The Auto Insurance Dilemma: Which Coverages Should You Carry?


What car insurance do you have? Florida's financial responsibility law requires everyone who owns and operates a motor vehicle in this state to carry a minimum of Personal Injury Protection coverage (PIP) and Property Damage Liability coverage (PD).

What is Personal Injury Protection?

If you get hurt in a car accident, no matter whose fault it is, your own Personal Injury Protection coverage (PIP) pays 80% of your medical expenses (minus any deductible you choose). PIP also pays for 60% of any wages you lose. These payments are made until your policy limits are paid. Most PIP policies sold today have a $10,000.00 limit.

What is a Deductible?

When you buy your PIP policy, your agent should give you a choice as to whether you want a PIP Deductible or not and if so how much. The deductibles range from $500.00 to $2,000.00. The larger the deductible, the less expensive the coverage will cost you. Consequently, most people want to spend the least amount of money, so they choose a $2,000.00 deductible. This is fine, until you get hurt in a car accident. A PIP policy with a $2,000.00 deductible will not pay one penny for the first $2,500.00 of medical expenses you incur. For each dollar of medical expenses you incur after that, the policy will pay 80% of your medical expenses, up to the policy limit. You will have to pay the $2,500.00 of medical expenses. However, if you have a PIP policy with no deductible, the PIP policy will immediately pay 80% of your medical expenses, up to your policy limits. As you can see, if you are in an accident, this makes a huge difference in how you are personally financially effected.

What is Med-Pay?

Another type of coverage, which compliments PIP and which is offered by some, but not all car insurers, is Med-Pay coverage. Med-Pay will pay your share of any deductibles or co-payments not covered by PIP, up to the amount of coverage you choose. Med-Pay is very inexpensive and is highly recommended if the insurance company offers it.

What is Property Damage Liability Coverage?

Property Damage Liability coverage covers you for any damage you cause to someone else's car, with your car. This coverage comes into play only if the accident is your fault. Unlike PIP (where fault is not an issue - thus the term "No-Fault") fault is an issue here. If a car accident is your fault, your PD policy will pay to repair the "other guy's" car. Your PD policy will also pay for a rental car for the "other guy" if his/her car will be out of commission during the repairs. If the "other guy's" car is a total loss, your PD policy will pay to him/her, the fair market value (FMV) of the car. FMV is what the car would have sold for the day before the accident. FMV should never be confused with replacement cost. Keep in mind, your insurer will only pay up to your policy limit, so, if you cause more property damage than you are covered for, you will be personally responsible to pay the difference between the amount of your coverage and the amount of property damage you caused.

Other Recommended Coverages

These are the only two coverages which are currently required under Florida law. However, there are a number of other coverages which are available and recommended, depending upon the type of car you drive and your personal financial situation.

What is Bodily Injury Coverage?

Bodily Injury Liability coverage (BI) is similar to PD, except it pays for damages you cause to other people, not their property. BI is available in limits of $10,000 up to millions. Your personally financial situation should be considered when choosing the amount of BI coverage you carry. This type of coverage is very important because if you hurt someone badly, you can be held personally responsible for whatever personal injuries they incur. These damages can be many thousands of dollars and the last thing you want is a huge judgment against you which could have been avoided if you had purchased BI coverage. If you decide to purchase BI coverage, you must next consider Uninsured/Underinsured motorist Coverage (UM).

What is Uninsured Motorist Coverage?

Uninsured / Underinsured Motorist coverage pays for bodily injuries you incur because of someone else's fault. This coverage comes into play if the person who caused your personal injuries has no BI coverage or not enough BI coverage. This is extremely desirable since many South Florida drivers have no BI coverage or the minimum amount ($10,000). However, you can only buy UM if you first buy BI, and further, you can not buy more UM coverage than the amount of your BI coverage.

What is Collision and Comprehensive Coverage?

You can insure your own car from theft, fire or other damages by purchasing Collision and Comprehensive coverage (C&C). C&C covers your car if it is stolen or damaged by anyone, including yourself. For instance, if you crash into a tree, this is the only portion of an auto policy which will pay to repair your car or pay you the FMV of your car. If you don't have it, you lose. When you purchase C&C, you should choose a deductible. The deductibles typically range from $250.00 to $1,000.00. Obviously, the higher the deductible, the lower the cost of the premium.

What is Rental Car Coverage?

Most companies also offer rental car coverage and towing coverage. Rental car coverage is very inexpensive and will pay for you to get a rental car if your car is damaged and put out of commission. Usually this type of coverage has a daily limit on the amount it will pay, as well as on the maximum it will pay for each incident. This coverage is recommended because it is inexpensive and invaluable if you have no other means of transportation. Towing coverage is a judgment call.

What is Towing Coverage?

Towing coverage will pay for the cost of a tow truck to tow your car after an accident. If you are a member of an auto club, you probably already have this benefit and it would be a waste of money to duplicate the coverage, even though it is very inexpensive. If you are a member of an auto club, towing coverage is not recommended.

The Bottom Line

As you can see, we have only touched the tip of the auto insurance iceberg. Although this information will provide you with a general overview of what makes up an auto insurance policy, every insurance company has their own policy and they are all different from each other; read your policy and don't be afraid to question your agent.