Advanced Personal Finance

What could possibly be more fun than a post about auto insurance, right? Well, if you own a car, there might be some things you want to look at on your auto insurance policy. This is the first of a three part series on auto insurance. In part one, we’ll take a look at the liability section; part two deals with personal injury protection; part three covers collision, comprehensive and the add ons.

Part I: Liability
There are three parts to the liability section: bodily injury, property damage, and uninsured motorists.

Bodily injury compensates the driver of the other vehicle and any passengers (in either vehicle) in the event of an injury-inducing accident. It comes in standard increments (e.g. $100,000/$300,000). The first number refers to the maximum amount each person could be compensated; the second is the maximum per accident.

The bodily injury coverage you should select is a function of your assets. In the event of an accident, the injured party can sue you (even if the accident wasn’t your fault) and judgment can be as high as your available assets. The insurance actually pays that money out if the injured party wins up to the cap you’ve paid for. So if you have $25,000 in a mutual fund and a house worth $250,000, you should have higher coverage than if you just got out of college and have $1,000 saved and rent. Just about everyone with any sort of assets should choose at least 100/300 coverage.

Property damage works similarly. Coverage of $50,000 per accident pays to repair or replace property (other than your own) damaged as a result of an accident caused by you up to the $50,000 maximum. What’s worth noting on this is that if you get low coverage, you’d be responsible for paying any damage over and above your coverage out of pocket. For example, if you hit a late model Mercedes and have minimal property damage coverage, you could be on the hook for part of the repair bill.

Uninsured motorist coverage, as the name implies, pays for medical bills and property damage if you’re hit by an uninsured or hit-and-run driver. This insurance covers you and your passengers. Things to consider when choosing your level of coverage are whether you have good health insurance from another source (there’s no need to insure twice) and the high cost of any out-of-pocket medical treatment.

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This entry was posted on Monday, March 26th, 2007 at 7:54 am and is filed under Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.