Auto Insurance

Everyone in the United States who owns a car is required to buy insurance coverage.  Auto insurance is a form of protection against the risks of owning and operating an auto.  If not properly covered by insurance, owners can face significant financial loss. 

Some states require auto owners to insure damage to their autos, and their insurance company must pay for the damages, regardless of who is at fault in an accident.  These states are referred to as “no-fault” insurance states.

Under traditional insurance policies, the driver who is responsible for the accident is primarily responsible for paying any costs associated with the accident.  The driver can pay the costs on his own (if they are small costs) or through his or her insurance company (if the costs are high).  In “no-fault” states, the costs associated with the accident are covered by each individual’s insurance company, regardless of who is at fault for the accident.  Insurance can be quite expensive, however the risk you carry with not having enough insurance is a very big gamble.

Auto Insurance: What Does it Cover?

Liability:  This coverage pays for any liabilities drivers incur if they injure others or damage property.  If the other driver is hurt in the accident, liability typically covers any medical payments associated with the injuries.

Liability Limits: You can select from many different limits.  The lesser the limit, the less expensive the policy.  While this may seem tempting, be sure to consider the risks associated with low limits.  If you are involved in an accident where the damages cost $50,000, and your liability limit will only pay $30,000, you can be held accountable for the difference.  It’s very important to obtain adequate coverage to protect your assets from seizure in the event of an accident.

Physical: This coverage pays for any damage to the auto if you are at fault for an accident.  In a no-fault state, this coverage pays for the damage regardless of who is at fault.  It also covers the costs of any damage caused by fire, theft, flooding, and other non-collision situations.

Deductibles: A deductible is a pre-determined amount of money you agree to pay in the event of an accident.  For example, if the damages total $1,000, and your deductible amount is $500, you will be required to pay that amount before your insurance company pays anything.  It’s imperative to make sure you can pay your deductible when determining the amount.  Having a high deductible can decrease your insurance premiums, which is tempting, however you must consider whether or not you can afford the deductible in the event of an accident. Insurance is a gamble and you need to be prepared for the worst-case scenario. 

Assess Your Coverage Needs

Liability and Physical Needs: Consider the Following Because Your Insurance Company Will!!

Liability

Ø     Driving Record of covered driver(s).  If a driver has a history of accidents, it may be wise to consider obtaining a policy that will cover a high amount of money in the event of an accident.  If you have moving violations (speeding, running lights, etc) your premiums can go up.  Many states allow you to avoid increased premiums by allowing you to attend traffic school.  Theoretically, traffic school will teach drivers with moving violations the proper road rules.  The traffic school industry has blossomed from the standard classroom setting into one offering traffic classes in a comedy show setting, a “gourmet food” setting, and on the internet.  The idea behind these unique traffic classes is to encourage more people to attend by offering an interesting theme.

Ø     How much are you going to use the auto?  Will you be driving it a lot?  If so, you may want to consider additional liability insurance since increased driving time increases your chances of getting into an accident.

Physical

Ø     How much is your car worth in a fair market?  Remember, as the car ages, the value will decrease.  But if your car is currently worth $15,000, and an accident totals the car, you want to be sure to have adequate physical coverage.

Additional Types of Auto Insurance—A Veritable Buffet of Add-Ons

The following coverage is available in addition to physical and liability coverage.  Many of these are not required, but should be considered when you are obtaining a new policy.

Uninsured Motorist: This coverage is required in some states and optional in others.  Uninsured motorist coverage will pay for property damage and bodily injury costs if you are involved in an accident with another driver who is uninsured.  While it’s important to know you are covered in the event of an accident with an uninsured driver, you also need to consider the following:

Oftentimes, your health insurance plan will pay for medical expenses in the event of an accident.  So, if you are hurt in an uninsured motorist accident, you may still be covered by your health insurance policy.

Underinsured Motorists: Similar to uninsured motorist coverage, underinsured coverage will pay for any costs above and beyond what the other driver’s limits are.  For example, if the damage to your property is $50,000, and the other driver’s policy will only cover $30,000, underinsured motorist will pay the difference.

Roadside assistance, towing, etc: These products can be added to your policy if you wish.  Although they will increase your policy premiums, you will have piece of mind knowing that if you are stranded on a road with a broken car, you can call your insurance company and they will send help.  Additionally, you have the option of adding rental car reimbursement.  This will pay for a rental car in the event your car is damaged and cannot be driven while being repaired.

Factors Considered When Determining the Cost of Your Policy—The Gamble

1.     Liability Limits.  If you decide you want to carry coverage that will pay a lot in the even of an accident, your premiums will be higher.  If you choose to carry a lower coverage, your premiums will cost less.  It’s a gamble either way.  You can pay higher premiums for excellent coverage and never have an accident, or you can pay low premiums for less coverage and run the risk of getting into a major accident.  The choice is yours—assess your needs to determine the best policy!

2.     Age and sex of driver.  Based on statistical data, men are typically charged higher rates than females.  Insurance studies show that men are a greater risk to insure than women.  Additionally, age is a deciding factor.  Since younger drivers are often less experienced than older ones, the premiums will be higher.  Usually, when a driver reaches the age of twenty-five, his or her premiums will decrease.  Teenage drivers will certainly raise your premiums, so consider this when allowing your teen access to your car.

3.     Type of vehicle.  Some cars are considered to be a greater risk than others.  For example, a sports car like a Porsche is a greater risk than a family van like a Plymouth Voyager.  Insurance companies take into consideration the chance of a driver speeding and possibly causing an accident in a Porsche.  Because the potential for speed is there, the car is considered a risk.  Safety measures on cars are also taken into account.  Airbags decrease the number of injuries and deaths in accidents, and because of this, vehicles that have airbags are usually considered less of a risk.  Insurance companies collect data on vehicle safety records and then determine how much of a risk the car poses.  Additionally, some cars are more popular with car thieves.  Because of this, insurance companies must factor it into their risk to insure you.

Teen Drivers = BIG Premiums

As mentioned earlier, young drivers are often considered an increased risk on an insurance policy.  Because of this, it’s important to ask your insurance agent about the differences in policy premiums if you have a teen driver using your auto.  Oftentimes, your premium will almost triple if a 16-year-old male is covered and almost double for a 16-year-old female.  You may be tempted not to include your teen on the policy to save money, but this can spell trouble down the road.  If your teen is not listed on the policy, and he or she is involved in an accident, the insurance company may refuse to pay any of the damages.  Check with your insurance agent to determine how you can save money while keeping your teen on your policy.  Check with other insurance agents to compare rates.  Often companies will give discounts to teen drivers if they graduate from a driver’s education course, or maintain at least a B grade point average.  These are things to consider when obtaining your policy.

Insurance rates will generally drop when your teen reaches 18, 21 and 25 and have good driving records.

For more information on how auto insurance companies determine policy amounts, check out these websites:

www.insure.com

www.quotesmith.com

www.insweb.com

These sites also allow you to obtain instant quotes for policies based on information you provide.  You can compare costs and coverage to determine which is the best policy for your situation.

State Auto Insurance Requirements—It’s All About Where You Live

Different states require different levels of coverage.  It’s important to determine what is required in your state when you are looking at policies.  Remember, though—the state requirements are a minimum.  You need to assess your needs and determine whether those minimums are appropriate for your situation or if you need to get higher coverage.