By Forum Management
The
Auto Insurance Buyer’s Guide has been designed to assist you in answering
several questions, including:
1. What is auto insurance?
2. What are the coverage options?
3. How will my auto insurance coverage be priced?
4. Is there any way to receive a discount on my auto insurance?
5. Does my state require me to have coverage?
6. What should I consider when designing my policy?
The History of Auto Insurance
In its truest form, insurance is protection
against pure risk. Automobile insurance is one of the best examples of this.
Auto insurance offers you no potential for profit—but don’t mistake this for a
lack of return. Auto insurance offers a guaranteed return exactly when you need
it most.
Transportation has been an effective method
of moving people and possessions around for centuries. Whether it was by way of
ships, livestock, wheels or engines, there has always been a need for massive transport
through means other than our feet.
The very first auto insurance policy was
written in Massachusetts
in 1902. At that time, there was no concept of automobile insurance but because
marine insurance policies were being written to cover railroad cars and the
contents within them, Massachusetts’
Attorney General decided it should be extended to automobiles too.
Modern auto insurance policies include a
range of options for every driver. Coverage choices include Comprehensive
Coverage, Bodily Injury, Collision and others. In the next few pages of this
guide, we’ll show you what each of these coverage types mean and which states
require them.
As an auto insurance policy grows to
include more coverage, it takes on more risk and the price increases. As you
will see in this guide, there are many ways to reduce your premiums through
discounts, deductibles, limits and more.
Terminology and Coverage Types
Bodily
Injury Liability: Bodily injury coverage pays for
expenses related to injuries you inflict on other drivers as a result of an
accident.
Collision
Coverage: Collision coverage pays to repair your
vehicle if it is hit by another vehicle or if you hit another vehicle.
Comprehensive: Comprehensive coverage covers more incidents than just accidents.
Comprehensive coverage can provide a benefit for a fire, theft, act of nature
and even vandalism.
Deductible: The deductibles on your policy represent the amounts that you must
pay out of pocket before your insurance benefit will begin covering costs.
No-Fault: When determining how much of a claim should be paid by one
insurance company instead of the other, fault states decide how “at fault” each
driver in an accident was and then pay benefits based on that assessment. In a
no-fault state, the good driver is not forced to prove they were entirely
blameless before having their claim paid by the insurance company. It is
important to remember that in a no-fault state, you also can’t sue the other
driver for anything covered in your PIP benefit (like pain and suffering),
since your insurance is picking up the claim.
PIP: PIP is Personal Injury Protection coverage. This allows your
insurer to pay for injuries you or your passengers may have received as the
result of an accident. PIP offers no-fault coverage. It may cover
hospitalizations, missed work, pain and suffering and more.
Property
Damage Coverage: If your car causes damage to
another’s property, your property damage coverage will pay out a benefit within
the limits of the policy.
UM
and UIM Coverage: An acronym for Uninsured Motorist
or Under Insured Motorist, this coverage reimburses you for damages by an
uninsured or under insured driver.
Pricing Factors
Every day, you face the risk of an auto
accident or theft, and your automobile insurance provider has agreed to step up
to the plate and make you whole should you experience one of these events. They
do so in exchange for the premiums you pay them each month.
The amount of the premium you pay depends
on the amount of risk you pose to the insurer. If you’ve had multiple accidents
in the past, or live in an area that experiences a large number of accidents on
a consistent basis, you will be charged higher rates. The more miles you drive
the insured car, the more you are exposed to an accident, so that will also
factor in.
Another consideration involved in pricing
auto insurance is your age. Conventional logic states that the younger you are,
the less experience you have driving a vehicle. It seems that real experience
agrees--the Pennsylvania Department of Transportation recently found that
drivers in their twenties were four times as likely as drivers in their 30’s or
older to get into a car accident. And teenagers? Well, unfortunately for those
young drivers with shiny new licenses, they were even more likely to have an
accident. Statistics like these are found nationwide and auto insurance
companies base their rates on this proven information.
It is also possible that your occupation
might play a part in your rates. If you have an occupation that shows you lean
toward high risk activities, let’s say as a skydiving instructor or deep sea
photographer, the auto insurance companies may let that reflect in a higher
rate for your policy.
Saving Money
There are many different ways you can
reduce your premiums. Car insurance
companies will give automatic discounts to you if you have certain safety
equipment in your vehicle like:
·
Anti-lock brakes
·
Airbags
·
Anti-theft systems
·
Automatic seatbelts
These safety measures generally result in
fewer car accidents and injuries as a result of car accidents. They reduce the
amount of risk the insurer takes on, and therefore result in a smaller premium.
Insurers also give discounts to those who
improve their driving abilities through a defensive driving course. Although
you must pay for the course, the lessons you learn will not only make you a
safer driver who is less likely to have an accident, but they will also result
in lower premiums for as long as you maintain your safe driving record. Over
the years, the savings on those lower premiums will outweigh the cost of the
driving course.
Another way to get a discount is to find
out if you are eligible for any through organizations you are a member of.
Whether you are eligible for a discount through your workplace, AAA, AARP, a union
or other group, the discounts offered by organizations can be extremely
beneficial. Because organizations have many members, they wield a lot of power
and can often negotiate large discounts.
A good driving history will go far in
getting you affordable rates. Be sure to check a copy of your motor vehicle
report (MVR) before you apply for insurance to make sure there are no mistakes.
Your MVR is like your driving credit report. Identifying any misreported
incidents before you get insurance will save you some headaches along the way.
Your MVR should be available through your local Department of Motor Vehicles.
Lastly, the limits and deductibles you
choose can also help you save money on auto insurance, but remember, they also
reduce your benefit. A deductible is the amount of damages you must pay for out
of pocket before your insurance kicks in. Because higher deductibles reduce the
insurance company’s potential liability, they also reduce your premium. While a
$5,000 deductible may make your premiums much smaller, it’s going to hurt to
pay $5,000 out of pocket for your first accident.
Limits are almost the opposite of a
deductible. A limit is the maximum amount your insurer will pay. A personal
injury limit of $10,000 means that you are going to have to pay out of pocket
for any expenses that exceed that amount.
Legislation
While drivers who lease or have a loan on
their vehicles understand the need for insurance coverage, others—those who own
their cars free and clear—may think they can avoid coverage if they deem it
unnecessary. Unfortunately, this is not the case. Many states have decided that
certain types of auto insurance coverage should be mandatory.
· Liability insurance is required by 47 states. If you are a
resident of Wisconsin, New
Hampshire, and Florida,
you are in the only three states that have decided that mandatory liability
insurance coverage is unnecessary.
· 16 states require PIP coverage. Those states are Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts,
Michigan, Minnesota,
New Jersey, New York,
North Dakota
Oregon, Pennsylvania,
and Utah.
· A total of 22 states require uninsured motorist coverage
including Connecticut, Illinois, Kansas, Maine, Maryland, Massachusetts,
Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, North
Dakota, Oregon, Rhode island, South Carolina, South Dakota, Vermont, Virginia,
Washington D.C., West Virginia, and Wisconsin.
· In an effort to reduce lengthy court battles to prove
fault in a car accident, 12 states are considered, “no-fault” states. These are
Florida, Hawaii,
Kansas, Kentucky,
Massachusetts,
Michigan, Minnesota,
New Jersey, New York,
North Dakota, Pennsylvania,
and Utah.
Beyond the Legislation: What
Coverage is Right for You?
There are three considerations that go into
getting the right auto insurance coverage. They are:
·
Type of coverage
·
Deductibles
·
Limits
Choosing the right combination of the above
factors will help you to create an affordable policy that has all the coverage
you need with deductibles and limits you consider reasonable.
Before you decide on the three factors, ask
yourself the following questions:
Type
of Coverage
1. Do you need comprehensive coverage to
satisfy loan or lease requirements? If not, is your car worth enough that fire,
theft or vandalism coverage makes sense?
2.
Do you use your vehicle for work? If so, should you be covered through a
work policy? Will that cover accidents that occur while driving outside of
work?
3. Are the premiums for the coverage you
chose worth it based on the value of your car?
Deductibles
1. If an accident should happen, will you
be able to afford to pay the deductible?
2. Is the deductible more than the Kelly
Blue Book value of the car? If so, is it worth it?
3. Is the premium lowered enough to justify
the deductible?
Limits
1. Are the limits on your policy
reasonable? If a claim should exceed them, will you be able to pay out of
pocket?
2. Are the limits justified by a low enough
premium payment?
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