Owning a car is not a status symbol but an essential fact of life. Since the home and workplace are not very close, commuting by car could not be avoided by anybody. When you drive an automobile, the possibility of accidents could never be ruled out. It is quite likely that others would be involved in an accident and bodily injury or even fatality could easily occur. The other parties could make a claim for medical expenses or adequate compensation against you. Even a lawsuit might be filed against you to recover the losses. The losses would generally include property damage, medical expenses, and wage losses, as well as physical and mental pain and suffering. In case of a lawsuit, the attorney fees would also add up to the outlay. The claim amounts could be quite substantial. If you do not have proper insurance coverage, your assets might be taken away to meet such claims.
State Financial Responsibility Laws
Liability insurance coverage is compulsory for all drivers in all the states of the United States. The normal minimum liability insurance limits are $25,000 for bodily injury per injured person, $50,000 total for each accident, and $10,000 for property damage in most of the states. This is referred to in the insurance industry as 25/50/10. However, these limits could be higher or lower in a few states, such as 50/100/25, 25/50/5, 25/50/25, etc. Driving a vehicle without this bodily injury liability insurance coverage is a legal offense in US.
In some states, other insurance coverages like uninsured/underinsured motorist coverage, comprehensive coverage, and collision coverage might also be legally required. For example, in Wisconsin, every driver should compulsorily purchase liability insurance coverage for bodily injury, liability insurance coverage for property damage, and uninsured motorist insurance coverage. In Florida, a personal insurance policy should be compulsorily purchased by every driver for a minimum amount of $10,000.
Types of Insurance Coverages
Auto insurance coverage is quite a huge and complex subject. The types of coverages available in most of the states in the United States could be confusing at times and it might be difficult to choose between them. However, all of them would not be needed for every driver. Depending on the amount of risk in your area, you should be able to select the most important coverages that would provide you adequate insurance coverage to meet any eventuality. Still, a list of the various auto insurance coverages is provided here and the most important of them are briefly explained.
- Bodily injury liability coverage
- Property damage liability
- Comprehensive coverage, other than collision, COMP, and OTC
- Collision coverage
- Uninsured motorist bodily injury coverage
- Underinsured motorist bodily injury coverage
- Uninsured motorist property damage coverage
- Underinsured motorist property damage coverage
- Personal injury protection coverages
- Additional personal injury protection coverage
- Personal injury protection plans
- Basic reparation benefits
- Additional reparation benefits
- First party medical benefits
- Medical payments coverage
- Work loss coverage
- Loan/lease GAP insurance
- Rental car reimbursements
- Towing and labor coverage
- Accidental medical protection plans
- Accident death benefits coverage
Bodily Injury Liability Insurance Coverage
The bodily injury liability insurance coverage would protect you against the claims of medical expenses, wage losses, and pain and suffering, when other persons had been injured in an accident with your vehicle. This coverage would also meet the claims when your car had been driven by a member in your household or another person used your car with your permission and an accident occurred, causing injury to others. However, this coverage would not pay for the repairs or replacement cost of your car. Moreover, the claim could be made only up to the maximum limits of the insurance policy.
Property Damage Liability Insurance Coverage
The property damage liability insurance coverage would cover the damage caused by you to the car or property of another person. A crushed fender, broken windows, damage to a fence or a wall, damage to a government property like a signpost or a light pole, etc. would be covered by this policy up to the policy limit, whether you were driving the car and another person was driving it with your consent.
Uninsured/Underinsured Motorist Insurance Coverage
It is quite possible that the other person involved in an auto accident could either be uninsured or underinsured. Otherwise, it could be a hit-and-run accident, where the other driver could not be identified. The uninsured/underinsured motorist insurance coverage would protect you in such circumstances. This policy would also cover you and your family members if struck by an uninsured/underinsured or hit-and-run driver while walking and injury occurred. The minimum statutory limit for this coverage would be $25,000/$50,000 in most states but could be $50,000 per person and $100,000 for all persons per accident in some states.
Medical Payments Insurance Coverage
When you and other persons had been injured or died in an accident, this medical payments insurance coverage would protect against the medical or funeral expenses up to the limits of the coverage. This would include all reasonable hospital, surgical, dental, professional nursing, x-ray, chiropractic, prosthetic, and other rehabilitation expenses. However, only those expenses not covered by health insurance schemes would be covered by this policy. This coverage would help you meet the above expenses even if you or your family members were at fault in the accident or were struck as a pedestrian.
Collision Insurance Coverage
Collision Insurance Coverage would help you make a claim if your car collided with another vehicle or an object, or if your car overturned. The coverage would pay for the physical damages due to the accident, irrespective of the fact as to who was at fault. However, this coverage would pay for the repair costs or the replacement cost of the actual cash value of your car, if the car had been totaled in the accident. The insurance company would declare the car as totaled if the damages exceed 70% of the actual cash value of your car.
Since the premiums quoted by insurance companies are based on the type of car you own, its make and model, you should assess the current market value of your vehicle. You should also evaluate whether you would be able to afford another similar car if the present car was totally destroyed in an accident. If your car is new and costly, your insurance premiums would be quite high. On the other hand, if your car had decreased in value to such an extent that you could afford to repair or replace it at a cost lesser than your annual premium, then you need not buy this coverage.
Comprehensive Insurance Coverage
The comprehensive insurance coverage policy is known as coverage for ‘Acts of God’, like theft of a car by a third person or damage to the car due to fire, flood, animals, vandalism, cyclone, falling objects, hailstorm, civic commotion, or other such unforeseen and uncontrollable natural events. However, this coverage would exclude damages due to collision or accident. This insurance policy would cover you even if parts of your car are stolen or damaged by any of the above causes.
If you apply to a bank or other lenders for a loan to purchase your car, the lender would insist that you buy collision coverage and comprehensive coverage along with the statutory bodily injury liability coverage for sanctioning the car loan.
Personal Injury Protection Insurance Coverage or PIP
The personal injury protection insurance coverage would protect you and other passengers in the vehicle including any pedestrians struck by the vehicle. The medical and hospital expenses could be claimed back. If a death occurred due to the accident, this PIP would help you in claiming the funeral expenses also. The PIP coverage would assist you irrespective of who had been at fault in the accident. If you do not have a health insurance, buying a personal injury protection policy is highly desirable. This policy is also recommended if you drive frequently with number of co-passengers.
Factors Influencing Insurance Underwriting
Insurance companies base their quotes of auto insurance premiums on several factors. As such, the quotes for the same person could vary widely from one insurance company to another, depending on the individual risk assessment by the insurers. Normally, the following factors are taken into consideration by insurance companies in evaluating the risk of a particular driver.
Age, Marital Status, and Sex of Drivers
In the insurance industry, persons below the age of 25, particularly teenagers, are considered as high risk, since the statistics reveal that they tend to be reckless, negligent, and speed beyond accepted levels. As such, premium quotes when such persons are included in the coverage would be much higher. Similarly, single persons are held as higher risk than married persons. Again, women are considered as lesser risk than men, since they are normally less aggressive in driving. Persons between the age of 25 and 50 are considered medium risk by insurance companies, while persons between the age of 50 and 65 are held as the safest drivers. Even the driving and accident records support this kind of thinking. Hence, the insurance premium quotes would vary for each group.
Driving History and Records
The next item in the evaluation of insurance companies is your past driving record. In general, the insurance companies look at the past 3 or 5 years of your driving record and the driving history of other persons listed in the application for the insurance policy. If the accidents and violations during this period had been less or nil, then your premium quotes would be the lowest. They would increase proportionately with each accident and traffic violation.
The make, model, and year of your car are an important factor in the decision taken by the insurance companies for fixing your auto insurance premium. If your car is not a costly one, the insurer would understand that the maintenance and repair costs, as well as the replacement cost if the car is totaled, would be lower. Hence, you would be offered a lower premium quote. On the other hand, flashy vehicles like cars with high-power engines, multi-purpose utility vehicles, sports cars, etc. would naturally attract high premium quotes.
Area of Your Driving
Each state is divided by the insurance companies into several areas according to the risk levels. It is obvious that a person driving a vehicle in a crowded city is more likely to get involved into accidents than a farmer in a remote county driving occasionally for purchases and sales. Hence, drivers in cities and towns would be offered a higher insurance premium quote, compared to people living in counties.
The Mileage Factor
The insurance companies would expect you to state explicitly how much driving you and your family members would be doing in a day, in a month, and in a year. If you would be driving only a few miles a day and not be using your car for too many long-drive vacations, then the premium quote would be significantly lower. On the other hand, if you had to drive long distances for commuting to your work or using your car for long vacations during weekends, then the insurer would hike up the insurance premiums ruthlessly. You should not blame the insurer since you are a much higher risk, as far accidents are concerned, due to the high-mileage driving indulged by you.
Credit Rating and Past Insurance Record
Another major factor that the insurance companies consider is your credit rating and your past insurance record. Poor credit scores would make the insurance companies assume that you would not be prompt with your premium payments or the payment of your agreed deductibles in case of an accident. Naturally, they would either totally refuse auto insurance or jack up the premium rates steeply. However, this need not be a cause for despair but should be taken a blessing if you have a poor or no credit rating. Even if you had to pay high premiums on your car insurance, you would be able to improve your credit rating significantly, if you pay the premium amounts promptly.
Normally, the insurance companies place the applicants for auto policy into three categories. They are termed in insurance parlance as preferred, standard, and non-standard.
Preferred category of persons are the safest drivers in the assessment of the insurance companies and hence the best risks. Persons with clean driving record in the past 3 to 5 years are included in this category and they would obtain the lowest premium rates.
Standard category people are persons with moderate risk. They would be offered premium rates higher than the drivers in the preferred category. Normally, persons with reasonably clean driving history and having family-type cars would be considered for this category.
Non-standard category is for drivers held as high risk people. Persons under the age of 25 with very less driving experience, drivers with drunk driving or reckless driving history, drivers involved in many accidents in the past 3 to 5 years, drivers having a record of several traffic violations, and drivers with poor credit rating or bad premium payment history would be included in this category. The auto insurance premium for such people would be quite steep. Sometimes, a few insurance companies might even refuse to provide insurance coverage to a few persons in this category.
Ways to Obtain Lower Premium Quotes
Even though the premium quotes are offered by auto insurance companies based on the perception of the risk factor associated with you, it is possible to lower the premium cost if you are able to understand the factors that could help you negotiate better terms with the insurance companies.
Safe Driving Record
The driving record is among the highest factors that influence the insurance premium rates. If you have a driving history of no accidents in the past 3 years, you would automatically qualify for a 5% discount. If your driving record has a few accidents in the recent past but you were not at fault, you should attach documents to prove this, if you have them. Otherwise, you should prepare a detailed report about the accidents and attach it to your auto insurance application. If you were at fault in the past, then you should purchase the auto insurance at a higher premium rate and utilize the next one year to improve your driving record. If you would be able to show the insurance company that you had been a responsible driver in this one year, you would be able to get a lower premium when your auto insurance comes up for renewal.
You should not make the mistake of omitting any past driving record out of fear. If the insurance company finds out about the omitted fact at a later date, it could refuse any claims that you make or even cancel the insurance policy. Always remember that drunk driving is one of the most serious offenses in the eyes of the insurance companies and avoid it at any cost. Further, most of the insurance companies would refuse to include a teenager with a drunken driving record and even deny you an insurance coverage for including that teenager in the auto insurance policy.
Nearly all the auto insurance companies offer various types of discounts to attract clients to them. The most important discounts offered by insurance companies are briefly presented here.
If you purchase your auto insurance, life insurance, health insurance, and home insurance with a single insurance company, normally, you would be able to obtain up to 15% as package discount.
If you have more than one car, then insuring all of them with a single insurance company would help you in getting discounts, usually up to about 10%.
If you are including a teenager in your policy who is a student, you could obtain discount between 10% and 20% as good student discount, provided the student maintains a minimum ‘B’ grade or a better average than that in school or college.
A few insurance companies offer discounts between 5% and 10% for persons who do not smoke. If you are not a smoker, you could bring that fact to the notice of the insurance company and request a discount.
Installation of safety devices like seat belts, air bags, anti-lock brakes, child protection devices, etc. and security devices such as burglar alarm, anti-theft device, etc. would induce auto insurance companies to offer discounts up to 40%, particularly on medical payment coverages for drivers and other passengers in the car.
If you are applying for comprehensive and collision coverages, you could obtain lower premiums by offering a higher deductible to the insurance company. Normally, the deductibles on collision coverage vary between $100 and $1,000, while the deductibles on comprehensive coverage range between $100 and $500. By committing a deductible higher than this, you could induce the insurance company to lower your insurance premium rate.
If you do not get involved in any major accidents during the tenancy of the auto insurance policy, the amount saved by the lower premium rate would more than compensate the higher deductible that you might be forced to pay in case of an accident. However, you should assess your ability to meet the actual financial demand that would occur in an accident. For example, if the actual loss in an accident is $500 and you had committed a deductible of $250, you would be paying $250 out of your pocket and would be collecting $250 from the insurer. On the other hand, if the loss is less than $250, you would pay the entire amount and the insurance company would not compensate any amount. Hence, if you commit more than $1,000 as deductible, you should evaluate whether you would be able to pay that much amount if an accident occurs and the loss is substantial.
In several states, senior citizen discounts, military personnel discounts, etc. are also offered. Similarly, the premium rates are the highest for unmarried males in the age group of 17 to 29. As the age increases, the premium rates are reduced. The ‘young driver’ surcharge is removed when the driver crosses the age of 25. You should discuss with your insurance agent in detail about the various types of discounts available and which kind of discounts would you be able to claim.
Procedures to Adopt When Involved in an Accident
If a person is hurt or killed in an accident or if property damage had occurred that could exceed $1,000, it should be reported immediately to the police. You should also exchange your insurance information with the other driver involved in the accident, if such is the case. If you had been involved in an accident or if the car is stolen or damaged by vandalism, the police report would be the best help for you in making a claim with the insurance company. Even something that looks like a minor dent could result in damage claims worth several hundred dollars.
If you had been involved in an auto accident with others, make it a point to note down the names and addresses of the persons present in the vehicles, license number of the vehicle/s involved in the accident, the social security numbers of the persons present, and the details of witnesses if any. You should also write down the make, model, and year of the vehicles, the time, date, and location of the accident, the road conditions, the insurance information about the persons involved in the accident, apparent injuries and damages, and your version about the accident. This would help your insurance company process your claim faster.
Inform your insurance company or your insurance agent about the accident and cite your insurance policy number while giving the above details. Fill out all the necessary forms as soon as possible and provide all the relevant data and documents. The insurance company would invariably request for access to your vehicle to assess the damage. They would also need copies of medical bills and proof for other losses like wage losses.
You should also note down the names, times, and dates of the discussions with the police, the insurance company personnel or your agent, lawyers, the other parties involved, and witnesses, along with any promises or commitments made during these discussions. You should save all the documents and receipts related to the accident and provide copies to the insurance company to support your claim.
Filing a Claim after Accident or Other Loss/Damage
It could be that you had been involved in an accident. Otherwise, your car might have been stolen, damaged by flood, fire, or vandalism. In such circumstances, you would have to file a claim with your insurance company adopting certain set procedures. They are presented here briefly for your guidance.
Talk to your insurance agent at the earliest. Find out what documents and forms should be submitted to the insurance company to support your claim. You would invariably need to submit a ‘proof of loss’ form, along with documents supporting your claim, such as repair bills, medical bills, copy of police report, etc. The insurance company might wish to inspect the accident site and even take photos of the accident for estimating the excess of damage. If more than one vehicle had been involved in the accident, the insurance company might want to speak with all the persons injured in the accident. Hence, the insurance company should be notified immediately after an accident, so that the insurance claim is not denied later.
Furnish in detail all the information required by the insurance company and cooperate with the investigation conducted by it for settlement or defense of your claim. If a claim is brought by a third person against you, the insurance company would represent you to settle the claim. If you are sued by a third party for a claim, again your insurance company would defend you against the claim, since you are covered by your auto insurance policy.
You should meticulously keep all the records of the expenses incurred by you because of the accident or the adverse incident. Your policy would ensure that you be reimbursed these expenses. You should also maintain copies of all the paperwork in a separate file, since they might be required at a later date.
If your vehicle had been damaged or lost, the coverage is based on the actual cash value of the vehicle at the time of accident or loss, which would be assessed according to the current market value of the vehicle. The insurance company would expect you to provide more than one written estimate for the repair costs. The insurer would compare the estimates and would allow you to repair the vehicle at the lowest possible cost. If you repair your vehicle at an auto repair shop other than the one suggested by the insurance company, the insurer might ask you to bear the excess over the minimum estimate while settling your claim.
If the damage to the car is more than 70% of the actual cash value or current market value of the car, then the insurance company would declare the car as ‘totaled’. Insurance companies would usually use outside sources like the National Automobile Dealers Association Used Car Guide, known as Blue Book, or the CCC Information Services, Inc. Guide to assess the current market value of your car. If you have any doubts about the value estimated by the insurance company, you would be able to request the process by which the value was determined. In this process, you should submit all the information that could affect the value of your vehicle to the insurance company if asked for by it.
If the car is totaled, then it might come down to hard bargaining with your insurance company for replacement cost of the car. If you are able to submit written price quotes for a similar vehicle from several used car dealers, supported by used car ads in newspapers, you might be able to obtain a higher amount than the one originally presented by your insurance company. However, the estimates of the replacement cost should be realistic and should not be based on the sentimental attachment that you had with the vehicle.
Sometimes, you or the other party might make a claim for pain and suffering. The amount that could be claimed would depend on the type of medical treatment undergone by the injured and the duration of the treatment. However, proving the actual level of pain and suffering would not be easy. A certificate from the physician and the prescriptions for pain medication or sleeping pills could be attached to support the claim for pain and suffering. Majority of states allow claims for present and future medical expenses, lost wages, damages to property, loss in earning capacity, pain and suffering, and mental anguish. Hence, the claim should be prepared carefully. If necessary, the insurance agent, the physician, and an attorney could be consulted in this delicate process.
Sometimes, the other party who is at fault might not be forthcoming on providing information about his/her insurance company or might refuse to meet your claims. Under such circumstances, a police officer might be able to help you at the site of the accident. If no remedy is found, you might need to engage an attorney to file a lawsuit against that person in a court of law. Normally, when a person receives a court summons, that party or his/her insurer would approach you for negotiations. Moreover, court might be the only solution if the other party does not have any insurance.
Tips for Consumers on Auto Insurance Policy
- You should read the policy carefully. Auto insurance policy document is a legally binding contract. Your rights and responsibilities under the policy, as well as the rights and responsibilities of the insurance company are clearly written down in the policy and it is important that you understand them thoroughly.
- Assess your exact auto insurance needs and approach an insurance company that could meet your needs. An insurance company that could insure not only your vehicle but your life, home, and health would be ideal, since you would be able to get discounts up to 15% on the premiums for placing all these insurance coverages with a single insurer.
- Estimate the maximum coverage limits that you would be able to afford and ensure that the coverages would help you meet any unforeseen eventuality but you need not buy more than you might actually need.
- Before you commit yourself to a particular insurance company, you should shop around extensively, since quotes for the same coverage would vary considerably from one insurance company to another. You should remember that a few hours of research could result in the saving of hundreds of dollars annually.
- You should choose an insurance company with a very good claims record. If you are not sure, you could contact the OCI and find out about the complaint ratio of the insurance company.
- As for as possible, you should buy only a ‘low profile’ vehicle. You should check the insurance costs for a particular vehicle before buying a new or used vehicle. The insurance companies hold that certain makes and models would be expensive to repair or had been frequently stolen in the past. The insurer would fix a steep premium for such vehicles. Your insurance agent would be able to guide you in this matter. You should consult the agent before making a buying decision.
- You should avoid paying cash but give only a check or money order to the agent or the insurance company, so that proof of payment exists.
- If you pay your auto insurance premium in a single payment, you would be able to obtain a discount or save on service charges. This would not be possible if you opt for monthly or quarterly payments.
- Being a safe driver is the best possible method to keep the auto insurance premium rates low. You should continue to try in improving your driving record.
- For assessing the coverage limits, you should consider the annual premium amount, the benefits like coverage limits and exclusions, the process of making the claim, renewability of the auto policy, reliability and financial strength of the insurance company, and the management policy of the insurance company.
‘Who is at Fault’ Laws
The answer to the question of ‘who is at fault’ varies from state to state. Some states follow a system known as ‘comparative negligence’, while certain other states follow the system termed ‘contributory negligence’. In the comparative negligence system, the percentage of blame on both the parties involved in an auto accident would be determined. Each party would pay the percentage of the damage to the other person. For example, if you are held as 25% responsible for the accident and the other driver is held as 75% responsible, you should pay 25% of the total damage claims arising out of the accident, while the other driver would bear 75% of the claims.
Under the contributory negligence system, if a person is found to be more than 50% at fault, then that person would be required to meet the total claim in the accident. Normally, a person entering a roadway should respect the ongoing traffic and yield to it by waiting until the road is clear for proper entry. If this rule is not followed, then the driver would be held as at fault. A few states in US follow a third system known as ‘no-fault system’. Under this system, irrespective of which driver had been at fault, the insurance company of the person having the auto insurance should pay the damages. You should be aware of the system being followed in your state to obtain adequate coverage and protect yourself in case of an accident.