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'Full coverage' auto insurance can leave you underinsured

No matter what type of auto insurance policy you choose, you want to understand what coverages it entails. Yet some consumers who buy what’s commonly referred to as a "full coverage" policy later are shocked to find out that they've got less insurance coverage than they thought.

“Just because you ask for full coverage doesn't mean you're covered for everything, and it definitely doesn't mean you're carrying enough coverage,” says Desiree Baughman, an insurance agent at Rockingham Insurance Group in Harrisonburg, Va.

A "full coverage" policy typically has three components.

  1. Liability coverage, which pays for injury to another motorist or damage to another car. Forty-eight states require that drivers have a minimum amount of liability coverage; only Iowa and New Hampshire do not require it.
  2. Collision coverage, which pays for physical damage to your car if you run into something, such as another vehicle or a tree.
  3. Comprehensive coverage, which pays for physical damage to your car that is not the result of a collision. For example, comprehensive coverage might pay for damage resulting from vandalism, severe weather or theft.

Exemptions under 'full coverage'

full coverage

Contrary to what the term suggests, "full coverage" policies don’t include many types of coverage that consumers believe they have. “Many people assume that they automatically have the extra bells and whistles like roadside assistance when it actually doesn't mean that at all,” Baughman says.

Other benefits that frequently are not included in "full coverage" policies include towing, rental car coverage and full-glass coverage. Medical and rehabilitation expense benefits, loss-of-pay benefits and funeral expense benefits are other optional types of coverage that typically are not part of a "full coverage" plan.

Even in cases where a "full coverage" policy includes a certain benefit, that doesn’t mean it includes the maximum levels of coverage or even the amount of coverage that you need.Most auto insurance companies will only give you only the state-minimum liability insurance, unless you ask for more, Baughman says. For example, if a state requires that you have $50,000 in bodily injury liability insurance, that figure might be what an insurer includes in a "full coverage" policy. However, if you cause an accident and the other driver sues you for $100,000 in medical bills, you might have to come up with the additional $50,000 out of your pocket.

Incidents like this have prompted some confused insurance policyholders to visit Shane Fischer, a personal injury attorney in Winter Park, Fla. Consumers find out they’re underinsured after an accident, Fischer says, and they want to know why their "full coverage" insurance didn’t protect them.

“Anytime a client comes to me and says they have 'full coverage,’ I know they're uninformed,” Fischer says.“Unfortunately, most people who want the cheapest insurance available go to unscrupulous agents who sell them the minimum amounts of insurance required under their state's law, and tell the clients that they have ‘full coverage,’ which really just means ‘you have the minimums.’”

What drivers should look for

Rather than assuming that a "full coverage" policy has everything you need, make a checklist of coverage you want and read them off, ensuring that the insurer has included each one in the policy, says Keith Bader, founder and partner of Strategic Insurance Agency in Livingston, N.J. If you truly want the maximum coverage, Bader suggests that you ask for:

  • Liability insurance with the maximum limits available from the insurance company.
  • Personal injury protection (PIP), which pays for injuries to you or anyone in your car, regardless of who's at fault. Some states require PIP coverage.
  • Uninsured and underinsured motorist coverage with the full limits available, which covers you if you get into an accident with someone who has little to no insurance.
  • Physical damage coverage, including comprehensive and collision.
  • Towing.
  • Car rental.
  • Full-glass coverage.
  • Medical expense benefits.

While this may seem like a lot to ask for, some benefits cost as little as $10, “but people don’t know to ask for them,” Bader says.

Not only might a "full coverage" policy leave you underinsured, but in some cases, it can leave you over-insured. People with older vehicles may not need comprehensive and collision coverage if their cars are worth less than the auto insurance premium costs.

If you’re leasing or financing a car, you may be required by the lender to buy comprehensive and collision insurance, but if not, those types of coverage are optional. If the vehicle isn’t worth much, you might want to “put the extra money either toward higher liability limits or in a savings account to pay for your car if something happened to it,” Baughman says.

The best way to make sure your policy has everything you need: Look past the policy’s title and pay attention to the details. “Never assume that the broker’s selling you full coverage until you’ve actually checked and asked if every single line item is maxed out,” Bader says.

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