Auto Insurance Fundamentals
Have you ever been watching a professional sports game, and hear the commentators praising a certain player for “great fundamentals”? Or have your piano instructor preach about them? Or hear your teacher or boss harp on “doing the little things right”. The basics, be they the fundamentals of shooting a free throw or the ability to do math, are what all great things are built upon.
No one becomes great without a good foundation. This has been proven again and again, and is the motivation behind our society’s love of “fundamentals”. However, when shopping, we seem to forget about the need for fundamentals. We ignore the building blocks for fancy extensions, glitzy packaging and flashy marketing. But without the basics, all the marketing in the world won’t be able to prevent disappointment when your product doesn’t do it’s job.
So without further ado, here are the fundamentals of auto insurance, so you don’t make that same mistake and fall into the marketing trap.
Fundamental 1: Physical Coverage
You can’t have a successful insurance policy without a good understanding of it’s physical coverage. That is not to say that you always need to protect your vehicle from an accident – sometimes (like when you are on a budget), it doesn’t make sense. But you need to understand how it works regardless, so you know if it is worth that risk.
Physical coverage protects your car, and will pay for damage to it. There are four main styles of physical coverage: Collision Coverage, Comprehensive Coverage, All Perils and Specified Perils. Collision Coverage will cover your vehicle if it is involved in collisions, while Comprehensive Coverage covers it when it is not. All Perils is an extremely broad covers that tries to coverage pretty much everything, while Specified Perils is very specific (you are only covered for what is named). Generally you will see people buying Collision & Comp (both forms of coverage so your vehicle has broad protection) or All Perils. Specified Perils is a very rare style.
Fundamental 2: Liability Coverage, Accident Benefits, DCPD and Uninsured Motorists.
There are parts of your policy that are mandated by the government. Liability Coverage, DCPD, Uninsured Automotive Coverage and Accident Benefits are the 4 mandatory parts – you aren’t required to carry physical coverage to drive the road legally in Ontario.
Liability coverage protects you from legal judgments against you, and the minimum required by law is $200,000. However, this minimum is woefully inadequate in today’s very lawyer-focused world. McDougall Insurance recommends $2,000,000 in coverage, which can be acquired quite cheaply. However, sometimes even $2,000,000 isn’t enough.
DCPD stands for Direct Compensation – Property Damage Coverage. It covers your vehicle from physical damage resulting from a collision while driving – provided the damage is not your fault. Basically, you use your DCPD coverage if you are hit by another motorist.
Uninsured Automobile Coverage is used when you are hit by an uninsured vehicle. If an uninsured driver causes traumatic injuries to you or your family, you will want to be compensated. But since this driver has no insurance, how will you receive meaningful reparation? Relying on the personal wealth of the injury party is not very reliable – most people who are uninsured operate that way because they can’t pay an insurance premium, there is no way they have the funds for a million-dollar court settlement. The Uninsured Automobile Coverage protects you from this scenario.
Finally, Accident Benefits are used to provide you with reimbursement from accidents you are a part of, and are often referred to as no fault benefits. They pay for things like income replacement if you have to miss work, or pay for a caregiver or rehabilitation if those expenses are required to deal with injury. Somberly, Accident Benefits also provides some coverage for Funerals.
Fundamental 3: Service
The final basic component of your insurance policy is service. Insurance is not a one person job, and you will need the assistance of a network of people to make it work for you. The broker helps you select a company, pick coverages you need and handle the upkeep and day-to-day care of the policy. The insurance company typically handles billing and claims. Having people you know and can contact (in the event of a claim, or question) is necessary, to ensure your policy isn’t cancelled, has the limits you expected, and will handle your claims quickly.
Because at the end of the day, insurance isn’t a property business. It’s not even a legal business. It’s a people business, and understanding the people around you is the key to making this business work for you.