Auto insurance uncovered
You may be in good hands with Allstate and it’s nice to know that State Farm is there, but most auto insurance policies still leave plenty of room to deny coverage and stick you with the bill.
That’s by design, of course. Were auto insurers to offer blanket coverage for every blunder we make behind the wheel, their business would quickly swerve off the road and into the ditch.
“A policy that covers anything that is imaginable without any exclusions would be impossible to price and equally difficult to afford,” says Lynne McChristian, Florida representative for the Insurance Information Institute.
Instead, auto insurers offer us a contract that assumes most of the risk in exchange for a commitment on our part to act responsibly.
“For some of these exposures, there is some responsibility placed on the individual, and that’s where these exclusions come in,” McChristian says.
The following is a rundown of the major potholes that may exist in your auto policy. Because policies vary widely, check with your agent if you have questions about your coverage.
You may have witnessed road rage on the highway when intentional or accidental automotive slights set off “Mad Max”-like reactions and retaliation.
What those furious motorists may not realize is that blowing your top can void your auto insurance coverage should push come to not-so-gentle bumper nudge.
Auto policies typically exclude liability coverage for a driver who intentionally injures someone or causes damage to their vehicle or other property.
“It there is any intent, it’s excluded,” says Mitch Wilson of the Ohio Insurance Institute. “That’s to prevent those instances where someone wants to take out a policy because they’re tired of dealing with their neighbor.”
McChristian agrees. “We don’t want to incentivize any negative actions,” she says. “You have to give the individual some responsibility.”
Can you live with the livery exclusion?
Livery is a creaky old Shakespearean term for the carriage trade or the voluntary transfer of people or property from one place to another, as in delivery.
The problem with using your personal vehicle on a regular basis for livery is that it multiplies the risk to your auto insurer. That’s why most personal auto policies exclude all coverage — liability, medical and collision — if you routinely use your vehicle to transport people or property.
“It doesn’t even have to be a business; if you donate your time, coverage still would not apply,” Wilson says.
The livery exclusion doesn’t apply to your commute, nor is it intended to punish car pools or the office worker who makes the occasional office lunch run. But if you’re living the livery life on a regular basis, it’s best to buy a commercial auto policy designed to carry that extra risk load.
“How your vehicle is used defines the kind of policy you require,” says McChristian.
Lending or borrowing a car
Most of us have borrowed a friend’s car or loaned one without wondering what would happen in the event of a collision. Rest assured that it’s all spelled out in your insurance policy — with plenty of room to deny coverage.
“In most insurance policies, coverage goes with the car, but most of them will have an exclusion if there is a loss to any nonowned auto,” says McChristian. “So you wouldn’t be covered unless the car’s owner had coverage and you were entitled to use their vehicle.”
If you borrow a car and the owner doesn’t carry collision or their coverage is insufficient to cover the damage you cause while driving their car, the other party may go after you for the difference.
Likewise, if you loan your car to a friend, your policy may: a) cover them, b) not cover them, c) cover them only if you’re riding along with them or d) limit their coverage. That’s something to think about before you toss your buddy your keys.
If you lease or carry an auto loan and your vehicle is deemed unsalvageable or “totaled” following an accident, your auto insurance has you covered — almost.
When a total loss is claimed, the settlement folks typically calculate your payout based on the market value of the vehicle at the time of the crash.
Because lease holders and borrowers tend to be “upside-down” for much of the term of their auto lease or loan, meaning they owe more than the vehicle is worth, that can leave them on the hook for the gap, or the difference between the market value and the remaining balance they owe. That gap can often be several thousand dollars on a totaled car.
Most dealerships and many auto insurance companies offer loan-lease gap coverage against this costly scenario.
“When you are looking to purchase or lease a vehicle, you really need to keep that in mind,” says Wilson. “Normally, it is not a separate policy; it can be added onto the auto policy itself.”
Acts of nature
The great outdoors offers plenty of perils to vehicles. Bad weather can topple trees and hurl damaging debris. Wild animals can take up residence, chew through wiring and make nests in the upholstery. You might even suffer major damage if you hit a bear or deer.
But if your policy does not include comprehensive coverage, which protects your vehicle from damage not caused by another vehicle or done by striking a stationary object such as a telephone pole, you may be completely exposed, as in uncovered, for nature-related damages.
While comprehensive coverage is usually required if you have an auto loan or lease, it’s entirely optional otherwise.
McChristian notes another advantage of comprehensive coverage: “Acts of nature are typically covered, including flood damage,” she says. “While your homeowners policy specifically excludes flood, comprehensive typically covers it.”
As holiday shoppers often find out the hard way, just because you stow your booty in the back seat doesn’t mean it’s covered by your auto insurance if thieves make off with the packages.
In fact, most auto policies exclude from theft coverage items that aren’t part of the vehicle itself.
“Normally, if a component is built in and came with the vehicle, it’s covered,” says Wilson. “But if you have your own portable GPS, iPad, CDs or other personal items, those are going to be excluded under your auto policy for theft.”
All may not be lost if your vehicle is broken into, however.
“You may have coverage from your homeowners insurance for items stolen from your car,” he says.
Use these tips and tools to help you with auto insurance.