All about Personal Auto Insurance |
Related: Homeowners Insurance |
Most people know ‘something’ about auto insurance. In fact, it is safe to say when most people hear insurance their first thought is - auto insurance. TV, radio, print and internet are flooded with advertisements for auto insurance. While most people understand that auto insurance options are available, it is easy to forget why it is important.
Even though auto insurance is required by law, it is a very smart purchase. Driving is a privilege granted by the state that you live in. As with any privilege, you accept a certain amount of responsibility. Part of that includes being fiscally responsible should an auto accident occur. That means your state will require you provide proof of financial responsibility. In most states you have two options [Department of Revenue - Minimum Liability Insurance Manual]
Put a deposit with the state (normally $50,000) via cash or a bond
Purchase a liability insurance policy
Putting money on deposit is expensive for a couple of reasons: it isn’t an investment and if you have a ‘bad accident’ you could end up writing a much larger check. Think about it, if you have $50,000 in free cash to put on deposit with the government, in the event of an at fault accident, a ‘good’ trial attorney is probably going to sue you for a lot more.
For most, the best option is to purchase an auto insurance policy. States tend to set the mandatory liability limits very low. In Bodily Injury coverage the minimum is $25,000 per person up to $50,000 per accident with an additional $25,000 in property damage coverage . When property damage and liability are assessed those limits can become exhausted very quickly. If someone becomes hurt or injured, loses wages, has medical and legal bills pile up quickly, the $25,000 will no longer seem like a lot. Everyone should consider purchasing more than what their state’s minimum requirements are. The coverage amount should be designed to fit your current assets, income and future earning potential.
Driving or registering a vehicle without the minimum insurance coverage can result in your tickets, fines, drivers license suspension and possibly being arrested. Not having enough insurance after an at fault accident could financially cripple you.
Most states require you provide evidence of insurance at the time of registration for your vehicle. Spot checks can be done by your state’s Department of Revenue. Many states are putting Real Time Verification in place that verifies your insurance. Don’t forget, when you are pulled over the officer has the right to check your insurance.
Auto Insurance Claims |
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Probably, the most familiar type of auto insurance is property damage:
Damage to my vehicle
Insurance Term: Comprehensive & Collision
Damage to someone else or their vehicle
Insurance Term: Bodily Injury & Property Damage
Any type of accident can be dangerous, unfortunate and a life changing event. The resulting financial and time burden can be expensive and inconvenient. Nobody intends to be in an accident but if that accident does happen, it is good to know that your insurance carrier is there.
Claims are not fun - the process of a claim is made smoother by the claims adjuster.
In a ‘damage to your vehicle claim’ which are comprehensive and collision coverage. You will see claims like this covered, subject to your deductible:
Animal running into your vehicle
Vandalism in a parking lot
Driving your car into ‘something’ - bridge, garage, mailbox
Damage to your car by hitting someone elses car
Hail damage
Tree falling on your car
Windshield breakage
many more.
What about damage to another person’s vehicle? Most people are surprised when they find out that there is no deductible. Even though the deductible doesn’t apply, be careful because it is still considered an at fault accident and will charged to your claim history.
There are other types of auto insurance claims, such as:
Your medical payments
Medical payments to people riding in your vehicle
Payment for your damages if someone doesn’t have insurance
Paying off your loan or lease
Your car is stolen
Rental car coverage
Roadside claims such as a flat tire and locked keys in a car
Payments for legal fees to defend you in a larger lawsuit
All the items listed above are things to consider and purchasing the right coverage will help make the claims process smooth. No one wants to wish they had purchased more coverage.
Thing to consider on your auto insurance |
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Liability Limits: With each ‘type of coverage’ you can select how much coverage you want to have, this means you and the insurance company agree on the ‘limit of liability’ for how much they will pay for legal defense and damages. Pick this coverage wisely. If you have $50,000 in ‘bodily injury’ coverage then get sued for an at fault auto accident in the amount of $75,000, your insurance company is on the hook for $50,000. However, you might be out of pocket for $25,000. More coverage is always better.
Deductible: The deductible is the first amount you pay in the event of a claim. So you have $3,000 in damage done to your vehicle, and you have a $500 deductible. You pay the first $500 of the claim then the carrier will pay the remaining $2,500. Often times you can increase your deductible for a lower premium.
Actual Cash Value: Remember that vehicles decrease in value over time so in the event of a claim, you will receive the ‘Actual Cash Value’ of your car. You can purchase a ‘replacement cost endorsement’ but most times that will require the car is less than 1 year old and/or has less than 12,000 miles. Just ask your agent about this coverage.
Premium: This is how much it will cost to insure your liability and your vehicle. You can pay monthly, semi-annually or annually.
Auto Insurance Discounts |
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Ask about auto insurance discounts, you will always have options. Below is a table detailing of some auto insurance discounts that your auto insurance carrier might offer. Just ask your agent for more information. Every carrier is different so the options, availability and amount of each discount might vary.
Just remember, while discounts are important, the key is to maximize discounts on a competitive base price. Would you rather have a 30% discount on $1000 premium or a 25% discount on a $800 premium? The $800 premium with a 25% discount package is a much better deal.
Don’t get hung up on a percentage discount when you could have received a better price by going with a carrier with a lower price based on a smaller discount. The “discount” war is a game auto insurance carriers like to play - don’t get tricked when it comes to your final price.
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A new discount that carriers are starting to offer is the “pay as you go” or “usage based” discounts. Your insurance carrier will give you a device that, once installed in your vehicle, will track your driving habits such as driving frequency, drive times, acceleration, deceleration, speed and location. There are a lot of pros to this type of discount but it might not be for everyone - so just discuss with your agent.
Types of Auto Coverage |
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Bodily Injury Liability: Covers the injuries and damages you cause to someone else in an auto accident that is considered your fault. It will pay for your legal defense along with any legal judgments against you. You want to make sure this coverage is sufficient and appropriate to your assets, income and future earning potential.
Property Damage Liability: Covers the property damages you cause to someone else in an auto accident that is considered your fault. So if you hit a bridge, drive into someones house or hit another vehicle then the Property Damage Liability coverage will pay for the legal defense and damages. In most cases a deductible will not apply.
Medical payments: This covers injuries to the driver and passengers in your vehicle without regard to who is at fault. When someone is injured, medical payments will normally be the first coverage to pay out.
Uninsured or Underinsured Motorist Coverage - Bodily Injury: Covers the injuries and damages you incur when the accident is caused by someone who either doesn’t have enough insurance or doesn’t have any insurance. This is a very important coverage to have.
Uninsured/Underinsured Motorist Coverage - Property Damage: Similar to the Uninsured/Underinsured Bodily Injury coverage, this covers the property damages you incur when the accident is caused by someone who either doesn’t have enough insurance or doesn’t have any insurance. This coverage is not available in all states. Just ask your agent.
Comprehensive: Covers damage to your vehicle that doesn't involve hitting another car or object. Things such as fire, theft, falling objects, civil destruction (i.e. riot), and natural disasters (i.e. flood, windstorm, tornado). This is sometimes called ‘Other Than Collision’ coverage. Your comprehensive deductible will apply.
Collision: Covers damage to your vehicle that does involve hitting another car or object. The collision could be with another car, a mailbox, parking curb, a wall, etc. Collision coverage pays for damage to your vehicle regardless of who is at fault. Your collision deductible will apply.
Rental Car Coverage: Pays for a rental car if your car is not drivable due to a covered claim. This usually is covered on a daily basis with a maximum limit. For example: $40 per day up to $1200 for 30 days.
Roadside Reimbursement /Assistance: Roadside programs will reimburse or cover, up to a certain limit, situations such as: towing, flat tire, battery jump start, out of gas, locked out of car, mechanical breakdown.
Gap Insurance: This coverage is available if you have financed your vehicle. In the event you totaled your vehicle and the value of your vehicle is less than your loan or lease value, this will bridge the gap so insurance can pay off your loan.
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