The most common types of auto insurance are:
LIABILITY pays for damage caused by you to another person or another person's vehicle or other property as a result of an automobile accident. Types of liability coverage include:
- Bodily Injury (BI) If you injure someone in an auto accident for which you are legally to blame, this coverage will pay claims for injury or death against you and the cost of legal defense.
- Property damage (PD) pays for damage that you cause to someone else's vehicle or property for which you are legally liable. This does not cover your car or property.
- Medical payments pays for medical, hospital or funeral expenses for you and others injured or killed while riding in your car, regardless of fault. It also covers you and family members if struck by a car as a pedestrian or if riding in another car.
PHYSICAL DAMAGE pays for a loss resulting from damage to your vehicle or a vehicle operated by you. Physical damage also provides coverage if your vehicle is stolen. Types of physical damage coverage include:
- Collision (BI) pays for damage to your car from an accident regardless of fault. It usually includes a deductible and the insurance company pays the rest. Selecting a larger deductible can lower your collision premium.
- Other Than Collision (Comprehensive) pays for damage to your car caused by most anything other than a collision. Glass breakage, theft, fire, explosion, impact with an animal, vandalism and flood are some of these hazards. This coverage is also available with deductibles to lower your premium.
OTHER COVERAGE Other types of auto coverage include:
- Uninsured Motorists (UM) Unfortunately, not everyone purchases auto insurance. If you or your passengers are injured by someone who does not carry auto insurance, UM coverage will pay for injuries up to your policy limits. This includes medical expenses, loss of wages, and related expenses. UM coverage also applies if you are a victim of a hit-and-run driver.
- Underinsured Motorists (UIM) Just as some drivers don't carry any auto insurance, other's don't carry enough to pay for damages from their accidents. UIM coverage pays for death and injury expenses to you or occupants of your car when the other person's insurance is inadequate.
- Personal Injury Protection (PIP)) Coverage pays for medical expenses and 80% of lost income, regardless of who is at fault in the accident. It also pays for assistance with personal services you are unable to perform because of an auto accident. You, your family members, and your injured passengers are covered under PIP. Insurance companies must offer to sell you PIP coverage (and Uninsured Motorist Coverage) along with your liability coverage. If you decide not to purchase PIP, you must reject it in writing. PIP coverage is available at limits of $2500 and up.
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SHOULD YOU BUY UNINSURED/UNDERINSURED MOTORIST INSURANCE?
When you purchase automobile insurance in Texas, the law requires that your insurer must offer you the opportunity to also purchase uninsured/underinsured motorist coverage. Often referred to as UM coverage, this type of insurance is sold as protection for bodily injury and property damage expenses that you incur if you have an accident in which another driver is at fault and that driver does not have liability insurance or does not have enough coverage to pay for the full extent of the damages to you and your vehicle. The Department of Insurance recently reported that the current statewide average of vehicles that do not have liability insurance, which is required by law, is 22 percent. Although this number is down slightly from previous years, that still means at least one in five cars on Texas roads have no coverage.
While the number of uninsureds varies across the state – 21 percent in Tarrant County, 26 percent in Dallas County, and a whopping 49.7 percent in Kenedy County south of Corpus Christi -- the overall average is high enough to consider buying the added protection. Look carefully at your policy to see if there are situations in which you might need coverage that you currently do not have. But remember that UM coverage is not the only insurance that will pay for damage to your car in the unfortunate event of an uninsured motorist damaging your vehicle or injuring you. If you purchase collision coverage as part of the physical damage protection for your car, you will be insured for anything you collide with, including an uninsured motorist. However, if you carry only liability insurance, you may want to consider adding UM protection to your policy in case you have the misfortune of colliding with an uninsured driver.
BUYING INSURANCE BY THE MILE
Beginning in 2002, the Texas Legislature authorized insurance companies to offer a new type of rating plan – a plan in which a driver’s “risk exposure” would be calculated using the number of miles traveled by the insured vehicle. Traditionally, a vehicle’s risk exposure is measured in units of time, such as six months or one year, and the policyholder pays the same price regardless of whether he or she drives 5,000 miles a year or 25,000 miles a year.
Article 5.01-4 provides for a non-traditional way of viewing “exposure,” assessing the risk of insuring a vehicle based on how many miles it is actually driven during the policy period, rather than the policy time period. Although insurers did not immediately embrace these “mile-based” insurance policies, some companies are now offering them. Drivers with short commutes, carpoolers, retirees –- or anyone who doesn’t put a lot of miles on their car -- may save money when buying their insurance by the mile.
An analysis of claims related to miles driven was recently completed by Insurance Services Office, Inc. (ISO), an entity that provides a variety of services to property-casualty insurers throughout the world. ISO confirmed a strong correlation between miles driven and auto insurance claim costs. After studying 500,000 auto policies, ISO found a significant difference in the average claim costs of high mileage drivers and low mileage drivers. Those driving less than 3,000 miles per year had 44% fewer claims than average, while those with 20,000 or more annual miles had 28% more claims than the average. With industry studies on their side, those who drive less should benefit from this innovative way of pricing auto insurance.
If you consider buying your coverage by the mile, be sure and do your homework before making the switch. Some nontraditional policies have restrictions that are not a part of the traditional policies. Ask if there are any limitations on who may drive your car or time of day the car may be driven. Pay special attention to any “Notice of Limited Coverage” that may be attached to the policy. Most importantly, be honest about your driving habits. Driving over the mileage limit is no different than driving uninsured, so make sure you are confident that you will purchase more miles when you need them. And remember, it’s one car per policy if your rate is based solely on miles driven. If there are multiple cars in your household and you want to purchase “by the mile” coverage for one or all of them, some companies may require you to buy multiple policies.
Compare your policy’s coverage and cost with mile-based policies and other coverage options at www.opic.state.tx.us/autoic.php and www.helpinsure.com.
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