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Types of Coverage

Have you ever actually tried to read through an auto insurance policy? There's a reason that books about insurance don’t make it to the top of the charts: policies are long, complicated, boring, and sometimes seem to be written in a language that only an insurance agent can understand. So that you can better understand your Texas auto policy, here's a quick, easy guide to the types of coverages available in Texas.

Liability: If you cause an accident, liability coverage is what will pay for the other person's damages. There are two types of liability coverage: bodily injury and property damage. Bodily injury, often abbreviated as BI on your policy, pays for the other person's medical bills and/or funeral expenses. Property damage, PD for short, covers the cost to repair or replace any property that you damage, including the other person's vehicle. Liability coverage will not pay for your vehicle or for your medical expenses.

Uninsured/Underinsured Motorists Coverage:
Often appearing as UM/UIM on your policy, this coverage protects you from damage caused by a motorist who doesn't have insurance if they are at fault in the accident. It will also protect you if the other driver is at fault and has insurance, but isn't carrying high enough liability limits to completely cover your medical bills. UM/UIM also covers hit-and-run accidents if you call the police. In Texas, if you don't want to carry this coverage, you must provide your insurance company with a signed statement rejecting it.

Medical Payments:  Often abbreviated as "Medpay," medical payments is an optional coverage that provides a specified amount of coverage for medical payments and funeral expenses for everyone in your vehicle, regardless of whether the accident was your fault or the other driver's fault.

Personal Injury Protection: Known in the insurance world as PIP, personal injury protection is similar to Medpay, except that in addition to paying medical benefits, it also pays for a caregiver if you are injured in an accident and 80% of lost wages. Like Medpay, it covers you, your family and anyone else that was in the car with you when the accident happened. By law, your Texas auto policy must include at least $2,500 in Personal Injury Protection, unless you explicitly reject the coverage in writing.

Collision Coverage:
  If you are in an accident and it's your fault, collision coverage is what would pay to repair or replace your vehicle. Collision coverage carries a deductible, which is the amount that you have to pay out of your own pocket if there is a loss. Insurers offer different deductible options: usually $50, $250, $500, and $1000. The lower the deductible is on your policy, the higher the premium. One more thing about collision coverage: It will only pay out the Actual Cash Value (ACV) of your vehicle. In most cases, this is significantly less than what you paid for the car when you bought it, because the car depreciates in value as you drive it. Collision coverage is required if you are have a loan on your vehicle.

Comprehensive Coverage: Comprehensive coverage, known as "comp" to insurance companies, covers the cost to repair or replace your vehicle if a loss occurs due to something other than a collision. Comprehensive coverage would cover your vehicle if it were stolen, damaged in a storm, hit by a meteor, etc...Like collision coverage, you have to choose a deductible that you agree to pay before the coverage kicks in. Also, like collision, comprehensive cover will never pay out more than the Actual Cash Value of the vehicle. Financing companies and leasing companies require that you carry comprehensive coverage on your vehicle. In most cases, you have to have comprehensive coverage on a vehicle before you can be eligible for collision.

GAP: Remember, comprehensive and collision coverage only pay up to the actual cash value of the insured vehicle. If you bought your car brand new, there is a strong possibility that your car could depreciate in value more quickly than you are able to pay for it. In these cases, GAP coverage comes to the rescue, paying the difference between the actual cash value of the vehicle and the amount you still owe on the loan. Check your loan agreement before you choose this coverage-most financing companies offer their own GAP coverage, so you may already be paying for it as part of your monthly car payment.

Other coverages:
Some insurance companies offer other coverages, such as towing and labor or rental reimbursement.  Towing and labor pays for a tow truck, locksmith or similar expenses. It will not pay to have your vehicle repaired in the event of a breakdown. Rental reimbursement reimburses you for a rental car if you are in an accident that is your fault. Check with you insurance company for a complete list of coverages available on your policy.

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