Don’t be dismayed by insurance industry jargon and the pages of confusing forms that auto insurance companies provide – this is not rocket science! With some basic information, you can choose confidently an auto policy that meets your state’s legal requirements, your financial situation, and your unique needs. Whether you deal with an independent agent or a representative of a specific insurance company, understanding your coverage and cost options will help you make decisions that best protect you and your family.
No one really expects accidents to happen – that’s why they are called “accidents.” But purchasing an auto insurance policy requires thinking ahead to the worst case scenario: If you or another driver in your family should be involved in a crash or other motor vehicle problem, how much insurance would be enough? And how much would this cost?
Here are some general guidelines on how automobile insurance works, and some questions you should ask yourself, your insurance agent and your insurer before you purchase an insurance policy.
A Glossary of Auto Insurance Terms
Before you venture too far down the auto insurance road, you will want to learn what common policy terms mean and how they may relate to your coverage needs. Here are basic coverage categories, some required by state law, others optional:
- Liability coverage pays for accidental bodily injury – including medical expenses, pain and suffering and lost wages. It also pays for property, including automobiles belonging to others, damaged in a crash. State laws call for minimum liability coverage, but many drivers carry more than the law requires.
- Collision insurance compensates you for damage to your vehicle that is incurred in a collision with another vehicle or object. The amount of collision coverage you carry relates to the value of your car; if your car is worth less than, say, $2,000 you could replace it out-of-pocket and may not want to bear the cost of a collision premium.
- Comprehensive coverage applies to losses and/or damage sustained by your vehicle other than in an auto accident; for example, if your car is damaged by fi re, a windstorm or hail, or has been stolen and/or vandalized.
- Medical coverage, as the term implies, covers your medical expenses sustained in an auto accident regardless of who is at fault, or regardless of the ownership of the vehicle in which you were riding.
- Personal Injury Protection (PIP) is required in many states with no-fault insurance systems or in states, such as Florida, in which there exists a hybrid type of no-fault system. PIP compensates the insured driver and resident relatives for medical treatment regardless of who is at fault in an accident. PIP provides coverage for medical treatment costs, lost wages, and incidental costs associated with medical care.
- Uninsured or underinsured motorist (UM) protection pays for injuries suffered in an accident when one or more other drivers are at fault and and are either uninsured or have insufficient liability insurance (underinsured). You will want to ask your insurance carrier about “stacked” and “non-stacked” uninsured motorist coverage. Both of these forms of UM protection are portable, meaning that they follow a policy holder into a non-owned vehicle and as a pedestrian. However, the stacking provision allows a policy holder to combine – or “stack” – UM coverage on each car owned and insured and use it in any accident where the coverage applies.
Here are some other terms you will encounter in evaluating auto insurance options:
- Deductible is the amount that you must pay yourself before your insurance carrier pays for covered losses up to the limit of your policy.
- Premium is the charge for obtaining the coverage provided by an automobile insurance policy.
- Multi-car discounts are sometimes available if you insure more than one vehicle on the same policy.
- No-fault insurance allow drivers injured in an auto accident to collect for their medical expenses and lost wages from their own insurance carriers, regardless of who was at fault in the accident.
- Personal auto policy (PAP) is a common policy form, with the coverage basics written in easy-to-understand language.
- Term is the length of time a policy is in effect. Commonly, auto insurance policies are issued for six months or one year.
- Umbrella is a liability policy that protects assets beyond standard limits set in a primary auto insurance policy.
- Underwriting is the term for the decision-making process insurers use in accepting or rejecting an insurance application, which provisions to include or exclude, and the premiums that will be charged. An underwriter is an insurance agent who assesses risks and determines coverage and rates.
- Usage is considered when you apply for auto insurance. The term refers to the purpose for which your car is driven; for example, for business, commuting to and from work, or for pleasure.
A little research goes a long way!
If this is the first time you have purchased auto insurance – or even if you are updating coverage or changing insurers – you should take stock of your situation and your insurance options before you buy.
Find out about the auto insurance laws in your state and what the minimum coverage requirements are.
Forty-seven states require automobile owners to carry liability insurance, which covers bodily injury and property damage caused by you or other drivers on your policy. Some states, including Florida, have what is called a no-fault insurance system, which means that if you are in an accident, your insurance company pays for damages up to the policy limit, regardless of who was at fault. Under this system, every driver is required to carry Personal Injury Protection (PIP) to cover his or her own medical expenses and lost wages in the event of an accident. Generally, the “no fault” concept limits drivers’ ability to sue for further damages, but state laws differ widely on this issue and sometimes depend upon the extent of monetary losses and/or severity of the accident.
Take a look at your lifestyle, your driving habits, the value and safety of your car, and how much you can afford – or are willing – to pay for insurance.
Most of us know that auto insurance rates are based in part upon the car we drive: a racy sports car is likely to cost more to insure than a solid family sedan. Generally, the higher a car’s value, the more expensive it is to cover.
But insurers also take into account a car’s safety record, and even statistics on its likelihood to be stolen!
A number of lifestyle factors also influence your insurance costs: For example, your age, gender and marital status; where you live; and how many miles a year you drive. Your driving record could be a significant factor affecting your policy cost, so check with your state’s Department of Highway Safety and Motor Vehicles for a preview of what an insurance underwriter will see. Have you had any accidents? Any tickets? How many? How about other drivers who will be insured under your policy?
Research the auto insurance options that most closely match your needs and finances.
If you are a first-time insurance buyer, shop around and ask for some quotes on options that most people like you might carry. If you already have an auto insurance policy, go through it with a fine-tooth comb to make sure you have what you need – and not more than you want, Write down questions as you review the policy and submit written questions to your insurance agent or insurance company. Ask them to respond to your questions in writing.
In addition to basic coverage that everyone should have – liability, collision, comprehensive, medical coverage, PIP (in states that require this), and under- or uninsured motorist protection – consider the value to you of additional options. What about coverage for car rental if your car is damaged, payment for parts and labor if your car breaks down, special coverage that may be required for a leased vehicle, or an umbrella policy to protect your assets beyond primary auto policy limits?
It pays to shop around.
When you are ready to make a decision about auto insurance, be a smart consumer and solicit competitive quotes. Reputable insurance companies are happy to provide you with information, either on-line or by telephone. You can check them out with your state’s Department of Insurance, which keeps records of consumer complaints.
In gathering quotes, the National Association of Insurance Commissioners suggests that you ask about these discounts:
- Good driving record: No claims, no accidents, no tickets may save you money.
- Good grades: With some companies, a young driver with a B average or better gets a discount.
- Driver education: Discounts are often offered for driver safety courses.
- Multiple policies: If you have more than one vehicle, it pays to insure them all on the same policy. Many companies will give you a volume discount for carrying homeowner’s, auto insurance, and other policies with them.
- Safety equipment: Devices such as antilock brakes and anti-theft technology often trigger a discount.
When you have assembled information from several companies, compare them side by side to make sure you are not comparing apples and oranges. Take into account not only the cost of premiums, but a company’s record of consumer complaints and general reliability. Ask questions and more questions – consult website FAQs and call toll-free numbers to talk with company representatives. Talk to your insurance agent and ask ALL the questions you have – this is an important decision and there are NO stupid questions.
Contact your state’s Office of Insurance Regulation and speak with consumer affairs representatives regarding companies’ payment histories and claim handling complaints.
Finally, when you have made your decision, review your new insurance policy carefully immediately upon receiving it. If it isn’t what you want, or doesn’t meet your needs at an affordable cost, don’t hesitate to renegotiate or contact a different carrier… because you’re in the driver’s seat!