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
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.