Insurance Academy

The Reason You Only Need One Auto Policy

By | April 18, 2018

This weekend was really good one for one of my sons. He got the all-too-rare opportunity to go see his girlfriend (who lives almost 350 miles from us). They both work and go to school, so their time is super tight. Before you tune me out because you don’t care, let me get to the insurance point. He drove one of our cars, which I pay to insure. We live in Florida and she lives in Georgia.

The story of young love is just meant to illustrate an important auto insurance topic: insurance in other states.

For this post, I’m actually looking at my personal auto policy with an unnamed carrier. Why would I do that? Why not just use the ISO PAP? That’s an important question. The ISO PAP is very similar to this, but it lets me illustrate another important point. Personal auto policies can vary widely depending on the carrier and the state. Don’t ever take for granted that it says what you think it says. It goes back to what our friend, Bill Wilson always says, “Read the FULL policy!”

If you are changing insurance companies or you are helping a customer change insurance companies, you would be wise to check what the actual policies say, rather than assuming that two auto policies in the same state are going to be exactly the same. Let’s get back to our major issue here, how coverage applies in different states.

My policy includes this paragraph.

OUT OF STATE COVERAGE

If an auto accident to which this policy applies occurs in any state or province other than the one in which your covered auto is principally garaged, your policy will provide at least the minimum amounts and types of liability coverages required by law. However, no one will be entitled to duplicate payments for the same elements of loss.

This is an element of auto insurance policies that is often overlooked but is very important. Why, you ask? Let me explain, or as the Inigo said, “No, there is too much. Let me sum up.”

The insurance regulatory system in the United States (as it exists today) evolved over 250 years of insurance history in North America. Before there was a nation, there were colonies. It was during that time that the first fire insurance companies started to grow. Even though all of the colonies were under British control in those days, they all were governed slightly differently and for many years, insurance companies were only allowed to transact business within the colony where they were domiciled.

Eventually, the colonies became free states and those states determined to form a nation together with governing power split between the new federal government (under the US Constitution) and the several states. In fact, the Constitution left much power in the hands of the states. For a number of years, it continued to be legal for insurance companies to do business in only one state. Things changed over time and insurance companies began to do business across state lines. Yet the regulations are still created in each state.

Over the last 250 years, each state has created its own regulations. This is no more obvious than in the area of auto insurance. I live in Florida. The auto insurance requirements here include $10,000 in property damage liability and $10,000 in personal injury protection coverage. You can also carry bodily injury liability coverage at $10,000/accident and $20,000/person.

Did you notice how I put that? You can carry bodily injury liability. It is not required by law. Many insurance companies write the coverage without letting people know that they don’t have to carry it, but technically, drivers don’t need to have it.

If it weren’t for the out-of-state coverage paragraph above, what happens when my son drives out of state to see his girlfriend? Without that paragraph, we would have to know what our auto insurance limits are and what is required in Georgia. If we don’t have the right kind of coverage to travel to Georgia, we would then have to have either endorse our policy to provide coverage as required in Georgia or buy a Georgia auto insurance policy.

What does Georgia require? In Georgia, you must carry $25,000/person, $50,000/accident for bodily injury liability and $25,000 in property damage liability coverage. There’s no mention of personal injury protection and they do require that you have coverage for bodily injury.

Adding the out of state coverage paragraph shifts the burden from the insured to the insurance company to make sure to provide what’s required state to state. It may not be a big deal if you’re someone that doesn’t travel out of state much. It’s also not a big deal if you’re carrying appropriately high limits of auto liability coverage. If your limits are $100,000/$300,000/$100,000 in Florida, it doesn’t matter what state you drive to, those limits meet the minimum requirements.

OK, to be fair about it, the paragraph is there and is probably on nearly 100% of the policies that you’ll issue this year. I just think it’s worth taking note of, especially since insurance can be so different state to state. I mean, we didn’t even talk about UM/UIM coverage or UM PD coverage. We didn’t even think about dealing with stacked coverage yet. Oh well, now you know why you don’t need an auto insurance policy for every state that you drive in. Don’t you feel better about it? I do, too.

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