Auto Insurance

Understanding Auto Insurance

There are three basic components to any Automobile Insurance Policy:

1. Liability Coverage

• Bodily Injury Coverage helps pay for someone else’s injuries if you or someone driving your vehicle is at fault in an accident. Increased coverage for this type of situation is also available through Umbrella Liability Coverage.
• Property Damage Coverage helps pay for physical damages to someone else’s vehicle or property in the event you or someone driving your vehicle is at-fault in a collision.

2. Physical Damage Coverage

• Collision Coverage helps pay for physical damages when your vehicle collides with, or is hit by, another vehicle or object.
• Comprehensive Coverage (sometimes called “other than collision” coverage) helps pay for physical damage to your vehicle caused by non-collision situations such as vandalism, theft, fire, or falling objects, etc.

3. Uninsured/Underinsured Motorists Coverage

• Provides coverage for your injuries in the event you are hurt by an uninsured or underinsured motorist. Coverage is provided not only in your own car, but also for situations when you are a passenger in someone else’s car or are struck by a vehicle when you are a pedestrian, bike-rider, etc. Underinsured Motorists coverage is excess over the at-fault driver’s coverage if they have lower liabiliy limits.

 

Special features to consider
In addition to the appropriate coverage limits, there are other types of coverage that you may find beneficial. Depending upon the insurer and the price you pay for your insurance, these features may or may not be automatically included in an auto policy:

• Towing expenses following an accident or car break down.
• Rental car reimbursement while your vehicle is being repaired following an accident or car break down.
• Transportation expenses in the event you are in an accident out of town and need to pay for other transportation to return home.
• Trip interruption coverage in the event you are in an auto accident out of town and are forced to seek hotel accommodations or incur other expenses due to the cancellation/interruption of your trip.

 

Recommended levels of coverage
You need to speak with a knowledgeable agent to learn the specifics of all coverages and what limits are advised for your personal situation. Though there is always a minimum amount of coverage that is required by state law, most agents recommend a level of coverage that is substantially higher, given the cost of claims today. In general, the lowest coverage limit recommended is $100,000 per person and $300,000 per accident for bodily injury liability coverage and $100,000 per accident for property damage. Or, you may have a combined single limit of $300,000 which consolidates property damage and bodily injury coverages into one single limit. Remember, higher limits are available and may be advisable. Increased coverage for this type of situation is also available through Umbrella Liability Coverage.

 

How to manage auto insurance costs

When purchasing a new car or when shopping for auto insurance, you need to be aware of the many factors that affect the cost of insurance. They generally include:

• Type and age of vehicle
• Age of the driver
• Driving record
• Past insurance claims
• Where you live
• Use of the vehicle (business, pleasure, distance of daily commute)
• Amount of vehicle customization/non-factory-installed equipment
• Level of coverage desired
• Amount of deductible (The higher your deductible, the lower your cost for insurance)

 

You will likely be able to reduce the cost of auto insurance if you have:

• Anti-lock brakes
• Airbags
• Anti-theft system
• Safe-driver or claims-free discounts
• Good student discount for high school/college students with at least a 3.0 GPA
• Senior citizen discount for taking “55 Alive” safe driving school
• Higher deductibles
• A package policy that combines your homeowners and auto insurance
• Multiple vehicles insured on the same policy

 

You will likely incur greater costs if you have:

• A youthful driver—age 16 to 25, particularly a male
• Moving violations or accidents
• A DUI conviction
• A high-performance vehicle

 

Other important information:

If you loan your car to someone else…
Be aware that your insurance coverage generally follows the vehicle. If an accident occurs, your policy would provide primary coverage for any damages or injuries that result. If you lend your car to others, make sure they are safe, responsible drivers.

 

If you acquire a new vehicle…
Notify your insurance agent as soon as possible. While the same coverage you have in place for your other vehicles will initially cover your new one—and it is safe to drive it home before calling your agent—the amount of time you have to do so is limited. Do not rely on the car salesperson to call.

 

If you have a lease or loan on your vehicle…
Make sure you have “gap” protection. This will cover you in the event you “total” your vehicle and its market/replacement value is less than what you still owe on it. Some lease or loan agreements have this coverage built in, but many do not. If you are unprotected, gap coverage can be purchased through your auto insurance policy. Gap coverage through the leasing company is generally more expensive.

If you rent a car in the United States…
It can be expensive to buy the insurance that is offered by the rental agent. In most cases, your personal auto policy’s coverage and limits will apply on any passenger vehicle. However, if you do have an accident, the rental agent may require you to pay a loss-of-use fee that can range from $30 to $50 a day during the period the car is out of service being repaired and assess you for the loss of value. Review your insurance policy and/or check with your credit card company to see if either one of them provides coverage for this. If not, you may want to consider the Collision Damage Waiver option provided by the rental car company. Important note: Before renting a car outside the continental U.S.—particularly in Mexico—check with your insurance agent for insurance advice.

 

If you have a young driver in your household…
It will generally cost 50% to 100% more for his or her insurance than you pay for the experienced drivers on your policy. This is because insurance companies automatically charge higher rates to insure young drivers due to the accident statistics for drivers between the ages of 16 and 24. Only by exhibiting excellent driving behavior and school work and growing older can young drivers expect to see a decrease in their insurance rates.

 

Teens and their parents must understand that just one speeding ticket can cause a rate increase, even if there have been no prior accidents. A series of violations—no matter how minor they seem—can put any teen driver into a high risk category. Worst of all, a teen DUI conviction can cause insurance rates to skyrocket and, in some cases, deprive the entire family of cost-effective insurance coverage for years.

To manage the insurance costs of young drivers, parents should:

• Provide an older-model sedan for teens to drive rather than an SUV or high-performance sports car
• Encourage teens to maintain good grades (B average or better), which will entitle them to a “good student” discount
• Restrict late-night driving when many teen accidents occur
• Limit the number of passengers allowed to ride with teen drivers
• Limit distractions such as loud music and cell phones
• Have a zero-tolerance policy for driving under the influence of alcohol or drugs
• Refuse to let other teens drive their vehicles
• Exhibit safe-driving habits

 

Note: If students attend college at least 100 miles away and do not have a car with them at schoo,, you may be able to get a discount on your auto insurance premium.