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CAR INSURANCE: Basic Information
1) What is car insurance?
Car insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Car insurance provides property, liability and medical coverage:
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to others for bodily injury
or property damage.
- Medical coverage pays for the cost of treating injuries, rehabilitation and
sometimes lost wages and funeral expenses.
A car insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements. Most car policies are for six months to a year. Your insurance company should notify you by mail when it's time to renew the policy and to pay your premium.
2) What is covered by a basic car policy?
a. Bodily Injury Liability: This coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else's car with their permission. It's very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money. Definitely consider buying more than the state-required minimum to protect assets such as your home and savings.
b. Medical Payments or Personal Injury Protection: This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an car accident. It may also cover funeral costs.
c. Property Damage Liability: This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
d. Collision: This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. It also covers damage caused by potholes.Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you're not at fault, your insurance company may try to recover the amount they paid you from the other driver's insurance company. If they are successful, you'll also be reimbursed for the deductible.
e. Comprehensive: This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.
Comprehensive insurance is usually sold with a $100 to $300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium.
Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage, but if you have a car loan, your lender may insist you carry it until your loan is paid off.
f. Uninsured and Underinsured Motorist Coverage: This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver. Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.
3) Can I drive legally without insurance? NO! Almost every state requires you to have car liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance; you need to have sufficient assets to pay claims if you cause an accident. If you don't have enough assets, you must purchase at least the state minimum amount of insurance. But insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.
If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
4) What if I lease a car? If you lease a car, you still need to buy your own car insurance policy. The car dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to buy these coverages in addition to the others that may be mandatory in your state, such as car liability insurance.
- Collision covers the damage to the car from an accident with another
carmobile or object.
- Comprehensive covers a loss that is caused by something other than a
collision with another car or object, such as a fire or theft or collision with a deer.
The leasing company may also require "gap" insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or "totaled," there's likely to be a difference between the amount that you still owe the car dealer and the check you'll get from your insurance company. That's because the insurance company's check is based on the car's actual cash value which takes into account depreciation. The difference between the two amounts is known as the "gap."
On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don't actually buy a gap policy. Generally, the car dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a "gap waiver." This means that if your leased car is totaled, you won't have to pay the dealer the gap amount. Check with the car dealer when leasing your car.
If you have an car loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you've finished paying for it. Ask your insurance agent about gap insurance or search the Internet. Gap insurance may not be available in some states.
5) Do I need insurance to rent a car? When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough. Before you rent a car:
a. Contact your insurance company: Find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal car policy would apply to a rental car, providing it's used for pleasure and not business. If you don't have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.
b. Call your credit card company: Find out what insurance your card provides. Levels of coverage vary.
If you don't have car insurance, you have two choices: you can buy coverage at the car rental counter; or you can purchase a a non-owner car liability insurance policy.
Rental car counter insurance: Rental car counter insurance can provide the following coverage:
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Collision Damage Waiver: Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. This coverage generally costs between $9 and $19 a day. If you have comprehensive and collision on your own car, you may not need to purchase this coverage.
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Liability Insurance: This provides excess liability coverage of up to $1 million for the time you rent a car. Rental companies are required by law to provide the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy on your home/car, you may consider forgoing this additional insurance. It generally costs about $9 to $14 a day. If you don't own a car, and rent cars often, consider purchasing a non-owner liability policy. This costs approximately $200 - $300 per year. Frequent car renters sometimes find this more cost-effective than constantly paying for the extra liability coverage.
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Personal Accident Insurance: This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance, usually costs about $1 to $5 per day, but may be unnecessary if you are covered by health insurance or have adequate medical coverage under your car policy.
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Personal Effects Coverage: This provides coverage for the theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car, minus your deductible. You need to have receipts or other proof of ownership. This type of insurance usually costs about $1 to $4 per day. Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.
The cost of insurance at the rental car counter will vary depending on the rental Car Company, state, and location of the dealer and the type of car you rent.
Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
Non-owned car liability insurance: Instead of buying liability coverage from the car rental company each time you rent a car, you can purchase a non-owner car liability insurance policy from an insurance company for about $300 a year which might be cheaper if you rent frequently.
In addition, if you're thinking of buying an umbrella liability policy, a non-owner car policy may meet the underlying car insurance policy requirements. Umbrella liability insurance provides high limits of liability coverage above basic policies. Most insurers will not issue an umbrella liability policy unless the basic policies meet certain dollar limits of coverage.
A non-owned car insurance policy covers you for damage you may cause to some else's car and liability for injuries to its occupants, or to pedestrian, in the event of an accident. The policy will also provide medical payments coverage for you and your passengers, and under-insured and uninsured coverage. This pays for the cost of an accident involving a hit-and-run driver or a driver who has little or no insurance.
However, non-owned car insurance does not provide collision coverage. Collision coverage pays for damage to the car you're driving if you crash into another car or object or the car rolls over. You have to buy this from the car rental company. However, some credit cards provide collision coverage if the rental car is paid for with the card-so check with your credit card company first.
6) Is there a difference between cancellation and non-renewal? There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except when:
- You fail to pay the premium
- You have committed fraud or made serious misrepresentations on your application
- Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for not renewing before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company's consumer affairs division. If you don't get a satisfactory explanation, call your state insurance department.
The company may have decided to drop that particular line of insurance or to write fewer policies where you live, so the non-renewal decision may not be because of something you did. On the other hand, if you did do something that raised the insurance company's risk considerably, like driving drunk, the premium may rise or you may not have your policy renewed.
If your insurance company did not renew your policy, you will not necessarily be charged a higher premium at another insurance company.
CAR INSURANCE: How to Buy & Save Money
1) How to choose an insurance company? The main criteria for choosing an insurance company are listed below.
a. Licensing:
Not every company is licensed to operate in each state. As a general rule, you should buy from a company licensed in your state, because then can you rely on your state insurance department to help if there's a problem. To find out which companies are licensed in your state, contact the state insurance department.
b. Price:
Many companies sell insurance policies and prices vary greatly from one to another, so it really pays to shop around. Get at least three price quotes from companies, agents and from the Internet. Your state insurance department may publish a guide that shows what insurers charge for different policies in various parts of your state.
c. Financial Solidity:
You buy insurance to protect you financially and provide peace of mind. Select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies.
d. Service:
Your insurance company and its representatives should answer your questions and handle your claims fairly, efficiently and quickly. You can get a feel for whether this is the case by talking to other customers who have used a particular company or agent. You may also want to check a national claims database to see what complaint information it has on a company. Also, your state insurance department will be able to tell you if the insurance company you are considering doing business with had many consumer complaints about its service relative to the number of policies it sold.
e. Comfort:
You should feel comfortable with your insurance purchase, whether you buy it from a local agent, directly from the company over the phone, or over the Internet. Make sure that the agent or company will be easy to reach if you have a question or need to file a claim.
2) How can I save money? The price you pay for your car insurance can vary by hundreds of dollars, depending what type of car you have and the insurance company you buy your policy from. Here are some ways to save money.
a. Shop around:
Prices vary from company to company, so it pays to shop around. Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department may also provide comparisons of prices charged by major insurers.
Get quotes from different types of insurance companies. Some sell through their own agents. These agencies have the same name as the insurance company. Some sell through independent agents who offer policies from several insurance companies. Other companies sell directly to consumers over the phone or via the Internet.
But don't shop by price alone. You want a company that answers your questions and handles claims fairly and efficiently. Ask friends and relatives for their recommendations. Contact your state insurance department to find out whether they make available consumer complaint ratios by company.
You can also check the financial health of insurance companies through independent rating companies and by consulting consumer magazines.
b. Before you buy a car, compare insurance costs:
Before you buy a new or used car, check into insurance costs. Your premium is based in part on the car's sticker price, the cost to repair it, its overall safety record, and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft. These include air bags, anti-lock brakes, daytime running lights and anti-theft devices. Some states require insurers to give discounts for cars equipped with air bags or anti-lock brakes.
Cars that are favorite targets for thieves cost more to insure. Information that can help you decide what car to buy is available from the Insurance Institute for Highway Safety.
c. Reduce coverage on older cars:
Consider dropping collision and/or comprehensive coverages on older cars. It may not be cost-effective to continue insuring cars worth less than 10 times the amount you would pay for coverage. Any claim payment you receive would not substantially exceed your premiums minus the deductible. Claims occur on average only once every 11 or 12 years.
d. Buy homeowners and car coverage from the same insurer:
Many insurers will give you a discount if you buy two or more types of insurance from them. Also you may get a reduction if you have more than one vehicle insured with the same company. Some insurers reduce premiums for long-time customers. But shop around; you may save money buying from different insurance companies despite the multi-policy discount.
e. Low-mileage discounts:
Some companies offer discounts to motorists who drive a lower than average number of miles per year. Low mileage discounts can also apply to drivers who carpool to work.
f. Ask about group insurance
Some companies offer reductions to drivers who get insurance through a group plan from their employers, or through professional, business and alumni groups and other associations. Ask your employer or any groups or clubs to which you belong.
g. Maintain good credit:
Your credit rating may affect what you pay for insurance, so keep a close eye on it. Credit makes insurance rates more accurate, fair and objective. While the use of insurance scoring varies from state to state and company to company, it is a fact that drivers with long, stable credit records have fewer accidents than drivers who don't. There are various Internet services that allow you to check your credit rating and provide tips on how to improve your score.
h. Look for safe driver discounts:
Companies offer discounts to policyholders who have not had any accidents or moving violations for a number of years. You may also qualify for a cut if you have recently taken a defensive driving course.
3) How much coverage do I need?Almost every state requires you to buy a minimum amount of liability coverage. Chances are that you will need more liability insurance than the state requires because accidents cost more than the minimum limits. If you're found legally responsible for bills that are more than your insurance covers, you will have to pay the difference out of your own pocket. These costs could wipe you out!
The Insurance Information Institute (I.I.I.) recommends that you have $100,000 of bodily injury protection per person and $300,000 per accident. If your net worth is more than $300,000, consider buying additional liability insurance. You may also consider purchasing an umbrella or excess liability policy. These policies pay when your underlying coverages are exhausted. Typically, these policies cost between $200 and $300 per year for a million dollars in coverage. If you have your homeowners and car insurance with the same company, check out the cost of coverage with this company first. If you have coverage with different companies, it may be easier to buy it from your car insurance company.
In addition to liability coverage, consider buying collision and comprehensive coverage. You don't decide how much to buy. Your coverage reflects the market value of your car and the cost of repairing it.
Decide on a deductible-the amount of money you pay on a claim before the insurance company reimburses you. Typically, deductibles are $500 or $1,000; the higher your deductible, the lower your premium.
4) What determines the price of my policy?There are many factors that influence the price you pay for car insurance. The average American driver spends about $700 a year. Your premium may be higher or lower, depending on:
a. Your driving record:
The better your record, the lower your premium. If you've had accidents or serious traffic violations, you will pay more than if you have a clean driving record. You may also pay more if you haven't been insured for a number of years.
b. The number of miles you drive each year:
The more miles you drive, the more chance for accidents. If you drive a lower than average number of miles per year, less than 10,000, you will pay less. For instance, some companies will give discounts to policyholders who carpool.
c. Where you live:
Insurance companies look at local trends, such as the number of accidents, car thefts and lawsuits, as well as the cost of medical care and car repair.
d. Your age: In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. So insurers generally charge more if teenagers or young people below age 25 drive your car.
e. The car you drive:
Some cars cost more to insure than others. Variables include the likelihood of theft, the cost of the car, the cost of repairs, and the overall safety record of the car.
5) What information do I need to give to my agent or company?Your agent will ask you what make and model cars you own, roughly how many miles you drive each year, and what kind of liability coverage you will need. The agent will also want to know how many people drive the cars, how old the drivers are, where you live, and driving records of each household member.
The agent will then ask more detailed questions about your cars, such as their Vehicle Identification Numbers (VIN), whether they have passive restraint systems or air bags, anti-lock brakes or anti-theft devices. If you already have another insurance policy with the company for home or life insurance, you might receive a discount on your car policy. You should also mention if you or other drivers in your household have completed safe-driving courses and if student drivers in your home are getting good grades-both of these may qualify you for discounts on your car policy.
Once the agent has assembled all of the information, he or she will quote you a premium. The premium will depend on all the factors above and on the deductibles you choose.
6) How do I insure my teenage driver? As soon as your teenager begins to drive, notify your insurance agent that there will be an additional driver in the house. Since teenagers are inexperienced drivers, they tend to get into a lot of accidents. This will, unfortunately, be reflected in higher insurance rates. If you have a daughter, you can expect your insurance to go up as much as 50 percent. A son will increase your car insurance by as much as 100 percent. Consider also raising liability limits or buying an umbrella liability policy for additional protection.
How to keep the increased cost to a minimum
a. Insure your son or daughter on your own policy. It is generally cheaper to add your teenagers to your insurance policy than for them to purchase their own. If they are going to be driving their own car, insure it with your company so that you can get a multi-policy discount. b. Let your insurer know if your teenager is going away to school.
If your your kids are living away at school-at least 100 miles from home-you will get a discount for the time they are not around to drive the car. This, of course, assumes that they leave the car at home!
c. Encourage your teen to get good grades and to take a driver training course. Most companies will give discounts for getting at least a "B" average in school and for taking recognized driving courses. d. Shop around. Insurance companies differ dramatically in how they price policies for young drivers.
e. Pick a safe car. The type of car a young person drives can dramatically affect the price of insurance. You and your teenager should choose a car that is easy to drive and would offer protection in the event of a crash. You should avoid small cars and those with high performance images that might encourage speed and recklessness. Trucks and SUVs should also be avoided, since they are more prone to rollovers
f. Talk to them about safe driving: Driving safely will not only keep your son or daughter alive and healthy, it will also save money. As your teenager gets older, insurance rates will drop-providing he or she has a good driving record.
g. Talk to your teen about the dangers of combining driving with alcohol, lack of sleep and distractions: Accidents occur each year because a teen driver was using a cell phone, playing the radio or talking to friends in the backseat. Also, teens should be careful not to provide distractions and to exhibit safe behavior when they are passengers in their friends' cars.
7) Will my insurance cover a rental car after an accident? Many drivers don't think about their insurance coverage until after they have an accident and call their insurance company to file a claim to help pay for car repairs, a rental car and other expenses.
Unfortunately, many insured drivers are surprised to find out that their car insurance does not carmatically cover the cost of a replacement rental car after an accident. Since the average car is in the repair shop for two weeks after an accident, it can cost as much as $500 to rent a replacement car. But, some insured drivers pay little or nothing to rent a car because of an inexpensive but often overlooked option known as rental reimbursement.
Rental reimbursement coverage is available for only $1 or $2 a month with almost every car insurance policy, but it is bypassed frequently by those who believe they will not have a car accident or those shopping only for the lowest cost premium. The cost of a rental replacement car adds up fast, so even if you don't have an accident for eight or nine years, the coverage pays for itself when you need it most.
Sometimes working out the details of a claim with the car insurance company can take time. Even if the accident is the other driver's fault, you may have to wait several days or longer to get the other insurance company to agree to pay for a rental car. With your own coverage, there is no waiting.
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