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When the first
U.S.
automobile insurance policy was purchased in 1898, there were barely
100 cars nationally. Horses and carriages ruled the roads and the
main concern for both insurers and auto drivers was any injury those
noisy new machines might do to horses.
Today, auto insurance is the most widely purchased of all
property-casualty insurance, yet few drivers are familiar with the
details of their particular policy.
Though this guide does not represent the provisions of any
particular policy, it should serve as a starting point on your road
to finding the best policy for your needs.
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If you received a letter from the Bureau of Motor Vehicles
informing you that the Bureau has received notification of
termination of insurance, you may use their
online form
to provide evidence of active insurance. |
Why do I need auto insurance?
Your car is likely one of the most expensive things you
own. Insurance protects your investment and guarantees you a way of
coping with the expense of accidents, vandalism or theft. It also
secures your financial responsibility to the institution lending you
money to buy your vehicle.
When you drive you are responsible for the safety of your
passengers, your fellow drivers, other people's property,
pedestrians and yourself. Insurance helps ensure your ability to
cover the costs of potential damages or injuries.
You are also required to be financially responsible by state laws,
which are best satisfied through your insurance coverage. In most
states insurance is a prerequisite to registering your car. So if
you want to drive your own vehicle, you must be insured.
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What are the different types of policies and what do they cover?
Auto insurance is divided into several types of coverage:
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General liability covers damage you
cause to other people's property and injuries to the people
themselves.
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Collision covers damage to your own
vehicle in an accident.
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Comprehensive (i.e., fire, theft and
other non-collision damage) covers fire damage to your vehicle,
break-ins, vandalism or theft, as well as natural disasters
(earthquake, hail, hurricane, flood, etc.--unless the vehicle is
overturned, then it is considered a collision).
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Medical payments insurance, usually in
the range of $5,000 to $10,000, covers medical expenses for
injuries. This "good-faith" coverage guarantees immediate
medical payments for you, your passengers and other parties,
regardless of who is at fault. It also covers you and members of
your household in any accident involving an automobile, whether
you are on foot, on a bicycle, in a friend's car.
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Uninsured motorist (UM) and
underinsured motorist (UIM) coverage protects you if you are
injured in an accident with others who themselves carry
insufficient or no liability insurance.
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Extra coverages include expenses for
towing, labor, temporary replacement vehicles, etc. These are
generally defined as add-ons or “endorsements” to your policy.
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Why and how are policies priced for different drivers?
Drivers are grouped according to the level of risk each
one poses—i.e., the amount of loss incurred by insurers within
categories of policy holders. For various reasons, drivers are
categorized by:
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Sex—Men have more accidents on the
road than women.
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Age—Drivers under 25 (and, for some
insurers, under 30) are considered at higher risk of having an
accident.
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Marital Status—Married drivers tend to
have fewer accidents than single drivers.
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Personal Driving Record—Years of
driving experience, accidents, speeding tickets and
drunk-driving offenses are all factors in determining how much
of a risk you pose as a motorist.
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How You Use Your Vehicle—If you
commute by car during rush hours, you're at greater risk of
having an accident than if you only drive for errands and
recreation on the weekends. Drivers who use their own vehicles
for business also are considered to be at greater risk.
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Type of Vehicle—The value, size,
weight, age of your vehicle, even the cost of replacement parts,
are essential to determining the price of your insurance.
Larger, heavier vehicles are considered at lower risk than
smaller, lighter ones. Plus, more expensive cars are costlier to
have repaired than economy models.
The cost of your insurance policy is based on the average cost of
covering actual losses, spread out over your particular "rating
group" as a whole. Of course, you may never have an accident or have
your car stolen, and therefore will never need to be compensated.
But others in your category may not be so lucky. Your premium will
help to pay for their losses, just as their premiums would help to
pay for yours.
For example, if you are a 23-year-old man and you park your new
sports car on a downtown street in a large city, you will likely pay
more for insurance than a 37-year-old woman who parks her
four-wheel-drive in the suburbs, simply because, based on average
losses, you have a greater chance of having an accident or being the
victim of auto theft.
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How does where I live affect my premium?
Where you live (or, more precisely, where you keep your car) has a
bearing on your chances of having an accident or becoming a victim
of theft or vandalism. That's why a vehicle owner in Brooklyn, New
York, pays a higher rate than the owner of an identical vehicle in
Casper, Wyoming.
Other factors affecting regional insurance rates include time and
efficiency of police response and law enforcement, local road and
traffic conditions and the quality of local medical services.
Insurers even factor in the litigation rates in a given area, that
is, how many lawsuits are filed, go to trial, are settled out of
court and for how much.
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Why are rates different for different cars, even if the cars cost
the same?
Vehicles are also grouped into categories according to
their likelihood of being damaged, vandalized or stolen. Insurers
generally consider the size and type of vehicle, as well as the
value and the cost of repairs (which can vary greatly, even on
vehicles that cost roughly the same). Thus, a new station wagon is
expected to hold up better in an accident than a sports car or a
subcompact.
Putting insurance aside, safety is key when buying an automobile.
Your life depends on it! Some cars are considered safer than others
because of their performance record in safety tests and real
accidents.
That's why you should research insurance coverage before you buy
your car. It helps you to understand the actual cost and indicates
those vehicles with good safety records. Your insurer will
ultimately reward you for putting safety first.
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What is "no-fault" insurance?
No-fault insurance is a system adopted in some states
that essentially bypasses the conventional legal procedure which
finds fault in an accident. (This is the procedure by which you hire
a lawyer, file suit and possibly go to court to prove the accident
was the other guy's fault.) No-fault simply does away with the
concept of one party or the other being at fault. There are no
lawyers, no court, no judge, no jury, no lengthy lawsuits against
the other party. This is considered beneficial to taxpayers, because
it eliminates costly legal proceedings that the state must manage,
and to insurance policyholders, because it helps keep rates down.
If you are insured in a no-fault state and have an accident, you
don't go after the other driver. You contact your own insurer and
file a claim. Your own insurance policy guarantees you immediate
compensation for damages, medical expenses, lost wages, etc.
The type and range of no-fault coverage varies by state. What
defines the limitations of no-fault policies can differ in two
critical areas:
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Threshold—The type of damage/injury or
the cost of repair/recovery that triggers the need for legal
action.
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Mandated Benefit Level—The package of benefits (medical, wage loss,
replacement services and other expenses) your state requires you
to carry.
The details of no-fault insurance can be complicated. Contact your
agent or your state's insurance department for further information.
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Do all states require some kind of liability insurance?
No. Some states, while not mandating auto insurance, have
"financial responsibility laws" that require all drivers to be able
to pay for any damage or injury they may cause. However, carrying
liability insurance is still the best way for you to meet your
state's financial responsibility requirements.
UM and UIM policies are offered by law in all states, including
no-fault states. In fact, some states require all motorists to carry
this coverage to gain protection from inadequate insurance coverage
of other drivers.
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What happens if I have an
accident with an uninsured driver?
First, call the police to the scene to be sure all
pertinent information is properly recorded. Your nerves will be
shaken right after an accident, and it helps to have a calm and
knowledgeable person walking you through the necessary details.
Then, contact your agent immediately and ask about filing a claim.
If you followed all the recommended guidelines when you bought your
policy, you should be covered within the limitations of that policy.
Remember, your insurance policy is designed to protect you.
If the cost of your damages or injuries exceed the amount your
policy will pay out, it may be time to take legal action against the
other party. Even if you have no-fault insurance, sometimes the only
way to be compensated is to place blame and responsibility where it
belongs.
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Why would my insurer cancel my policy?
Technically, in most states your insurer can cancel your
policy only if:
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you fail to pay your premium;
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you lose your driver's license;
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you are guilty of material misrepresentation
during the application process (i.e., you fail to notify your
insurer of a recorded violation such as a drunk-driving
offense); or
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you fail to report a substantial change of
risk, such as buying a high-powered sports car to replace a
family sedan.
However, your insurer can choose not to renew your policy for a
variety of reasons.
Do you have a bad driving record? Have you received a lot of
speeding tickets? Have you ever been caught driving drunk? Not only
are these scenarios considered unsafe and illegal, they are
justifiable cause for your insurer to label you a bad risk and
refuse to renew your policy. (Some insurers may feel compelled to
cancel policies after only one accident.)
Where do you live? Has the neighborhood changed in the last few
years? Have the accident or crime rates risen noticeably? As regions
are reassessed periodically, their status could change and you could
suddenly find yourself living in a high-risk area where your
insurer's rates may not be adequate to cover losses.
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What do I do if my insurer cancels or refuses to renew my policy?
Even "good" drivers can be dropped by their carrier.
Reasons range form a "drinking while driving" violation or other
serious violations (that make you a high risk) to situations outside
your control, such as when insurers in your state are suffering
severe business losses. Overall rises in claims or losses can cause
insurers to become highly selective in determining whom they can
afford to insure.
If you are licensed to drive, by law, you are eligible for
insurance. However, your options for new coverage may be limited.
Each state has created and regulates a market of last resort for
those who cannot otherwise obtain coverage. These groups have
various names, depending on the state you live in, such as “assigned
risk” plans or the “residual market.” Your agent will know more
about the particulars in your state.
Regardless of the reason you were dropped, you need to act
immediately to get a new policy. Under no circumstance should you
drive your vehicle without insurance. Call your agent to help you
find new coverage. If you do find yourself in the residual market,
the price may be higher but it may be your only alternative in
maintaining your freedom to drive.
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How do I keep my insurance company from canceling my policy?
The most obvious way to maintain your low-risk status is
to keep a clean driving record. If you've been in an accident,
consider taking a defensive driving course. Even those of us who
have been driving for years rarely know the simple tricks to
preventing accidents through defensive driving.
Also, look into purchasing special safety and security features for
your car, such as anti-lock brakes and an alarm system. Your
insurance agent can give you further tips on how to convince your
insurer you're a safe driver.
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What steps can I take to reduce my rates?
Insurers often discount their rates for good drivers and
those who take of safety and security precautions. Depending on the
insurer, you can often lower your rates from 5 to 35 percent.
Sometimes the investment you make in your vehicle is worth the
discount, and sometimes it's simply worth some peace of mind. For
example, the purchase of anti-lock brakes merits a discount from
nearly every insurer, but the discount probably will not pay for the
brakes during the normal life of your vehicle.
Insurers generally offer discounts for:
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Safety Features—Anti-lock brakes, air
bags and passive restraint systems (i.e., automatic seat belts).
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Defensive Driving—Clean violation
record, driver's education courses for teenagers and defensive
driving or accident prevention courses for adults (insurance
discounts for the latter are required in some states).
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Security Systems—Alarms, electronic
locks and disabling devices.
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Changing Driving Habits—Commuting by
public transit, using a company vehicle for work-related travel
and car-pooling.
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Formal Agreements Not to Drink and Drive—The
availability of a discount for signing such an agreement varies
among insurers and states.
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Buying Home Owners and Auto Policies from
the Same Company—If you own a home and an automobile and you
are insured by two different companies, check into the cost of
carrying both policies by one insurer. Your agent can give you
guidance as to which insurers offer discounts.
You can also lower your insurance rates by requesting higher
deductibles (the amount of money you pay before you make a claim).
Increasing your deductibles on collision and comprehensive coverage
from $100 to $250, or even $500, will bring your rates down.
Moreover, you may not need collision and comprehensive coverage if
you drive an older car. Ask your agent which discounts are available
to you.
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How does adding drivers to my policy affect my rates?
The more people you allow to drive your vehicle on a
regular basis, the greater the chances of your vehicle being in an
accident. Teenagers are especially expensive to insure because they
are the least experienced drivers.
A driver's education course can help ease the burden of insurance
costs since it teaches your teenager defensive driving techniques.
If your child's high school does not offer driver's education, try
to find one offered by another school or a private firm in the area.
After all, the cost of driver's education could be cheaper than the
extra cost of your insurance. (Many insurers offer "good student"
discounts as well.)
An adult's driving experience can also affect your rates
significantly. Don't assume that every adult you know has been
driving since age 16 or is a competent driver with a clean record.
Again, taking a defensive driving course is a good way for adults to
prove they are responsible drivers, thus lowering their risk and
their insurance rates. (This is a great solution for new couples who
are jointly insured but unmatched in their driving skills or
experience.)
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Who's watching the insurance companies?
With few exceptions, your insurance company does not set
its own rates (unless you live in
Illinois). It requests the right to charge appropriate
rates from your state's insurance department, which responds with
legal approval and authorization, provided the requested rates are
fair.
Every state has some sort of department, administration or agency
that regulates and monitors every insurer operating within the
state's borders. In addition to approving rates, your state's
insurance department is involved in all insurance matters on behalf
of private citizens and businesses. It also issues operating
licenses to insurance companies and agents, based on their ability
to meet the state's requirements for conduct and knowledge about
insurance issues.
Your insurance company works closely with your state's insurance
department to make sure you are getting the best and fairest
possible service within the state's guidelines. Contact your state's
insurance department if you wish to know more about how it serves
your interests.
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Do I always need to buy insurance when I rent a car? Am I not
covered by my own policy?
If you have fully insured your own vehicle, including
collision and comprehensive coverage, and rent a vehicle for
pleasure only (while on vacation, for example), you do not need to
buy extra insurance from the rental company. In fact, in most states
your basic rental fee by law will include liability coverage for
damage or injury to others. But different rules apply when you rent
a car for business purposes, so check with your agent for details.
If you do not have your own insurance, be aware that many car rental
liability policies cover you only at the state's required minimum.
Also, you should buy the collision and comprehensive coverage
offered by the rental company for your own protection. Plus, do not
buy a collision damage waiver (CDW) from the rental company assuming
it is insurance. A CDW simply releases you from financial
responsibility if you damage the vehicle you are renting, provided
you comply with the terms of the rental contract. But those terms
can vary considerably, and CDWs are not state-regulated, which means
they are technically not insurance.
It's always a good idea to review your policy before renting a
vehicle and, if necessary, contact your agent for clarification.
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What happens when I loan my car to someone? Is that person covered
by my policy? Am I still covered?
Yes. Liability and coverage for physical damage (i.e.,
comprehensive and collision) always follow your car. So, if a friend
borrows your car and has an accident, you're still protected against
the cost of damages or injuries. Plus, if the driver of your car is
insured, his/her policy will also be available to cover the cost of
damages and injuries.
The same rules apply when you borrow someone else's vehicle. Your
own insurance follows you no matter whose car you are driving. But
the vehicle owner's policy is the key coverage if you have an
accident.
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Am I covered for natural disasters or "Acts of God?"
Comprehensive insurance, which covers you for fire and
theft, generally covers you against damage by flood, earthquake,
hail and other natural perils, except when your car is overturned
(which is technically considered a collision). If you have special
concerns about the safety of your vehicle in the face of Mother
Nature's wrath, contact your agent for information on catastrophic
coverage.
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What should I make sure my policy includes? Do I really need to read
all the fine print?
While you don't need a law degree or an agent's license
to understand your policy, you should read it thoroughly. After all,
it is a binding legal contract. If there is anything you don't
understand, ask your agent to explain it to you. You have the right
to know what's in your policy.
If you wish clarification beyond your agent's explanation, or if you
want to be certain that the policy is completely valid, contact your
state's insurance department.
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How can I challenge my insurers if they refuse to cover a claim?
Usually, insurers that refuse to cover a claim have a
strong legal reason for doing so—even if you disagree. First,
contact your agent if you feel you are being treated unfairly
because your agent is your strongest advocate in insurance matters.
But if it is a legal problem, you may have to hire a lawyer.
Talk to your agent if you have a problem with your insurer, and talk
to your state insurance department if you want more specific
information on state regulations and legal precedents.
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What actually happens when I report an accident?
After an accident, you should call your agent as quickly
as possible, to help you complete a claim form, determine what
exactly happened and evaluate any damages or injuries. Your agent
then will contact your insurer's claims adjuster—usually within an
hour of your report—whose job is to work with you to fix the
problem. While compensating you for auto repairs or medical expenses
is easy and immediate, determining liability is more complicated.
The adjuster will begin the settlement process, the length of which
will depend on the cooperation of the other party.
The amount of compensation for your loss can vary according to the
adjuster's analysis of the damage. You do not have to accept the
first amount of money you are offered, if it is lower than the cost
of your repair or recovery. While you may have to do some homework
to prove your reported loss is valid, it's worth it to be certain
your insurer lives up to the provisions of your policy.
Remember, negotiating with an adjuster is just business. Insurers
simply want to settle claims fairly in light of possible fraud.
While it is your insurer's responsibility to root out false claims,
you pay the price in the end. In fact, you spend nearly a dime on
every dollar of your premium to cover the false claims of others.
So, try to keep an open mind when working with your adjuster to
settle on a price that's fair to both you and your insurer.
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Do I need special insurance for a classic car?
You should always talk to your agent about coverage of
rare and valuable property. Since a classic car usually cannot be
replaced, you'll probably want ample compensation if it is lost. A
classic car, because it is rare or unique, may indeed require a
special insurance policy.
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Under what circumstance do I not need certain types of auto
insurance?
While most drivers today are generally insured for
collision and theft, this coverage may not be necessary for every
vehicle.
Liability insurance, as mentioned earlier, is essential and in many
states required. But if you drive a clunker—an older car that isn't
worth much money—you may be able to do without collision insurance.
If you have an accident, repair costs could easily be higher than
the value of your vehicle, thus "totaling" it. This means your
insurer will pay you the total book value of your vehicle, and that
could be far less than the cost of your vehicle's repair. So,
collision insurance may not cover your loss adequately.
Since it depends on special circumstances, ask your agent for
guidance.
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