Among the various coverages on auto insurance policies, some are certainly more optional than others--usually those covering physical damage to one's own car, rather than liability for bodily injuries caused other people. If one takes minimum coverage in such categories, one may, at worst, lose one's car, but not house, health, and financial security.
Medical payments coverage is equally optional, although it sounds critical to everyone's health, promising immediate payment of medical bills--whoever's at fault--for the policyholder and family, and any other passengers. But it's strange coverage, so difficult to explain that one insurance executive says it gives him "the willies."
First, it's often duplicative. If the other driver's at fault, his liability--or one's own uninsured motorist coverage--covers the injured. If it's the policyholder's fault, says Robert Hunter, president of the National Insurance Consumer Organization, "and he has good medical insurance, he doesn't 'medical payments' on his auto policy for himself or his family, and if he has good bodily injury (liability) coverage, he doesn't need it for others in the car."
Second, it commonly pays only a few thousand dollars. Why bother?
The usual pitch is that it pays quickly, so that anyone injured gets immediate benefits for medical care while waiting, perhaps, to collect from the responsible driver. What's more, says State Farm spokesman Jerry Parsons, "it covers the gaps in one's own health insurance," which usually includes an initial deductible and covers only 80% of costs.
Collision and Comprehensive are the biggest options, particularly collision, which may add a lot to the total premium. Both cover damage to one's own vehicle, up to its current value. In fact, it may not be optional; lenders often require one or both to protect their investment.
Collision pays for damages caused when the car crashes or hits something--fence, lamppost, pothole, even another car. There's some confusing crossover with uninsured motorist property damage coverage (discussed in the previous column)--involving whether one can only have one and not both coverages, or if both, what each covers--but collision is the one that supposedly covers all situations, regardless of fault. "If it's your fault, collision covers your car while your liability covers theirs," says Stephen Bjelland, a Chino, Calif., Farmer's Insurance agent. If it's the other driver's fault, Parsons says, "we'll fix your car, then go and collect from the other driver."
Comprehensive covers damages caused by almost everything else--theft, fire, vandalism, riots, falling objects, acts of God such as lightning and flood, cows on the road. (There's some disagreement about cows: Some think it's vehicle motion that differentiates collision from comprehensive coverage. Says Hunter, "If the animal crashes into you, it's comprehensive; if you crash into it, it's collision.")
Comprehensive may be more necessary than collision because, says Parsons, "it can happen to you no matter how good a driver you are." "You have less control," says Bjelland, "of someone stealing your car or your radio." It's also considerably cheaper.
Both coverages are sold with deductibles--the lower the deductible, the higher the premium. Indeed, says Hunter, the difference between a $100 and $200 deductible on collision can be a 20% saving, and between $100 and $500, 35%. According to State Farm, $100 on collision is most common, and zero or $50 on comprehensive, although one is usually advised to choose the highest deductible possible, taking responsibility for as much damage as one could possibly afford, or cutting the coverages entirely--in effect, partly insuring oneself.
"If the car disappeared tonight, either by collision or theft," Bjelland says, "and you could just go get another one, it's not worth carrying either coverage." The consumer is also advised to weigh the car's replacement value against the prospective premiums, adding in the fact that the average driver files a collision or "comp" claim only once in 10 years. "If the car is only worth $1,500," says Gene Boe, sales director for Allstate, "after four or five years you might have paid more in premiums than the value of the car." Or, for that matter, more than the value of any claim in the same period.
The fundamental principle, says Hunter, "is you buy for the catastrophic circumstance, using time as your insurance company for small claims." Hunter, for example, chose $1,000 deductible, and set up a "casualty bank account" with the money he saved on premiums; in 12 years, he has already paid one $700 claim and has $1,200 in the account. ("And," he adds, "I didn't ask myself to drive it to a claims center or provide photographs of the damage.")
Finally, there are an increasing number of little extra coverages--emergency road service (which may actually be cheaper than an auto club if that's one's only reason for joining the club), partial coverage of rental cars if one's own car is disabled, extra payments in the event of death, dismemberment and disability. These are like window dressing--attractive, but hardly crucial, and not the basic purpose of insurance.