Your
Auto
Insurance Guide
Every second a motor
vehicle accident occurs in the US. Auto accidents cause an injury every 14
seconds, and every 13 minutes a car accident results in a fatality. More
than 31 million accidents occur per year, at an annual cost of almost $100
billion. Theft and vandalism are other major perils facing drivers, In
fact, every 20 seconds another vehicle is stolen.
With more than 150 million drivers and 160 million registered vehicles
on the road today, auto insurance is the most widely purchased of all
property-liability insurance. Drivers buy auto insurance for economic
protection against theft, vandalism, and other risks, but few are familiar
with the ins and outs of their particular policy.
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This guide was designed by the Independent Insurance Agents of America
to make it easier for you to know your insurance needs and the many
options available to you. Though this guide does not represent the
provisions of any particular policy, it should serve as a starting point
on your road to finding the best policy for your needs.
Your car has two unique qualities. First, it is probably one of the
most expensive things you own. Insurance protects your investment and
guarantees you a way of coping with the expense of accidents, vandalism or
theft, as well as securing your financial responsibility to the bank or
other institution lending the money to buy your vehicle.
Second, when you drive, you are operating a powerful machine, weighing
one ton or more and capable of moving at over 100 miles per hour. You are
responsible for the safety of your passengers, your fellow drivers, other
people's property, pedestrians and yourself. Insurance helps you live up
to that responsibility by ensuring your ability to cover the costs of
potential damages or injuries.
You are also required to be financially responsible by state laws,
which are best satisfied through your insurance coverage. In fact, in most
states insurance is a prerequisite to registering your car. So if you want
to drive your own vehicle, you must be insured.
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Auto insurance is divided into several different types of coverage:
- General liability covers damage you may cause to other
people's property and injuries to the people themselves.
- Collision covers damage to your own vehicle in an accident.
- Comprehensive (i.e., fire, theft and other non-collision
damage) covers fire damage to your vehicle, break-ins, vandalism or
theft, as well as natural disasters (earthquake, hail, hurricane,
flood, etc.--unless the vehicle is overturned, then it is considered a
collision).
- Medical payments insurance, usually in the range of $5,000 to
$10,000, covers medical expenses for injuries. This
"good-faith" coverage guarantees immediate medical payments
for you, your passengers and other parties, regardless of who is at
fault. It also covers you and members of your household in any
accident involving an automobile, whether you are on foot, on a
bicycle, in a friend's car, etc.
- Uninsured motorist (UM) and underinsured motorist (UIM)
coverage protects you if you are injured in an accident with others
who themselves carry insufficient or no liability insurance.
- Extra coverages include expenses for towing, labor, temporary
replacement vehicles, etc. These are generally defined as add-ons or
endorsements to your policy.
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Drivers are grouped according to the level of risk each one poses--i.e.,
the amount of loss incurred by insurers within various categories of
policy holders. For various reasons, drivers are categorized by:
- Sex--Men have more accidents on the road than women.
- Age--Drivers under 25 (and, for some insurers, under 30) are
considered at higher risk of having an accident.
- Marital Status--Married drivers tend to have fewer accidents
than single drivers.
- Personal Driving Record--Years of driving experience,
accidents, speeding tickets and drunk-driving offenses are all factors
in determining how much of a risk you pose as a motorist.
- How You Use Your Vehicle--If you commute by car during rush
hours, you're at greater risk of having an accident than if you only
drive for errands and recreation on the weekends. Drivers who use
their own vehicles for business also are considered to be at greater
risk.
- Type of Vehicle--The value, size, weight, age of your
vehicle--even the cost of replacement parts--are essential to
determining the price of your insurance. Larger, heavier vehicles are
considered at lower risk than smaller, lighter ones. Plus, more
expensive cars are costlier to have repaired than economy models.
The cost of your insurance policy is based on the average cost of
covering actual losses, spread out over your particular "rating
group" as a whole. Of course, you may never have an accident or have
your car stolen, and therefore will never need to be compensated. But
others in your category may not be so lucky. Your premium will help to pay
for their losses, just as their premiums would help to pay for yours. In
other words, you are investing a little today in case you need a lot
tomorrow; your investment is pooled with others, and the pool pays for
your loss.
For example, if you are a
23-year-old man and you park your new sports car
on a downtown street in a large city, you will likely pay more for
insurance than a 37-year-old woman who parks her four-wheel-drive in the
suburbs, simply because--based on average losses--you have a greater
chance of having an accident or being the victim of auto theft.
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Where you live (or, more precisely, where you keep your car) has a
bearing on your chances of having an accident or becoming a victim of
theft or vandalism. That's why a vehicle owner in Brooklyn, New York, pays
a higher rate than the owner of an identical vehicle in Casper, Wyoming.
Other factors affecting regional insurance rates include time and
efficiency of police response and law enforcement, local road and traffic
conditions and the quality of local medical services. Insurers even factor
in the litigation rates in a given area--that is, how many lawsuits are
filed, go to trial, are settled out of court and for how much.
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Vehicles are also grouped into categories according to their likelihood
of being damaged, vandalized or stolen. Insurers generally consider the
size and type of vehicle, as well as the value and the cost of repairs
(which can vary greatly, even on vehicles that cost roughly the same).
Thus, a new station wagon is expected to hold up better in an accident
than a sports car or a subcompact.
Putting insurance aside, safety is key when buying an automobile. Your
life depends on it! Some cars are considered safer than others because of
their performance record in safety tests and real accidents.
That's why you should research insurance coverage before you buy your
car. It helps you to understand the actual cost and indicates those
vehicles with good safety records. Your insurer will ultimately reward you
for putting safety first.
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No-fault insurance is a system adopted in some states that essentially
bypasses the conventional legal procedure which finds fault in an
accident. (This is the procedure by which you hire a lawyer, file suit and
possibly go to court to prove the accident was the other guy's fault.)
No-fault simply does away with the concept of one party or the other being
at fault--no lawyers, no court, no judge, no jury, no lengthy lawsuits
against the other party. This is considered beneficial to taxpayers,
because it eliminates costly legal proceedings that the state must manage,
and to insurance policyholders, because it helps keep rates down.
If you are insured in a no-fault state and have an accident, you don't
go after the other driver. You contact your own insurer and file a claim.
Your own insurance policy guarantees you immediate compensation for
damages, medical expenses, lost wages, etc.
The type and range of no-fault coverage varies from state to state.
What defines the limitations of no-fault policies can differ in two
critical areas:
- Threshold--The type of damage/injury or the cost of
repair/recovery that triggers the need for legal action.
- Mandated--Benefit Level--The package of benefits (medical,
wage loss, replacement services and other expenses) your state requires
you to carry.
The details of no-fault insurance can be complicated. Contact your
agent or state's insurance department for further information.
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No. Some states, while not mandating auto insurance, have "financial
responsibility laws" that require all drivers to be able to pay for any
damage or injury they may cause. However, carrying liability insurance is
still the best way for you to meet your state's financial responsibility
requirements.
UM and UIM policies are offered by law in all states,
including no-fault states. In fact, some states require all motorists to
carry this coverage in order to gain protection from inadequate insurance
coverage of other drivers.
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First, call the police to the scene to be sure all pertinent
information is properly recorded. Your nerves will be shaken right after
an accident, and it helps to have a calm and knowledgeable person walking
you through the necessary details.
Then, contact your agent immediately and ask about filing a claim. If
you followed all the recommended guidelines when you bought your policy,
you should be covered within the limitations of that policy. Remember,
your insurance policy is designed to protect you.
If the cost of
your damages or injuries exceed the amount your policy will pay out, it
may be time to take legal action against the other party. Even if you have
no-fault insurance, sometimes the only way to be compensated is to place
blame and responsibility where it belongs.
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Technically, in most states your insurer can cancel your policy only
if:
- you fail to pay your premium;
- you lose your driver's license;
- you are guilty of material misrepresentation during the application
process--i.e., you fail to notify your insurer of a recorded violation,
such as a drunk-driving offense; or
- you fail to report a substantial change of risk, such as buying a
high-powered sports car to replace a family sedan.
However, your insurer can choose not to renew your policy for a variety
of reasons.
Do you have a bad driving record? Have you received a lot of speeding
tickets? Have you ever been caught driving drunk? Not only are these
scenarios considered unsafe and illegal, they are justifiable cause for
your insurer to label you a bad risk and refuse to renew your policy.
(Some underwriters may feel compelled to cancel policies after only one
accident.)
Where do you live? Has the neighborhood changed in the
last few years? Have the accident or crime rates risen noticeably? As
regions are reassessed periodically, their status could change and you
could suddenly find yourself living in a high-risk area, where your
insurer's rates may not be adequate to cover losses.
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Even "good" drivers can find themselves in the position of being
dropped by their current carrier. Reasons range form a "drinking while
driving" violation or other serious violations (that make you a high risk)
to situations outside your control, such as when insurers in your state
are suffering severe business losses. Overall rises in claims or losses
can cause insurers to become highly selective in determining whom they can
afford to insure.
That is why it is important to note that if you
are licensed to drive, by law, you are eligible for insurance. However,
your options for new coverage may be limited. Each state has created and
regulates a market of last resort for those who cannot otherwise obtain
coverage. These groups have various names, depending on the state you live
in, such as assigned risk plans or the residual market. Your agent will
know more about the particulars in your state.
Regardless of the
reason you were dropped, you need to act immediately to get another
policy. Under no circumstance should you drive your vehicle without
insurance. Call your agent to help you find new coverage. If you do find
yourself in the residual market, the price may be higher but it may be
your only alternative in maintaining your freedom to drive.
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The most obvious way to maintain your low-risk status is to keep a
clean driving record. If you've been in an accident, consider taking a
defensive driving course. Even those of us who have been driving for years
rarely know the simple tricks to preventing accidents through defensive
driving.
Also, look into purchasing special safety and security
features for your car, such as anti-lock brakes and an alarm system. Your
insurance agent can give you further tips on how to convince your insurer
you're a safe driver.
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Insurers often discount their rates in order to encourage good driving
practices and the use of safety and security precautions. Depending on the
insurance company, you can often lower your rates from 5 to 35 percent.
Sometimes the investment you make in your vehicle is worth the
discount, and sometimes it's simply worth some peace of mind. For example,
the purchase of anti-lock brakes merits a discount from nearly every
insurer, but the discount probably will not pay for the brakes (which cost
several hundred dollars) during the normal life of your vehicle. Anti-lock
brakes are touted, nonetheless, as a life-saving feature ó a serious
consideration when safety is a top priority.
Insurers generally offer
discounts for:
- Safety Features--Anti-lock brakes, air bags and passive
restraint systems (i.e., automatic seat belts).
- Defensive Driving--Clean violation record, driver's-ed
courses for teenagers and defensive driving or accident prevention
courses for adults (insurance discounts for the latter are required in
some states).
- Security Systems--Alarms, electronic locks and disabling
devices.
- Changing Driving Habits--Commuting by public transit, using a
company vehicle for work-related travel and car-pooling.
- Formal Agreements Not to Drink and Drive--The availability of
a discount for signing such an agreement varies among insurers and
states.
- Buying Homeowners and Auto Policies from the Same
Company--If you own a home and an automobile and you are insured by
two different companies, check into the cost of carrying both policies
by one insurer. Your agent can give you guidance as to which insurers
offer discounts.
You can also lower your insurance rates by requesting higher
deductibles ó the amount of money you pay before you make a claim.
Increasing your deductibles on collision and comprehensive coverage from
$100 to $250, or even $500, will bring your rates down. Moreover, you may
not need collision and comprehensive coverage if you drive an older car.
Ask your agent which discounts are available to you.
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The more people you allow to drive your vehicle on a regular basis, the
greater the chances of your vehicle being in an accident. Teenagers are
especially expensive to insure because they are the least experienced
drivers.
A driver's-ed course can help ease the burden of
insurance costs since it teaches your teenager defensive driving
techniques. If your child's high school does not offer driver's-ed, try to
find one offered by another school or a private firm in the area. After
all, the cost of driver's-ed could be cheaper than the extra cost of your
insurance. (Many insurers offer "good student" discounts as
well.)
An adult's driving experience can also affect your rates
significantly. Don't assume that every adult you know has been driving
since age 16 or is a competent driver with a clean record. Again, taking a
defensive driving course is a good way for adults to prove they are
responsible drivers, thus lowering their risk and their insurance rates.
(This is a great solution for new couples who are jointly insured but
unmatched in their driving skills or experience.)
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With few exceptions, your insurance company does not set its own rates
(unless you live in Illinois). It request the right to charge appropriate
rates from your state's insurance department, which responds with legal
approval and authorization, provided the requested rates are fair.
Every state has some sort of department, administration or agency that
regulates and monitors every insurer operating within the state's borders.
In addition to approving rates, your state's insurance department is
involved in all insurance matters on behalf of private citizens and
businesses. It also issues operating licenses to insurance companies and
agents, based on their ability to meet the state's requirements for
conduct and knowledge about insurance issues.
Your insurance company works closely with your state's insurance
department to make sure you are getting the best and fairest possible
service within the state's guidelines. Contact your state's insurance
department (listed at the end of this guide) if you wish to know more
about how it serves your interests.
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If you have fully insured your own vehicle, including collision and
comprehensive coverage, and rent a vehicle for pleasure only (while on
vacation, for example), you do not need to buy extra insurance from the
rental company. In fact, in most states your basic rental fee by law will
include liability coverage for damage or injury to others. But different
rules apply when you rent a car for business purposes, so check with your
agent for details.
If you do not have your own insurance, be aware that many car rental
liability policies cover you only at the state's required minimum. Also,
you should buy the collision and comprehensive coverage offered by the
rental company for your own protection. Plus, do not buy a collision
damage waiver (CDW) from the rental company assuming it is insurance. A
CDW simply releases you from financial responsibility if you damage the
vehicle you are renting, provided you comply with the terms of the rental
contract. But those terms can vary considerably, and CDWs are not
state-regulated, which means they are technically not insurance.
It's always a good idea to review your policy before renting a vehicle
and, if necessary, contact your agent for clarification.
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Yes. Liability and coverage for physical damage (i.e., comprehensive
and collision) always follow your car. So, if a friend borrows your car
and has an accident, you're still protected against the cost of damages or
injuries. Plus, if the driver of your car is insured, his/her policy will
also be available to cover the cost of damages and injuries.
The same rules apply when you borrow someone else's vehicle-- your own
insurance follows you no matter whose car you are driving. But the vehicle
owner's policy is the key coverage if you have an accident.
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Comprehensive insurance, which covers you for fire and theft, generally
covers you against damage by flood, earthquake, hail and other natural
perils, except when your car is overturned (which is technically
considered a collision). If you have special concerns about the safety of
your vehicle in the face of Mother Nature's wrath, contact your agent for
information on catastrophic coverage.
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While you don't need a law degree or an agent's license to understand
your policy, you should read it thoroughly. After all, it is a binding
legal contract. If there is anything you don't understand, ask your agent
to explain it to you. You have the right to know what's in your policy.
If you wish clarification beyond your agent's explanation, or if you
want to be certain that the policy is completely valid, contact your
state's insurance department.
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Usually, insurers that refuse to cover a claim have a strong legal
reason for doing so-- even if you disagree. First, contact your agent if
you feel you are being treated unfairly because your agent is your
strongest advocate in insurance matters. But if it is a legal problem, you
may have to hire a lawyer.
Talk to your agent if you have a problem with your insurer, and talk to
your state insurance department if you want more specific information on
state regulations and legal precedents.
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After an accident, you should call your agent as quickly as possible,
to help you complete a claim form, determine what exactly happened and
evaluate any damages or injuries. Your agent then will contact your
insurer's claims adjuster--usually within an hour of your report --whose
job is to work with you to fix the problem. While compensating you for
auto repairs or medical expenses is easy and immediate, determining
liability is more complicated. The adjuster will begin the settlement
process, the length of which will depend on the cooperation of the other
party.
The amount of compensation for your loss can vary according to the
adjuster's analysis of the damage. You do not have to accept the first
amount of money you are offered, if it is lower than the cost of your
repair or recovery. While you may have to do some homework to prove your
reported loss is valid, it's worth it to be certain your insurer lives up
to the provisions of your policy.
Remember, negotiating with an adjuster is just business--insurers
simply want to settle claims fairly in light of possible fraud. While it
is your insurer's responsibility to root out false claims, you pay the
price in the end. In fact, you spend nearly a dime on every dollar of your
premium to cover the false claims of others. So, try to keep an open mind
when working with your adjuster to settle on a price that's fair to both
you and your insurer.
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You should always talk to your agent about coverage of rare and
valuable property. Since a classic car usually cannot be replaced, you'll
probably want ample compensation if it is lost. A classic car, because it
is rare or unique, may indeed require a special insurance
policy.
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While most drivers today are generally insured for collision and theft,
this coverage may not be necessary for every vehicle.
Liability insurance, as mentioned
earlier, is essential and in many states required. But if you drive a
clunker--an older car that isn't worth much money--you may be able to do
without collision insurance. If you have an accident, repair costs could
easily be higher than the value of your vehicle, thus "totaling" it. This
means your insurer will pay you the total book value of your vehicle, and
that could be far less than the cost of your vehicle's repair. So,
 collision
insurance may not cover your loss adequately.
Since it depends on special circumstances, ask your agent for
guidance.
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