Joseph Doratan, MBA, CFP®
Updated September 10, 2016
A friend recently hit by a car while jogging asked me if her premium would go up if she would claim from her auto policy. Sounded like a simple question to ask. But really a good situation to borrow to explain the different coverages of an auto policy.
My friend could have opted to use her health insurance. But since the injury originated from a third party, health insurance will eventually subrogate the claim, meaning, the health insurance company will legally pursue the third party to recover the medical claims. Believing that the driver who hit her had auto policy, she hired a lawyer to pursue the driver.
Good that the driver has an auto policy. However, his bodily injury (BI) coverage is very low. BI does not cover the driver’s injury, but the other injuries caused by him in an accident. To my knowledge, he only has 15/30, the California minimum, meaning $15,000 to cover per person and $30,000 for all people injured by him. Well, my friend was sent to ER immediately by 911. Do you think the $15,000 would be enough to cover the ER? Apparently it wasn’t.
BI can also be used to pay for funeral costs, long term nursing care, lost income from time off work, pain and suffering, and legal defense if you are sued. But you have to have enough to cover these in a bad accident which you’re at fault. Anything short, you are liable. In this case, the driver is responsible financially beyond the 15/30 limit. He either has to pay with his assets or file bankruptcy.
According to the lawyer, it’s very likely that the driver would just file bankruptcy and suggested to my friend to claim from her auto policy instead. That’s where the uninsured or underinsured motorist bodily injury (UMBI) would come in. UMBI will cover your bodily injury costs when the other driver’s insurance is insufficient, but ONLY if your limit is higher than the at-fault driver’s BI limit and ONLY up to your UMBI limit less the at-fault driver’s BI limit.
In general, when you’re not at fault, your premium will not go up. You also need not worry about having to pay the deductible when you’re not at fault. Deductible is the amount of money required to be paid first before the insurance will pick up the rest up to the limit. The higher the deductible, the lower is the premium, and vice-versa. In the case of auto insurance, you pay the deductible only towards your own car damages. You don’t pay deductible for the damages you caused others even if you’re at fault. Damages include the BI you caused others and the property damages (PD) of others. PD typically would be the replacement or repair cost of the car you hit, but it can also be the structures or objects your car hit, like a house or a fence.