Car Insurance 101

Dissecting the main types of coverage

Author

Bailey
September 26, 2023

Oh hey team 👋🏼

Welcome back to Monarch 🦋

I’ve recently spent time researching new auto insurance policies (mine expires October 1st ⌛) and …

WOW! I knew so little! About! Car insurance policies & coverage options! Why is this not taught in school!

Anyhow - here’s a mid morning Monarch snack to curb your educational hunger 🍽️ 🚗

Today’s Monarch Menu: What is car insurance, and what does it cover? (unpacking the five main types of car insurance)

What is car insurance?

You can think of car insurance as your personal financial superhero, ready to swoop in when car troubles and mishaps arise 🦸🚙 

Whether it’s a fender bender, a car jacking, or something else on the long list of unexpected issues, your car insurance will have your back. Depending on your coverage choices, your insurance provider can flex its muscles to pay for car repairs and/or medical expenses for yourself and others!

That said, it’s important to clarify that Flo won’t be whipping out her wallet for your car’s regular check-ups or its aging wrinkles (ie: maintenance and wear & tear).

📜 Car Insurance Contracts

Having car insurance is like being in a rock band with your insurer 🎸 

(wild reference but have some fun why don’t ya?)

You hit the premium notes regularly (ie: monthly payments to your insurance company) and they, in turn, break out into a guitar solo whenever you forget the words (ie: help cover you & your car when you need it).

It’s also against the law in almost every state to drive without insurance .. so going solo could really land you in some hot water with fines, license issues, or even JAIL 👀🚨

🛑 What does car insurance cover?

It tooootally depends on your policy. Review the main types of coverage below to understand what each covers, and why you should have them!

🌟 First: Liability Coverage

Required in nearly every state (Michigan included), Liability Coverage is crucial in the unfortunate situation of a car accident.

If you're found at fault* in an auto accident, liability coverage can pay for damage to other vehicles, damage to objects, bodily injuries to other drivers and their passengers, and lawsuits if you're sued due to an accident.

Liability coverage is commonly broken into three numbers that showcase your policy limits for bodily injury (BI) and property damage (PD).

📊 Breaking It Down: BI / PD 📊

Picture this: You’re cruising in Michigan* with the state’s minimum liability limits, rocking a $50,000/$100,000/$10,000 policy. This means…

  • Bodily Injury Coverage (BI) per Person: $50,000 is the highest amount your insurer will pay out for injuries to a person (per accident).

  • Bodily Injury (BI) per Accident: $100,000 is the max amount your insurer will pay out out for all injuries (ie: multiple people) per accident.

  • Property Damage (PD) per Accident: $10,000 is max amount your insurer will pay out for other people’s car/property damage in another state.

*Michigan is a state with no-fault insurance, which means your insurance will cover these expenses regardless of who is responsible for the accident. The caveat here is that, under no fault, PD per accident won’t cover any damage to your car.

**In at-fault states, your insurance will pay to cover the other side’s damages when you’re at fault (and vice-versa when it’s not your fault).

🤔 Make it make sense: Liability Scenarios

  1. 🚨 SCENARIO A: Fully Covered
    You hit another driver, and cause them $15,000 in injuries and $5,000 in property damage. Your insurance should pay both amounts because all injuries and damage fall below your coverage limits per person and per accident.

  2. 🚨 SCENARIO B: Cover Remaining Costs Out of Pocket
    In this case, you’re involved in a crash where the opposing driver and two passengers are injured (let’s say you’re at fault, for the out-of-staters). Suppose the driver has $50,000 in injuries, and each passenger has $30,000 in injuries.

    You may think you're covered because you have $25,000 in bodily injury per person, though the max your insurer will pay out per accident based on your coverage is $100,000. Since expenses for injuries total $110,000, you'll be responsible for the remaining $10,000 out of pocket.

 🌟 Second: Comprehensive Coverage

Comprehensive coverage is your automotive safety net against damages to your car from incidents that are out of your control.

🛡 Comprehensive Coverage Handles:

  • Theft

  • Vandalism

  • Fire and explosions

  • Windshield and glass damage (non-collision)

  • Falling trees/limbs and other objects

  • Objects kicked up by or falling off cars

  • Damage from storms, including hail, wind, floods, lightning, and even earthquakes!

  • Encounters with animals (yes, that deer that appeared out of nowhere!)

🚫 Comprehensive Doesn’t Cover:

  • Damage resulting from a collision with another vehicle or object (that’s not an animal)

  • Medical expenses for you or your passengers

In short: you can drive a bit more stress-free with comprehensive coverage, knowing that you’re covered from the wildcards life may throw at you.

🌟 Third: Collision Coverage

Collision Coverage is your vehicle’s financial knight in shining armor.

🛡 Collision Covers:

  • Bumps and bangs with another car

  • Encounters with objects (Yes, that includes when you back into a mailbox 👀)

  • Single-vehicle accidents, like those unexpected meetings with a street sign, a utility pole, or a pothole

  • Accidents involving uninsured drivers

🚫 Collision Doesn’t Cover:

  • Non-driving related damages like hail, flood damage, theft, or vandalism (that’s a job for Comprehensive Coverage!)

  • Animal encounters (think deer in the headlights—also a task for Comprehensive Coverage)

  • Damages you cause to someone else’s ride (Liability Coverage to the rescue for those!)

  • Your medical bills (look to Medical Payments Coverage or Personal Injury Protection for this stuff)

With Collision Coverage, you can hit the road with an added layer of peace, knowing that it has your back in those “Oops!” moments :’)

🌟 Fourth: Medical payments & Personal injury protection

MedPay (MedPay) and PIP (PIP) are your financial bodyguards for the bumps and bruises of the road. They ensure that you and your passengers get the medical attention needed, irrespective of who decided to play the blame game.

If you’re living in a no-fault insurance state (like MI) you’re required to have PIP.

🏥 MedPay and PIP: The Healing Touch!

  • They both cover medical bills if you or your passengers are hurt in a car accident, no matter who’s at fault

  • PIP covers medical expenses and restricting minor lawsuits, keeping the focus on recovery rather than the courtroom

  • Not sure if you could foot the medical bills post-accident? MedPay’s got you, stepping in to tackle those medical expenses

  • **MedPay is especially handy if you don’t have health insurance, or have a very high deductible on your Health Insurance

🌿 MedPay’s Healing Basket Includes:

  • Doctor and hospital visits

  • Nursing services

  • Ambulance and EMT fees

  • Health insurance deductibles and co-pays

  • Funeral expenses (should the need arise)

  • Surgical, X-ray, and dental procedures

🌟 Fifth & Final: Uninsured Motorist Coverage

Uninsured/Underinsured Motorist Coverage (UM/UIM) is designed to secure you and your passengers against the financial ramifications when the other driver is uninsured or underinsured.

While not mandatory everywhere, driving without UM coverage is akin to walking on a tightrope.

Uh Oh: Approximately 13% of drivers nationwide lack auto insurance

🛡 Understanding UM/UIM

  • It kicks in when you’re hit by a driver lacking adequate insurance to cover the damages or injuries they’re responsible for covering

  • It’s a mandatory safeguard in many states, given the alarming statistics of uninsured drivers 🥴

  • Fantastic insurance to have in cases of hit-and-run!

In Summary:

  • Liability Coverage: Assists in paying for the other party’s medical expenses and property damage in an accident where you are at fault, and can also help cover legal costs if you are sued. Fault doesn’t matter in Michigan & other no-fault states, but liability coverage won’t cover any vehicle damage.

  • Comprehensive Coverage: Safeguards against damages to your vehicle caused by events out of your control, such as theft, vandalism, natural disasters, and collisions with animals.

  • Collision Coverage: Collision coverage handles the repair costs for your vehicle when it is involved in a collision with another vehicle, an object, or itself (ie: it overturns).

  • Personal Injury Protection (PIP): Covers medical expenses, and often lost wages and other damages, regardless of who is at fault in an accident, providing a level of financial assurance for medical and additional incurred costs.

  • Underinsured Motorist Injury (UM/UIM): Protects you and your passengers financially by covering medical expenses and vehicle damages when involved in an accident with a driver who is uninsured or does not have sufficient insurance to cover the damages incurred.

Keep rocking and rolling safely, lovely Monarch readers 🌟🎶

TY & TTYL,

Bailey

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