This was originally published on Monday, April 14, 2014, in the Pacific Daily News. Click here to subscribe to the PDN.
Automobile insurance is a gamble and is based on risk. We pay for it, but we rarely experience its benefits firsthand. Sometimes we feel it’s a waste of money. But accidents happen and when they do, your auto insurance will protect you and your finances. How much it protects you depends on your combination of options and amount of coverage.
But, let’s face it, understanding your policy is difficult and at times you are not sure exactly what you are buying.
• Third-party liability bodily injury: This should be given the greatest of importance. This will help insure you for another party’s medical expenses caused by an accident that was your fault. This does not cover your car or other property damaged in the accident.
• Property damage liability: This protects you if your car damages someone else’s property.
• Uninsured motorist coverage: This covers bodily injury to you if you are injured in an accident by someone who is not insured and at fault.
• Collision coverage: This pays for the damage sustained by your car when you collide with another car or other object like a tree, fence or a post.
• Comprehensive coverage: This covers the damage to your car that is not covered in the collision coverage. This could include vandalism, theft, falling objects, glass breakage, fire, animal damage. Most auto insurers on Guam offer typhoon coverage as an option.
• Medical payment coverage: Covers medical bill costs associated with the accident for you and passengers in your vehicle.
• Rental reimbursement coverage: Pays for a rental car if your vehicle has to be fixed. This option usually has a rate per day and maximum amount.
• Emergency roadside service coverage: Usually this is offered free in an automobile policy. This may also cover lockout, fuel delivery and flat-tire change services.
• Towing: The annual cost of towing coverage is minimal and well worth it. Towing coverage applies to mechanical failure ONLY and not in the event of an accident. I recommend using the towing companies listed on the back of the insurance card your insurance company provides you and not the first tow truck that shows up on the scene.
When choosing a plan that is right for you, think about the cost. In general, with the exception of classic autos, older cars need less collision or comprehensive coverage than a newer one would.
A deductible is the amount you pay before the insurance company pays.
Deductibles are inversely related to premium.
The lower the deductible the higher the premium and vice versa.
If your deductible is $500 and you get into an accident that costs $1,500 to fix your car, you will pay the $500 and the insurance company will pay the remaining $1,000.
Your premium is how much you pay to have the insurance company to insure you. Most insurance companies offer terms to pay your premium. Some offer monthly or quarterly payment plans.
Deciding how much you are willing and able to pay for your premium will help determine your deductible.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.