Common Misconceptions in Auto Insurance

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D. Gilson is a writer and author of essays, poetry, and scholarship that explore the relationship between popular culture, literature, sexuality, and memoir. His latest book is Jesus Freak, with Will Stockton, part of Bloomsbury’s 33 1/3 Series. His other books include I Will Say This Exactly One Time and Crush. His first chapbook...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore...

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UPDATED: Mar 13, 2020

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Car insurance can be complicated and thus, it is rife for consumer confusion and misconceptions, some of which have even risen to mythical proportions. Even though all of us who drive are required to have it, it’s still a mess. To sort it all out, we thought it would be beneficial to discuss some of the most common errors that consumers make when interpreting their car insurance policies, and help separate fact from fiction. Let’s begin by looking at the basic parts of auto insurance policies.

What are the Basic Parts of a Car Insurance Policy?

No matter where you live in the United States, every single auto insurance policy is composed of six basic parts. Four of these parts are the types of coverage, and include:

  • Liability Coverage – This represents what property damage and bodily injury coverage your policy provides. These range from the state-mandated minimum coverage, to the maximum amount available from your insurer.
  • Medical payments (MedPay) and/or Personal Injury Protection (PIP) – Drivers in no-fault insurance states are required to carry personal injury protection. Drivers in tort-based states may be able to obtain PIP coverage, depending upon the specific laws and regulations of their state. MedPay is the primary insurance those in tort-based states, although it is not always required. It may be an available coverage to those in no-fault states as well. Both provide protection for you and your passengers in the case of an accident and cover bodily injury and the medical costs resulting from those injuries.
  • Uninsured Motorist Coverage – This coverage offers protection for when you are involved in an accident with an uninsured motorist. It will also cover you when you are hit as a pedestrian by a motorist. With an estimated one of every six drivers on the road uninsured, it’s a coverage that you’d be wise to consider.
  • Physical damage – This coverage is normally referred to as comprehensive and collision coverage, and it’s also known as full coverage insurance. They both offer protection for your vehicle. Collision coverage is for when you’re involved in a motor vehicle crash, while comprehensive coverage is intended for things like auto theft or acts of God.

The other two parts of the policy deal with fine print, and they are:

  • Duties after an accident or loss – This details what is required from you if you are involved in a motor vehicle collision or suffer a loss that you will make an insurance claim on.
  • General provisions – This section sets all of the insurer’s coverage conditions in place, and it also sets the obligations of the provider and policyholder.

Do I really have to read the fine print?

Yes, you should never agree to an insurance policy without reading it in full, including the fine print. Essentially a business contract between the insurer and policyholder, your policy will specify where each party is legally bound by the document.

If that document contains information detrimental to you or includes things you are unaware of, you need to know. You certainly do not want to be stuck with terms you cannot or do not want to live with. Going over the policy with a fine tooth comb will let you know if you have the coverage you believe you are buying.

What are the most common errors consumers make in interpreting an auto policy?

We’ve talked about this so much it probably sounds almost cliche – but it’s true. The biggest misconception people have regarding insurance is that the state minimums will be sufficient to protect them in an accident. Due to the age of most state minimum coverage requirements, they’re severely out of date. That means that in most instances, minimum coverage simply will not be enough.

Another mistake people commonly make is thinking that since they have full coverage, meaning their policy includes comprehensive and/or collision insurance, personal property in their car is included in coverage. Most often, personal items will not be covered. A good rule of thumb to remember that if it isn’t permanently installed in the car, it won’t be covered.

Finally, since we’ve already discussed how state minimum coverages aren’t enough, let’s address what liability coverage doesn’t do that many people erroneously think it does – protecting their own car. Liability insurance doesn’t cover your car, but rather, it protects the interest of others, including their automobiles. If you want to protect your own car from accidents, you should obtain physical damage coverage, which includes collision and comprehensive portions.

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