Auto Insurance Basics |
Understanding the basics of auto
insurance before you purchase insurance is important.
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Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and four U.S. territories. The association’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, it is the oldest association of state officials.
For more information, visit NAIC on the Web at: www.naic.org/pressroom.
It helps to know what is
required by the laws of the
state you live in
so that you will know some basic questions to get answered .
You don't want to be without auto insurance but at the same time you don't want to pay too
much for coverage's you can get for less or maybe don't even need.
Learn about the types of auto insurance available and much more in the sections below.
Car ownership involves many different risks. The most common risk associated with car ownership is a car accident. In a car accident, people may be injured and vehicles (or other property) may be damaged. Damage can also occur through theft, vandalism, or natural disasters.
How auto insurance works:
Auto insurance can protect you against these risks associated with owning a car. Auto Insurance companies provide auto insurance through personal auto policies (known as PAPs).
A PAP is a contract between you and your insurer, specifying each party's rights and obligations. Essentially, your insurer promises to provide specific coverage for you in return for your payment of a premium.
There are a few important steps and terms that you should understand before you purchase your auto insurance policy.
First of all, you need to know how to read and understand an auto insurance policy. Your policy is broken into sections. It discusses types of coverage, rights, and obligations under the policy, and exclusions or limitations.
Your policy will also include information about your deductible, which relates to the damage to your own auto, collision and comprehensive coverage that could occur in an accident.
A deductible is basically a risk that is self-insured. It's an amount of money that you are required to pay before your insurance kicks in. Deductibles can come in any dollar amount, but are generally $100, $250, $500, or $1000.
Balance cost vs. desired coverage.
You need to balance coverage against cost. Choosing the appropriate level of coverage depends on a number of factors, including the value of your vehicle, the value of assets you must protect, the amount of money you can afford to pay out-of-pocket, and your tolerance for risk.
If a claim against you exceeds your coverage limits, you
will be personally responsible for the amount that exceeds the coverage.
To arrive at the cost of your premium, your insurer will
consider the coverage levels you select and will use statistical information about you and
your car.
Evaluate and compare.
Before purchasing auto insurance, you should evaluate and compare the various products offered to ensure that you get the best deal possible.
Compare policies in terms of price, coverage, exclusions, and reputation of insurer. Shop around for different quotes, but make sure you are comparing similar policies. Also, weigh the policy cost against both coverage and quality of service provided.
Your auto insurance policy may include six different types
of coverage. Each coverage is priced separately.
We've provided a description below of six possible types of coverage available.
Bodily Injury Liability
(Minimum Required in most
states)
This coverage does not protect you or your car directly.
Rather, it applies to injuries you, the designated driver or policy holder cause to
someone else.
You and family members listed on the policy are also covered when driving someone else's
car with their permission.
TIP: The importance of having enough bodily liability
insurance cannot be denied, because it protects you from being sued for a large amount of
money.
State minimum coverage limits are too low to protect the assets of most motorists.
Unless your income and assets are minimal, buy at least $100,000 per person, $300,00 per
accident.
Property Damage Liability (Minimum Required in most states)
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.
TIP: State minimum limits average about $15,000. With the average cost of a new car at $22,000, however, buy at least $25,000 in coverage.
Uninsured (UM) and Underinsured Motorist (UIM) Coverage
(Minimum UM required in
most states)
Uninsured motorist coverage applies to
bodily injury you, your family, and other occupants of your vehicle incur when hit by an
uninsured motorist or hit-and-run driver.
This coverage does not cover your property damage and does not protect the other driver.
Uninsured motorist coverage is required by law in most states at a minimum of $25,000/$50,000 for bodily injury only.
Underinsured motorist coverage increases the bodily injury
protection to you and the people in your car up to the amount of coverage you purchase.
It becomes effective when the party causing an accident has lower bodily injury liability
limits than your UIM limits
TIP:
UM coverage is very
crucial.
You should buy this coverage at the same limits as
your
bodily injury liability coverage.
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.
TIP:
Unless your health and
disability coverage is slight,
buy only the minimum required in your state.
Collision (Optional)
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 have new car with a loan, you will be required to buy this coverage.
Comprehensive (Optional)
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.
Lenders will also require this coverage.
TIP:
For both Comprehensive and Collision, be sure to choose
a deductible that you can afford. Remember, the higher the deductible that you carry, the
more you'll save.
For optimum savings, you should carry at least a $500 deductible on each car.
TIP:
Comprehensive and
collision coverage is not for everyone. If your car is worth less than $3000, you should
pass on comprehensive and collision. In fact, the premiums that you'll pay over time will
probably exceed the payout, even if your car is totaled.
With most auto insurance policies, you can customize your policy to your needs by adding the following optional features:
Towing and labor:
Pays for towing and labor costs each time your car is
disabled.
However, this coverage only pays if you can't drive your car away from an accident.
If you belong to an auto club with such privileges, you do not need this option.
Pays for a rental car if your car is damaged by a situation
covered by comprehensive or collision coverage and if your car is out of commission for
more than 24 hours.
Spare yourself paying this added expense if you have another car that you could use in a
pinch.
Will reimburse you if your windshield is
cracked or shattered.
This option can add up to 20 percent to your comprehensive premium.
If it's not built into your premium, forget it.
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