All About Auto Insurance

What You Need To know

(Adapted from the US Federal Citizen Information Center)

• What Is Liability Insurance?
• What Are Collision and Comprehensive Insurance?
• What Are Medical Payments Coverage and Personal Injury Protection Insurances?
• What Is Uninsured/Underinsured Motorist Protection?
• How Are My Rates Determined?
• How Can I Save Money on Auto Insurance?
• What to Do in Case of an Accident

Driving is a privilege, but it comes with a price tag. There's the costof the vehicle itself, maintenance, repairs, fuel and auto insurance. Many states require you to carry a basic, minimum level of auto insurance. It's a way of sharing the risks of driving. You pay premiums to an insurance company for coverage. In return, your coverage will protect you against most financial losses that might otherwise be staggering.

Auto insurance is more than a matter of insuring your vehicle for loss or repairs after an accident. It is a financial safety net that can help you offset the cost of:

    * Bodily injuries to yourself or others
    * Lost wages due to injury
    * Benefits to survivors when an accident results in death
    * Lawsuits brought against you as the result of an accident
    * Repairs made to your car due to damage caused in an accident.

This Web site will guide you through some important decisions about your automobile insurance. How much coverage do you really need? How much liability insurance? Is there any way to save money on auto insurance? First, you'll need to know just what kinds of coverages are available. Many states require a basic liability coverage, but you must decide how much additional insurance you need. You select a package of insurance from standard types of coverage - a package that will protect you, your family, your vehicle and your assets. Your particular package could include:

    * Bodily Injury Liability
    * Property Damage Liability
    * Collision Coverage
    * Comprehensive Coverage
    * Medical Payments Coverage
    * Uninsured/Underinsured Motorist Protection

What Is Liability Insurance?

Liability insurance helps protect you and your assets if you cause an injury to others or damage the property of others with your vehicle. Bodily injury liability protects you in the event you are determined to be responsible for an accident in which someone is hurt or killed. Property damage liability covers the damage your vehicle causes to someone else's property, such as their car, mailbox or a fence on their land.

If you are judged to be legally liable for an accident, you may be held responsible for property damage, hospital and medical payments, rehabilitative care, lost income and even the pain and suffering of the injured person. You can be sued for the full cost of the damages. If the cost of this loss exceeds the amount of your liability insurance coverage, you may have to pay the rest. So, be sure you have sufficient liability coverage to protect your assets.

Your insurance policy usually describes the amount of liability coverage you have as a series of three numbers, called split limits. Suppose your contract coverage reads 50,000/100,000/50,000. In this example, $50,000 is the maximum the insurance company will pay for bodily injuries to any one person in the accident. The maximum amount paid for all bodily injuries, no matter how many people are hurt in the accident, is $100,000. The maximum amount paid for damage to someone else's property in the accident is $50,000. Your Bodily Injury and Property Damage Liability may also be shown as a single limit, e.g., $100,000 Combined Single Limit (CSL).

Many states require drivers to carry a minimum amount of liability insurance of approximately 20,000/40,000/10,000. That means there would be $20,000 to cover injuries to any one person, $40,000 total for all injuries, and $10,000 for property damage.

What Are Collision and Comprehensive Insurance? 

Collision coverage pays for damage to your own auto that results from colliding with another vehicle or object, or from a vehicle rollover. Your car is covered no matter who caused the accident.

Comprehensive coverage pays for damage to your auto caused by something other than a collision. This includes theft and vandalism, and disasters such as fire, flood and hail.

Collision and comprehensive coverages usually do not pay for the total loss. You generally have a deductible, an amount you must pay out of your own pocket before your insurance payment takes effect. Suppose, for example, that you have a $250 deductible. On a loss of $1,000, you would pay the first $250 and your insurance company would pay the remaining $750.

Depreciation will also affect the amount you recover. As your car ages and its value declines, the amount you would collect for a total loss declines as well. Your insurance company reimburses you for the actual cash value of your car or its parts, at the time of the loss. For example, if your car was purchased for $20,000, you will get less than your original purchase price to replace it. You can find out the current value of your car by consulting the N.A.D.A. Official Used Car Guide, which is in most public libraries and banks.

Sometimes it may not make financial sense to buy collision and comprehensive insurance on an older car. Why? Generally, speaking, cars decline in value as they age. The maximum amount that will be paid under Collision coverage is the actual cash value of your car minus the deductible. When making this decision, you need to know, the "book" value of your car, your deductible for each loss, the cost of coverage, and the amount you would receive if your car was "totaled" (after subtracting your deductible from the book value). Only you can decide after considering everything whether the cost of insurance is more economical than the cost of repairing or replacing the car at your own expense.

What Are Medical Payments Coverage and Personal Injury Protection Insurances? 

Medical payments insurance covers the cost of doctors, hospitals and funeral expenses of you and/or your passengers, that result from an accident, regardless of who is at fault. This insurance coverage will protect you when you drive another person's car (with permission) or if you or your family are struck by another vehicle as pedestrians. The coverage is relatively inexpensive and generally available with limits between $1,000 and $100,000. This varies state by state.

Personal injury protection (PIP) is a form of no-fault insurance required in states with no-fault laws. This coverage is a broader form of medical payments insurance. It pays for medical care, lost wages and replacement services for the injured party (for example, paying for a babysitter for children while a mother is hospitalized). It pays regardless of who is at fault in an accident. States with no-fault laws usually limit the right to sue for nonmonetary damages such as pain and suffering, but you still may be able to sue in cases of incapacitating disability or death. This coverage varies by state and is sometimes an optional offering in states without no-fault laws. In your evaluation of coverage, remember that Medical Payments and PIP also protects your passengers. If you exceed your medical medical coverage on your auto policy, then Bodily Injury coverage may be needed.

Before choosing medical payments or no-fault protection, check with your state's insurance department for details of no-fault coverage in your state. Then review your other insurance policies. If you already have good medical and disability insurance, you may not need protection in addition to the minimum limits of your state (if Medical Payments/PIP is a required coverage).

What Is Uninsured/Underinsured Motorist Protection? 

If you are involved in an accident with an uninsured driver, you have very little chance of collecting damages from that driver. Uninsured motorist (UM) coverage* pays the cost of damages and injuries resulting from being hit by an uninsured driver or by a hit-and-run driver.  Both you and your passengers are covered for medical expenses, lost wages and other injury-related losses. You may also be able to collect for pain and suffering.

Similarly, Underinsured motorist (UIM) coverage* will pay for damages that exceed the amount of coverage carried by an underinsured driver. You choose the amount of coverage when you buy this protection.

*Keep in mind that uninsured motorist coverage and underinsured motorist coverage vary by state law.

How Are My Rates Determined? 

The premiums you pay to insure your car can vary dramatically. Here are some of the factors that may influence how much you pay:

• Your driving record. Your record plays a crucial role in determining premiums. If you've been involved in an accident that was determined to be your fault or if you have traffic convictions on your record, you may pay more for your insurance. That's because statistics indicate such drivers generally have repeat accidents or violations within three years. For drivers with poor records who cannot find coverage, there are state-regulated insurance plans called "assigned risk pools" or "shared markets." In these plans, the state assigns a company to provide coverage for a high-risk driver. 
• Your family members. Insurance premiums not only reflect your age, gender and driving record, but those of other licensed drivers in your household as well. A teenage son who drives your car or a spouse with a poor driving record is likely to increase your insurance rates. 
• The car you drive. Certain car models may be considered risky because they cost a lot to repair, are frequently involved in accidents or are popular with car thieves. Owning one of these cars may double your collision and comprehensive premiums. High-performance cars and sports cars, for example, usually cost more to insure. Keep this in mind when shopping for a car to prevent costly surprises when it comes time to insure it. 
• Marital status. Statistically, young married drivers have fewer accidents than young single drivers, so they generally pay lower premiums. 
• Where you live. Rates are regulated on a state-by-state basis, therefore rates in California and Rhode Island will differ. Rates also vary between locations within a state. That's because the risks of accidents, theft and vandalism vary significantly from one community to another. For example, people in small towns generally have been found to have fewer auto accidents than people living in large cities, so they may pay less for insurance. Other variables include typical regional weather conditions and local auto repair prices.
• Age. As a general rule, drivers under age 25 have more accidents than older drivers, so they pay more. Drivers between 50 and 65 years of age have low accident rates and are sometimes offered discounts. Past the age of 65, accidents seem to increase and rates generally begin to rise again. People over 70 may have trouble finding an insurer to accept them as a new customer, and when they do find coverage, it may be expensive.
• Gender. A young man under age 25 generally pays more than a woman of the same age. This is because young men are involved in more accidents than young women and have more than three times as many fatal accidents.

How Can I Save Money on Auto Insurance?  
( See Our Resources Page For More Information)

Here are some tips for trimming the cost of your auto insurance:

1. Get quotes from at least three different companies to compare prices and services.

2. Before purchasing a new car, read sources of information such as Consumer Reports magazine to see if the vehicle has a high accident rate or is popular with thieves. You also can write to the Insurance Institute for Highway Safety, 1005 N. Glebe Rd., Suite 800, Arlington, VA 22201 and ask for the Highway Loss Data Chart.

3. See if you can get a package deal by buying your homeowners, auto and other insurance from the same company. You may also get a discount if you insure all of your family's cars with the same company.

4. Increase your deductible if you feel you can handle the out-of-pocket expense in the event of an accident. For example, increasing your deductible to $500, rather than the standard $250, will cut the cost of your insurance.

5. Consider dropping collision coverage as your car ages. There comes a point when your aged auto's book value is less than the cost of repairing it, and remember, the most your insurer may pay is the car's book value. You can find out the current value of your car from the N.A.D.A. Official Used Car Guide, available at most local libraries, bookstores or banks.

6. Drive safely and obey the speed limits. Don't drink and drive. A good driving record lowers your insurance rates. Always wear your seat belt.

7. Check to see if you qualify for any of the following discounts (which are not permitted in all states and are not offered by all insurance companies):

    * Good driver. The definition of a good driver varies but usually includes those with no accidents or convictions on their records for the previous three years.
    * Driver training, improvement and defensive driving courses. You may qualify if you have taken an approved driver education course. Call the National Safety Council at 1-800-621-6244 or check your yellow pages for the number of an AAA or Top Driver near you to inquire about courses.
    * Mature driver discount. For drivers between 50 and 65.
    * Multi-car discount. For those insuring more than one car with the same company.
    * Restricted mileage discount. For those who drive less than 7,500 miles annually.
    * Anti-lock brakes discount. For cars equipped with computerized anti-lock braking systems.
    * Passive seat belts and air bags discount. On cars equipped with factory-installed air bags and automatic seat belts.
    * Anti-theft systems discount. For vehicles with devices that make them more difficult to steal -- for example, ignition- and fuel-cutoff systems, alarms, and hood- and wheel-locking devices.
    * Good student discount. Sometimes offered for drivers under age 25 who have maintained a B average for the preceding semester in high school or college.

What to Do in Case of an Accident 

Step 1
If possible, stop your car in a safe and visible place. If the car cannot be moved, turn on the hazard lights. Turn off the ignition. Be careful exiting your car.

Step 2
Determine if anyone is injured. Do not move an injured person.

Step 3
Call the police (911 in most places) immediately. Report any injuries.

Step 4
If another vehicle is involved, get the car's year, make, model and license plate number; the driver's name, address and license number; and the name of his or her insurance company. If the driver does not own the car, get the name of the car's owner. Write down names and addresses of other passengers or witnesses.

Step 5
Write down the names and badge numbers of police and emergency personnel at the scene. Ask the officer how to obtain a copy of the police report for your insurance claim.

Step 6
If you suspect that the other driver was under the influence of alcohol or drugs, ask that a breath test be performed on you and the other driver.

Step 7
Cooperate with the police, but do not admit guilt for the accident in any way. You may be required to show proof of insurance, but do not reveal how much coverage you have.

Step 8
Do not accept any money the other driver may offer. By accepting money, you may give up your right and the insurance company's right to file a claim against the other driver, even if the damages turn out to be more extensive than you first thought.

Step 9
Do not agree to forget about a minor accident. You may see later that there were hidden damages or injuries. The other person may even file a lawsuit against you.

Step 10
Write an account of what happened: time of day, weather, hazards, road conditions and driving speed. Draw a picture of the site, showing stop signs, signal lights, etc. Try to measure skid marks and determine the point of impact. Note any damage already on other cars involved. If a camera is available, take pictures of the accident. Make copies of the pictures.

Step 11
Report the accident to your insurance agent or company as soon as possible.