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Last week I wrote about how you, as a careful consumer, could go about obtaining quality car insurance at the best possible price, emphasizing the cost factors that you yourself can control. ("How to Save on Auto Insurance Costs," September 21, 2016). That article discussed several of the risk factors that insurance companies consider in setting policy rates, and stressed the wide variance in how different companies assess those risks -- often resulting in equally wide discrepancies in the premiums charged by competing insurers.

This week I would like to look at another consideration in your purchase of auto insurance -- coverages. "Coverage" refers to those potential losses you might occur in connection with the ownership and use of your car for which you can purchase insurance protection. You may be surprised to know the many types of coverage that are available. Some coverages you are required by law to purchase, some others you will almost certainly want to purchase, some you will be required to purchase by your lender if your car is financed, and some you will decide you can happily do without. The key in purchasing car insurance is to make sure you have insurance for (1) the types of risks and losses you are concerned about, (2) in amounts that are appropriate for you.

Here are the basic types of coverage that are available in connection with car insurance:

Liability Insurance. California law requires that you demonstrate means to pay for damages or injuries caused by you in a car accident. You are not required by law to obtain the other coverages listed in this article. Proof of means is usually achieved by the purchase of liability coverage in an auto insurance policy. (It is possible to satisfy this legal obligation in other ways, including posting a $35,000 cash deposit with the DMV, delivering a $35,000 surety bond to the DMV, or obtaining a Certificate of Self Insurance from the DMV. But these alternative methods are very rarely used). You are required by law to purchase liability insurance in the following minimum amounts: $15,000 for injury or death to one person, $30,000 for injury or death to more than one person, and $5,000 for damage to property. However, most insurance policies contain substantially higher liability limits. The key consideration here is protecting your wealth from claims by injured (or allegedly injured) persons which exceed the limits of your insurance coverage and so must be paid from your own resources. Choosing the proper amount of liability coverage for your situation is probably the most important coverage question you will face.

Collision Insurance. This coverage pays for damages to your car that may occur as a result of an accident. Whether you choose to purchase collision coverage and, if so, the amount of the coverage you purchase will probably depend on the value of your car and the degree your reliance on your auto (that is, do you absolutely have to replace it if it is damaged).

Comprehensive Insurance. This coverage will compensate you for damage to your car that does not involve an accident, for example theft. Here the factors are: do you keep valuables in your car that are targets for theft, such as an expensive sound or GPS system, where do you typically park (on the street or in an enclosed garage), do you live or work in a high crime area? You are not required by law to purchase collision or comprehensive coverage. However, if your car is financed, the finance company will usually require that you do so. 

Uninsured/Underinsured Motorist Insurance. This coverage will protect you from damages to your car or injuries caused by an uninsured or an underinsured driver. Recent statistics show that close to 15 percent of California drivers have no car insurance.

Medical Payments Insurance. Medical payments coverage will pay for medical expenses you may incur if you are involved in an accident, regardless of who is at fault. It may also cover funeral expenses, medical costs incurred by your passengers, injuries you sustain as a bicyclist or pedestrian if you are struck by a car, and dental care. It is very important that you consider whether your existing health insurance policy provides adequate coverage for medical costs you might incur in a car accident. If so, this coverage may not be necessary. Another factor to consider is whether you can designate medical payments insurance as secondary coverage, to be accessed only if your health insurance coverage has been exhausted. Secondary coverage is less expense than primary coverage and might provide a useful supplement to health insurance in case of significant injury.

Other. There are various other types of coverage that can be purchased: roadside assistance coverage (towing insurance), gap coverage, and rental reimbursement coverage are a few examples. Make sure you discuss these options with your insurance agent.

If you wish to discuss what auto insurance coverage is appropriate for you with someone who has a thorough understanding of these issues and is independent (that is, not tied to any one insurer), at no cost to you, please contact me.

Alex Pfeifer
650 762-7070
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