Auto Insurance

Auto insurance protects you against financial loss if you have an accident. It
is a contract between you and the insurance company. You agree to pay the
premium and the insurance company agrees to pay your losses as defined in your
policy.Auto insurance provides property, liability and medical coverage:

• Property coverage pays for damage to or theft of your car.
• Liability coverage pays for your legal responsibility to others for bodily
  injury or property damage.
• Medical coverage pays for the cost of treating injuries, rehabilitation and
  sometimes lost wages and funeral expenses.

An auto insurance policy is comprised of six different kinds of coverage. Most
states require you to buy some, but not all, of these coverages. If you’re
financing a car, your lender may also have requirements.

Most auto policies are for six months to a year. Your insurance company should
notify you by mail when it’s time to renew the policy and to pay your premium.

Back to Top

Your auto policy may include six coverages. Each coverage is priced separately.

1. Bodily Injury LiabilityThis coverage applies to injuries you, the designated driver or policyholder
cause to someone else. You and family members listed on the policy are also
covered when driving someone else’s car with their permission.It’s very important to have enough liability insurance, because if you are
involved in a serious accident, you may be sued for a large sum of money.
Definitely consider buying more than the state-required minimum to protect
assets such as your home and savings.

2. Medical Payments or Personal Injury Protection (PIP)This coverage pays for the treatment of injuries to the driver and passengers
of the policyholder’s car. At its broadest, PIP can cover medical payments,
lost wages and the cost of replacing services normally performed by someone
injured in an auto accident. It may also cover funeral costs.

3. Property Damage Liability This coverage pays for damage you (or someone driving the car with your
permission) may cause to someone else’s property. Usually, this means damage to
someone else’s car, but it also includes damage to lamp posts, telephone poles,
fences, buildings or other structures your car hit.

4. Collision

This coverage pays for damage to your car resulting from a collision with
another car, object or as a result of flipping over. It also covers damage
caused by potholes. Collision coverage is generally sold with a deductible of
$250 to $1,000-the higher your deductible, the lower your premium. Even if you
are at fault for the accident, your collision coverage will reimburse you for
the costs of repairing your car, minus the deductible. If you’re not at fault,
your insurance company may try to recover the amount they paid you from the
other driver’s insurance company. If they are successful, you’ll also be
reimbursed for the deductible.

5. Comprehensive

This coverage reimburses you for loss due to theft or damage caused by
something other than a collision with another car or object, such as fire,
falling objects, missiles, explosion, earthquake, windstorm, hail, flood,
vandalism, riot, or contact with animals such as birds or deer.

Comprehensive insurance is usually sold with a $100 to $300 deductible, though
you may want to opt for a higher deductible as a way of lowering your premium.

Comprehensive insurance will also reimburse you if your windshield is cracked
or shattered. Some companies offer glass coverage with or without a deductible.

States do not require that you purchase collision or comprehensive coverage,
but if you have a car loan, your lender may insist you carry it until your loan
is paid off.

6. Uninsured and Underinsured Motorist Coverage

This coverage will reimburse you, a member of your family, or a designated
driver if one of you is hit by an uninsured or hit-and-run driver.

Back to Top

NO! Almost every state requires you to have auto liability insurance. All
states also have financial responsibility laws. This means that even in a state
that does not require liability insurance, you need to have sufficient assets
to pay claims if you cause an accident. If you don’t have enough assets, you
must purchase at least the state minimum amount of insurance. But insurance
exists to protect your assets. Trying to see how little you can get by with can
be very shortsighted and dangerous.If you’ve financed your car, your lender may require comprehensive and
collision insurance as part of the loan agreement.Back to Top

If you lease a car, you still need to buy your own auto insurance policy. The
auto dealer or bank that is financing the car will require you to buy collision
and comprehensive coverage. You’ll need to buy these coverages in addition to
the others that may be mandatory in your state, such as auto liability
insurance.If you’ve financed your car, your lender may require comprehensive and
collision insurance as part of the loan agreement.

• Collision covers the damage to the car from an accident with another automobile
  or object.
• Comprehensive covers a loss that is caused by something other than a collision
  with another car or object, such as a fire or theft or collision with a deer.

The leasing company may also require “gap” insurance. This refers to the fact
that if you have an accident and your leased car is damaged beyond repair or
“totaled,” there’s likely to be a difference between the amount that you still
owe the auto dealer and the check you’ll get from your insurance company.
That’s because the insurance company’s check is based on the car’s actual cash
value which takes into account depreciation. The difference between the two
amounts is known as the “gap.”

On a leased car, the cost of gap insurance is generally rolled into the lease
payments. You don’t actually buy a gap policy. Generally, the auto dealer buys
a master policy from an insurance company to cover all the cars it leases and
charges you for a “gap waiver.” This means that if your leased car is totaled,
you won’t have to pay the dealer the gap amount. Check with the auto dealer
when leasing your car.

If you have an auto loan rather than a lease, you may want to buy gap insurance
to protect yourself from having to come up with the gap amount if your car is
totaled before you’ve finished paying for it. Ask your insurance agent about
gap insurance or search the Internet. Gap insurance may not be available in
some states.

Back to Top

When renting a car, you need insurance. If you have adequate insurance on your
own car, including collision and comprehensive, this may be enough.Before you rent a car:

1. Contact your insurance company.Find out how much coverage you have on your own car. In most cases, the
coverage and deductibles you have on your personal auto policy would apply to a
rental car, providing it’s used for pleasure and not business. If you don’t
have comprehensive and collision coverage on your own car, you will not be
covered if your rental car is stolen or if it is damaged in an accident.

2. Call your credit card company.Find out what insurance your card provides. Levels of coverage vary.If you don’t have auto insurance, you will need to buy coverage at the car
rental counter. The following coverages are available to you at the rental car
counter:

1. Collision Damage Waiver (CDW).Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of
financial responsibility if your rental car is damaged or stolen. The CDW may
be void, however, if you cause an accident by speeding, driving on unpaved
roads or driving while intoxicated. This coverage generally costs between $9
and $19 a day. If you have comprehensive and collision on your own car, you may
not need to purchase this coverage.

2. Liability Insurance.

This provides excess liability coverage of up to $1 million for the time you
rent a car. Rental companies are required by law to provide the minimum level
of liability insurance required by your state. Generally, this does not offer
enough protection in a serious accident. If you have adequate liability
coverage on your car or an umbrella policy on your home/auto, you may consider
forgoing this additional insurance. It generally costs about $7 to $9 a day. If
you don’t own a car, and rent cars often, consider purchasing a non-owner
liability policy. This costs approximately $200 – $300 per year. Frequent car
renters sometimes find this more cost-effective than constantly paying for the
extra liability coverage.

3. Personal Accident Insurance.

This provides coverage to you and your passengers for medical/ambulance bills.
This type of insurance, usually costs about $3 per day, but may be unnecessary
if you are covered by health insurance or have adequate medical coverage under
your auto policy.

4. Personal Effects Coverage.

This provides coverage for the theft of personal items in your car. However, if
you have homeowners or renters insurance, you may be covered for items stolen
from the car, minus your deductible. You need to have receipts or other proof
of ownership. This type of insurance usually costs about $1.25 per day. Some
rental car companies combine personal accident and personal effects coverage
together as one type of insurance, while others sell it individually.

The cost of insurance at the rental car counter will vary depending on the
rental car company, state, and location of the dealer and the type of car you
rent.

Some rental car companies may check your credit and driving history and may
deny coverage. Check with the rental car company to find out its policy.

Back to Top

There is a big difference between when an insurance company cancels a policy
and when it chooses not to renew it. Insurance companies cannot cancel a policy
that has been in force for more than 60 days except:

• If you fail to pay the premium.
• You have committed fraud or made serious misrepresentations on your
  application.
• Your driver’s license has been revoked or suspended.

Non-renewal is a different matter. Either you or your insurance company can
decide not to renew the policy when it expires. Depending on the state you live
in, your insurance company must give you a certain number of days notice and
explain the reason for non-renewal before it drops your policy. If you think
the reason is unfair or want a further explanation, call the insurance
company’s consumer affairs division. If you don’t get an explanation, call your
state insurance department.

Back to Top