per accident.
So limits of __/30/__ will pay up to $30,000 for an entire accident, ___/300/___ will pay up to $300,000, and ___/500/___ will pay up to $500,000.
The third slash
The first two numbers deal with bodily injury, the most important thing to consider after a collision. The final one deals with property damage. This is the difference between no big deal and a big deal. It’s laid out in the same way as the first two:
__/__/10 will pay up to $10,000 in damages to physical property, whether a 1996 Camry, a restored 1967 Mustang, or a brand new 2016 Escalade. ___/___/100 will pay up to $100,000 for the same damages, more than enough for a three car pileup with a couple of junkers, but that Audi is going to have you paying out of pocket. Of course, ___/___/500 will cover much more with $500,000 of coverage.
Bringing it together:
Arizona requires 15/30/10 coverage to legally drive. This is the bare minimum to get by, and, to be honest, it really isn’t enough for anything but the most basic of fender benders. If your insurance doesn’t cover the amount of the damages caused in an accident, then you have to pay out of pocket.
If, goodness forbid, you cause an accident and can’t afford to cover what your insurance doesn’t, then the state can take from your bank accounts, retirement accounts, valuable jewelry, home equity, and even up to 25% of future wages. This is important to consider when you weigh in the fact that hospitalization can easily exceed $100,000 for many cases, and a family with many members can easily exceed the $30,000 per-occurrence threshold of state minimum.
Liability is the first line of protection against what you’ve worked for and whatever accidental damage you may cause.
Uninsured/Underinsured coverage is my favorite coverage to talk about. This is the program that sinks in for people.
What will happen if your family gets T-boned by another car while you’re going through an intersection? Do you think $15,000 will cover the hospital bills and rehabilitation for a child? Do you think $30,000 will cover everything for your entire family?
Uninsured motorist (UM)
Uninsured coverage kicks in when the person who hits you doesn’t have insurance or doesn’t stick around, like in a hit and run.
Even better, uninsured insurance protects you when you’re not even in your car, like in a friend’s car, on a bicycle, or as a pedestrian, but we’ll touch on that in a moment.
Underinsured motorist (UIM)
Similar to uninsured motorist, underinsured coverage protects you if the person who hit you doesn’t have enough coverage. So this would apply if they had insurance, but it simply wasn’t sufficient.
Just like uninsured motorist insurance, underinsured also protects you while you’re not in your vehicle: when you’re a passenger, cyclist, pedestrian, or many other situations.
We’ve seen this coverage save families. In fact, the president of Bow Tie Financial Group’s grandparents were in an accident. Because of their high limits of UM/UIM coverage, the weeklong stay of his grandmother in the ICU and the following two weeks of recovery in the hospital didn’t bankrupt them.
Bringing it together:
UM/UIM is a critical coverage because it protects your family against other motorists. Liability protects your money from what you might do; this protects your family against the negligence of others.
The catch is that your UM/UIM limits can only be as high as your liability limits. So if you have state minimum, you can only have $15,000 per person and $30,000 per accident of coverage for your family. If you have 250/500, then you can get up to $250,000 per person of protection and up to $500,000 of protection per accident for your family.
Medical payments coverage is no-fault coverage which covers you and your passengers in a collision. Because this is no-fault, it usually doesn’t matter who caused the accident (I mean, if you’re committing a crime, your insurance won’t cover anything anyway!).
This is measured in flat thousands of dollars, usually $1,000-$10,000.
Unlike to critical coverages, these are option which, while helpful, are not vital for existence. They include things like:
Comprehensive is half of what people think of as “full coverage.”
This protects against things other than collision, in fact, its legal definition is “other than collision.” This means it is your line of defense against vandalism, theft, trees falling on it, hitting animals, and a number of other situations.
So, if you have “other than collision” the next thing to come is collision. This is the second half of “full coverage”.
This protects against hitting things like other cars, other cars hitting yours, hitting poles, houses, or trees, and most any other moving incident.
Both comprehensive and collision are subject to a deductible, which is taken out of the amount paid to you. So a $500 deductible for a $6,000 claim will result in a $5,500 payment.
By now, you can see that “full coverage” just means your vehicle can be replaced, not that your family will not suffer grave financial distress from a mistake.
No deductible glass is a great addition to comprehensive coverage, as it always requires comprehensive to be on the policy. All this does is make the effective deductible for glass claims to be nothing. Without this, any damage to your windshield or other car windows would be subject to your deductible.
I don’t know about you, but I really don’t like the idea of paying $250 to replace my windshield.
Towing and Road Service
These are two powerful coverages, although not necessary. Some people use this instead of AAA, others use it in addition to AAA, as it can complement AAA and other auto service programs quite well. While one may provide towing only within a certain area, this may go outside of it or pay for the excess.
Road service will help with things like flat tires, jump starts, fuel delivery, or locking yourself out of your car. Towing simply helps get your broken down vehicle to a repair center.
There are two ways these coverages can work: reimbursement and outright. Reimbursement programs have you pay for the services then submit receipts. Outright, as I like to call them, programs coordinate the payment for you, so you don’t have to handle anything under the amount covered.
Most of the companies we work with operate outright, so our clients don’t have to worry about running a card just to get back into their car.
Bringing everything together
We do not offer auto policies under 50/100/50 with matching UM/UIM, and $1,000 medical payments. It’s simply not responsible, not enough, and not within our moral compass to offer protection which could leave people hurt and families bankrupt.
Regardless of your status as a client with us, though, we want to make sure what you have is appropriate. We’re happy to go over your financial outlook and make sure what you’re carrying is appropriate. Of course, we aim to fit the proper coverages in each budget and strive tirelessly to do so.
Please, call us today or contact us for a quote or complimentary review.