Personal Injury Protection, Uninsured/Underinsured Motorist Coverage, and More
This is the second part in a two-part series on protecting yourself, your family, and your assets with proper automobile insurance coverage. Read Part 1 here.
In the last post, I talked about the importance of adequate automobile liability insurance. Liability insurance helps to protect your assets when you’ve been found at fault in an automobile accident and the injured party seeks compensation.
While liability insurance is mandatory in most states and is therefore the most common type of automobile insurance, most drivers won’t be well protected with just liability coverage. Some of the other types of motor vehicle insurance that can be critical to a driver’s financial security include:
- Uninsured/Underinsured Motorist Coverage
- Personal Injury Protection (PIP)
- Medical Payment Coverage
Other options that may be beneficial to drivers include:
- Collision Coverage
- Rental Car Reimbursement
Automobile Insurance Coverage You Shouldn’t Overlook
Uninsured/Underinsured Motorist Coverage
Uninsured/underinsured motorist insurance is intended to provide for those injured in automobile accidents when the other driver was operating without insurance, or didn’t carry adequate insurance to cover the damages.
In Massachusetts, this type of insurance is mandatory. However, the required amount of coverage is quite low. Massachusetts drivers purchasing the mandatory minimum automobile insurance will have $20,000 in uninsured motorist coverage per person and $40,000 per accident. It’s not hard to imagine just how quickly $20,000 could be used up while recovering from a serious car accident. For example, medical costs associated with spinal surgery typically exceed $100,000.
In New Hampshire, automobile insurance is not required by law, but a driver purchasing insurance must purchase certain minimum coverages, including uninsured and underinsured motorist coverage.
Many drivers underestimate the importance of this type of coverage because they assume that their medical insurance coverage would pick up any costs not covered by the responsible driver’s insurance or the mandatory minimum uninsured/underinsured motorist coverage. While that’s true in theory, it’s important to keep in mind that a person recovering from a serious or long-term injury may lose employer-based insurance coverage and may be unable to keep up the premiums for a private policy or COBRA coverage.
Thus, it’s in your best interests to think realistically about the resources you would have available if you were seriously injured in an accident with an uninsured or underinsured driver, rather than automatically signing on for minimum coverage in this area. The small added cost of significantly increasing your coverage is an investment in your future, both by ensuring access to medical care and protecting your assets from the large, unexpected expenses associated with this type of injury.
Personal Injury Protection
Personal injury protection (PIP) isn’t offered in every state, though many states that do not offer PIP have no-fault medical coverage available that serves a similar purpose. In Massachusetts, PIP coverage pays medical expenses for the driver and his or her passengers, regardless of fault. PIP may also replace a percentage of income lost as a result of the injury.
Massachusetts drivers are required to carry $8,000 in PIP. However, there’s a loophole that makes it possible for drivers attempting to decrease their premiums to lose the value of this coverage: it’s possible to purchase $8,000 in PIP with an $8,000 deductible, meaning that the driver actually has no coverage.
The net effect of purchasing $8,000 in coverage with an $8,000 deductible is, under some circumstances, worse than having no PIP coverage at all. That’s because when coordinating benefits, the calculation includes the $8,000 in PIP coverage, potentially decreasing the amount paid by other types of coverage. Thus, selecting a high deductible for PIP coverage can be a serious mistake.
This risk often falls on those who can afford it least, as the primary motivation for increasing the PIP deductible is to save on costs. Unfortunately, the drivers most interested in lowering premiums are often those who can least afford to lose income, or to cover medical expenses pending a determination of fault.
Other Optional Automobile Insurance Coverage
While the coverage options vary somewhat from state to state, the following types of coverage are common, and in some cases universal.
Liability insurance, such as bodily injury and property damage coverage, doesn’t cover your vehicle. If you would like your automobile insurance carrier to pay for damage to your vehicle when you’re at fault in an accident or when your car is damaged by a falling branch or some other non-driving event, you must purchase collision coverage.
This type of coverage is common because virtually all automobile financing companies require the borrower to maintain “full coverage” on their vehicles until the loan is paid off. If there’s no lien on the vehicle, collision coverage is optional. Whether or not this type of coverage is a good investment depends on the value of your vehicle, the cost of the premiums, and your ability to repair or replace your automobile if it is seriously damaged.
Miscellaneous Optional Automobile Insurance Coverage
In addition to the core types of insurance discussed above, your automobile insurance carrier may offer towing and rental car reimbursement. Many people choose to purchase this coverage, which is typically inexpensive, as a convenience. However, like no-deductible or low-deductible PIP coverage, this type of coverage is mostly likely to be excluded by those who are most concerned about the cost of insurance. When weighing that decision, consider whether you are confident that you’ll be able to pay for a tow on short notice and make arrangements for transportation if your vehicle is in the shop following an accident.
Making Smart Decisions about Auto Insurance
The right automobile insurance package depends on your specific circumstances, needs, assets, available resources, and other factors. However, one principle remains true: short term savings can be very expensive in the long run. Automobile insurance, whether liability, PIP, or uninsured/underinsured motorist coverage serves a greater purpose than fulfilling the law and protecting anyone you might injure while operating your vehicle. The right package for you will protect your access to medical care, ability to repair or replace your vehicle, and the security of your assets.