Auto Insurance Notes: Personal Auto Policy (PAP) Ch. 20 & 21

Personal Auto Policy (PAP)

Overview of the Personal Auto Policy (PAP)

• Structure of PAP:

  • Part A: Liability Coverage

  • Part B: Medical Payments Coverage

  • Part C: Uninsured Motorists Coverage

  • Part D: Coverage for Damage to Your Auto

  • Part E: Duties after an Accident or Loss

  • Part F: General Provisions

Types of Vehicles Covered by PAP

• Eligible Vehicles:

  • Private Passenger Auto

  • Station Wagon

  • Sport Utility Vehicle (SUV)

  • Truck or Van (Gross vehicle weight ≤ 10,000 lbs, not used for business, with some exceptions)

Definition of “your covered auto”

• Coverage Includes:

  • Any auto listed in the declarations

  • Newly acquired auto

  • Owned trailer

  • Temporary substitute vehicle

Part A: Liability Coverage

• Importance: Most essential coverage in the policy

• Protection: Covers legal claims due to ownership or operation of a covered vehicle

• Coverage Includes:

  • Damages arising from accidents

  • Defense costs in lawsuits

• Limits:

  • Split Limits: e.g., 100,000 / 300,000 / 50,000

  • Single Limit: e.g., 500,000

Split Limits Explained

• Definition: Individual limits for bodily injury (BI) and property damage (PD)

• Example Explained:

  • 100,000 BI per person

  • 300,000 BI per accident

  • 50,000 PD per accident

Compulsory Insurance Laws

• Requirement: Drivers must have minimum liability insurance to register a vehicle

Minimum Liability Limits by State

• Example State Limits:

  • Alabama: 25/50/25

  • Alaska: 50/100/25

  • California: 15/30/5

  • Georgia: 25/50/25

  • Michigan: 20/40/10

  • Florida: 10/20/10

Covered Individuals for Liability

• Eligibility:

  • Named insured and resident family members

  • Any person using the covered auto

  • Any organization legally responsible for the vehicle's use

Important Exclusions to Liability Coverage

• Not Covered:

  • Intentional injuries

  • Property owned by or transported by insured

  • Vehicles used for livery or public transport

  • Vehicles used in business

  • Vehicles without four wheels

Other Liability Coverage Provisions

• Out-of-State Coverage: Automatically matches higher state liability limits

• Multiple Policies: Each insurer pays its share based on coverage type

Part B: Medical Payments Coverage

• Covers:

  • Reasonable medical costs for injuries from an accident (medical, surgical, dental)

  • Coverage not based on fault

  • Medical expenses covered for up to 3 years post-accident

  • Typical limits: 1,000 to 10,000 per person

Coverage Eligibility for Medical Payments

• Eligible Parties:

  • Named insured and family members, in any vehicle or as pedestrians

  • Other persons in a covered auto, but only in owned vehicles

Important Exclusions to Medical Payments Coverage

• Not Covered:

  • Vehicles with fewer than four wheels

  • Public transport usage

  • Vehicles used as residences

  • Work-related vehicle usage

Part C: Uninsured Motorists (UM) Coverage

• Coverage Includes:

  • Bodily injury from uninsured or hit-and-run drivers

  • Property damage (varies by state)

• Eligibility Conditions: Uninsured motorist must be legally liable

Uninsured Motorists Statistics (2022)

• Example Estimates:

  • Alabama: 14.2%

  • Florida: 15.9%

  • Georgia: 18.1%

  • Michigan: 19.6%

Vehicles Considered Uninsured

• Definition:

  • No liability insurance at the time of the accident

  • Insufficient coverage compared to state laws

  • Hit-and-run vehicles that cannot be identified

Important Exclusions to UM Coverage

• Not Covered:

  • Uninsured vehicles owned by the insured/family

  • Claims settled without the insurer's consent

  • Vehicles used for public transport

Underinsured Motorists Coverage (UIM)

• Description: Optional coverage added to PAP

• Coverage Limits: Maximum equals UIM limit minus any payment from negligent driver’s insurer

Part D: Coverage for Damage to Your Auto

• Coverage Details:

  • Direct and accidental loss to covered or non-owned auto

  • Includes Collision and Other-Than-Collision (Comprehensive) coverage

Collision Coverage Details

• Definition: Covers accidents regardless of fault

• Examples of Incidents:

  • Car hitting an object (pole, tree)

  • Overturning on icy roads

Other-Than-Collision (OTC) Coverage

• Also Known As: Comprehensive (Comp) Coverage

• Covers Incidents Such As:

  • Theft

  • Natural disasters (flood, fire, etc.)

  • Vandalism

Important Exclusions to Property Damage Coverage

• Not Covered:

  • Vehicles for public transport

  • Wear and tear

  • Custom equipment not permanently installed

Part D Loss Settlement Principles

• Total Loss: Payments based on actual cash value (ACV)

• Partial Loss: Covers repair/replacement costs

• Deductibles: May differ between collision and comprehensive

• Diminution in Value (DIV): Loss in market or resale value, may be owed depending on the state

Part D – Additional Coverage Information

• Temporary Transportation Expenses: Cover rental costs if vehicle is in repair due to an accident

• Towing and Labor expenses coverage may be added by endorsements

• Gap Insurance: Available by endorsement; Covers difference between payout and loan amount

Part E: Duties After an Accident or Loss

• Key Responsibilities:

  • Notify insurer promptly

  • Cooperate with investigation

  • Notify police for hit-and-runs or theft

Part F: General Provisions

• Includes:

  • Policy changes

  • Fraud provisions

  • Coverage territory

• Coverage Area: Covers the U.S., Puerto Rico, and Canada

No-Fault Auto Insurance

• Description: Each party collects from their own insurer, regardless of fault

• Types:

  • Pure No-Fault: Cannot sue for pain and suffering

  • Modified No-Fault: Can sue if injuries exceed specific thresholds

Major Rating Variables for Personal Auto Insurance

• Factors Influencing Rates:

  • Location

  • Age, gender, marital status

  • Vehicle usage

  • Driver education

  • Good student discounts

  • Driving records and insurance scores