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What You Should Know About Car Insurance
"If everything seems under control, you're just not going fast enough." — Mario Andretti
"Few things are harder to put up with than a good example." — Mark Twain (1835-1910)
"The average person thinks he isn't." — Father Larry Lorenzoni
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The first thing to remember about car insurance is that the insurance contract, or policy, covers vehicles, not drivers. Most car insurance policies only cover those automobiles owned by the policyholder--usually the one who pays for the policy. Often the contract can be very explicit about which drivers within the household of the policyholder are covered and which ones are not. Drivers within the household who have been unfortunate or unwise enough to have past difficulties with the law (such as, excessive speeding tickets, accidents, DUI convictions, etc.) may be explicitly prohibited from driving any of the covered vehicles. On the other hand, many insurance companies will extend the insurance policy to any vehicle driven by drivers within the household whom the insurance company has pre-approved. The insurance company will designate which drivers qualify for this privilege and may require an additional premium for this expanded coverage. Unless the policy specifically states that you are covered when you're driving other cars, then you are not!
In most cases, if someone outside of your household has an accident while driving your car, they are covered by your policy. The policy should cover potential damage to your own car and any other vehicles involved in an accident, property damages or personal injuries caused by your car, and reimbursement of medical expenses for the driver and passengers in your car.
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Every state requires either insurance or "proof of financial responsibility." The last phrase means that if you have sufficient assets to guarantee that you can pay all of the expenses caused by an accident for which you are at least partially at fault, then you don't have to carry insurance. Frankly, I've never met anyone with that much money. Consider the following scenario. Assume that you hit a car driven by a young student who is attending Old Yeller Law School. As a result of the accident, the student is (you can pick from the following list or add others to it, limited only by your imagination) not longer handsome or beautiful, unable to read, unable to concentrate, unable to walk as they once were, unable to control their emotions, unable to live free of physical pain, unable to enjoy marrital relations, unable to swing a golf club as well as before the accident...I'm sure you get the idea. As a result, you may be held liable for the student's present and future loss, percieved or real. Not even bankruptcy can save you from this type of judgment! Incidentally, there are court cases resulting in huge awards to plaintiffs claiming every one of these complaints. The moral to the story is to make sure that you are insured!
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While certain types and levels of auto insurance coverage may be legally required in your state, there are other coverage options that you may find useful. Here are some other types of coverage that may be appropriate for you.
- Classic Auto Coverage for a high value, older model vehicle.
Example: 1915 original condition Ford Model T.
- Antique Auto Coverage for an older car that has value and isn't used for everyday transportation.
Example: 1950 Chrysler Windsor
- Exotic Vehicle Coverage for that one-of-kind, special edition or limited production car.
Example: 1975 Indy Pace Car
- Modified Vehicle Ccoverage for the unique changes you've made to your vehicle.
Example: race cars
- Street Rod Coverage for that replica or older vehicle you take to car shows and events or may occasionally drive.
- Umbrella Ccoverage comprises a blanket policy that combines and extends homeowners and auto insurance liability coverage to larger amounts of protection
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Whether we like it or not, the cost of insurance varies significantly between neighborhoods. Where you live and the neighborhood through which you habitually drive your car drive is of concern to insurance companies. Regardless of the city in which you live, it is inevitable that the probability of thefts, incidents of vandalism, and accidents will vary, and some areas will be more likely to lead to an insurance company's having to settle property and liability claims. For example, when I moved from Pasadena, California, to Eugene, Oregon, my cost of insurance dropped by 50%.
It should seem obvious that the value of car you drive determines the size of the insurance payments. What may not be so obvious is the reason for the differences. Here are some of the reasons:
- Certainly, the value of the car is one factor. If you drive a $250,000 Bentley, then the insurance company assumes a much greater risk (in terms of cost of repair or replacement) than for a $25,000 Toyota.
- Some cars have the dubious distinction of being stolen more often than others. For example, a Honda Prelude is a more frequently-stolen car; consequently, it represents a higher than usual risk of loss to the insurance company than most vehicles. On the other end of the scale, some cars could be left with the windows down, the engine running, in a back street of a city, at night, and it would run out of gas before anyone would drive it away. I've had three of those cars; you probably have, too.
- Some cars are deemed to be more likely to be used in an unsafe manner than others. A high-powered sports car will cost more to insure than a family sedan of the same value.
- Under some conditions, insurance is simply more difficult to get; therefore, it is more expensive. Newly-introduced cars, cars built earlier than 1980, large trucks (one ton or larger) used as personal vehicles, student drivers, military stationed in another state, delivery vehicles (number of miles the vehicle is at risk is too high), and so forth.
Insurance rates always will be affected by any moving violations that drivers have received over the past three years. Convictions for DUI and "at fault" accidents affect the cost of insurance even more severely. Each driver that lives in the household and has access to the vehicle being insured will have their driving record assessed, and the worst driving record will determine the cost of the insurance.
Statistically, younger drivers get in more accidents and tend to get more tickets than older drivers. Driving experience has a lot to do with this, and it's reflected in the cost of insurance.
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Unlike the preceding list of "downers", there are some things that will lower the cost of your insurance premiums. Here are the items that are easiest to control.
As you might suspect, if being young raises rates, being older lowers them. Like gender, this one is basically out of our control. People over 50 tend to drive less and more sedately. While it isn't always the case, insurance companies' perception of their risk is more favorable if you have managed to survive the streets for a half century or more.
The deductible is a lower limit of expense for which the policy owner is liable. For example, if the accident repair bill for a car is $900 and the deductible is $500, then the policy owner pays the first $500 and the insurance company pays $400. Lowering the deductible places the insurance company at greater risk, and guess what? The premium goes up. Conversely, raising the deductible lowers the premium.
Lowering the coverage limit lowers the maximum amount for which you can hold your insurance company liable. So, if the company is at risk for less money, then the premiums will be lower.
If you do not have a good driving record, then change your driving habits and style. Eliminate the tickets, and they will usually be dropped from your record in 3 years. Take a defensive driving course. Taking the course, in and of itself, will lower your premiums with some companies.
Do you wonder why insurers will lower your car insurance premiums if you don't smoke? The reasoning behind this discount is based on two thoughts. First, driving a car is an activity that requires that all of a person's skill, attention, and both hands be used at all times. Second, finding that smoke, prepping it, lighting it, flicking it, and extinguishing it all occupy at least a small part your attention and all of least one hand part of the time. So, insurance companies consider this decreased attention and control sufficiently risky to raise your premiums if you smoke.
If you have a number of insurance policies, you should consider placing them all with one insurer to lower your costs. Many insurance companies offer homeowner's, car, and life insurance for this very reason.
This, unfortunately, is not a variable in most people's minds; however, but women do get a break on insurance. Men have more accidents and get charged a greater amount for insurance.
If you drive for a significant period of time without a claim, many insurance companies will lower your premium. What amount of time is considered to be "significant" varies company by company. Check with your insurer
about this.
The fewer miles you drive, then the smaller will be your risk. If you drive only a few miles per day, then your premiums should be much lower. Living near where you work can make a difference in your premiums.
Having a car with an antilock braking system (ABS), antitheft devices, and passive restraint systems (such as seat belts and air bags) can reduce your premiums.
Over 50% of garage owners put something other than their cars in them. If your car is left in your driveway every night, it exposes it to increased risk of vandalism, theft, and early obsolescence. Having it protected inside a locked garage may well decrease your premiums.
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Interestingly, you may transfer collision and comprehensive insurance coverage to a substitute vehicle (whether it is rented or borrowed) if it is damaged while being operated by you or members of your household with the consent of the owner. There is no coverage for family friends or significant others-only family members. This coverage is only available if you rent or borrow a private passenger car (not truck!) in the United States or Canada. If you are renting a truck, buy the rental company's insurance for the truck. If you are borrowing a truck, make dead certain that the owner has current, sufficient collision or comprehensive coverage or don't borrow it. If the owner does not have insurance, you may be personally liable for any damage to that truck which is the result of your negligent operation. Business use of any borrowed or rented vehicle is typically not covered under your personal auto insurance policy.
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Like most areas of specialized knowledge, the insurance industry has developed a language of its own. So, although the terms below are commonly understood, they can be confusing to someone who doesn't work with them continually.
Bodily Injury Liability is insurance coverage that pays for another person's bodily injury, death, or dismemberment in an accident for which you are held responsible. This coverage also helps to pay for an injured party's medical expenses and lost wages, and expenses for a related lawsuit. The amount paid by bodily injury liability coverage is capped at the limit you purchase.
Property Damage Liability coverage protects you for damaging someone else's property in an auto accident for which you are held responsible. Property damage coverage helps you reimburse another person for their damaged property (such as a car, a fence, or a home) and helps to pay your expenses in any related lawsuit. The amount paid by property damage liability coverage is capped at the limit you select.
Personal Injury Liability coverage pays medical bills and/or funeral expenses if a covered driver and/or accompanying passengers are injured or killed while in an insured vehicle in an accident. The coverage also may cover policyholders and their family members when in others' vehicles, or when policyholders and their family members are on foot and hit by a car. Be certain that you understand what your insurance company is actually providing at the time you purchase the policy. Lower premiums may be the result of poorer coverage, so make certain you carefully question the precise coverage being offered. The maximum amount that will be paid toward medical expenses is selected by the policyholder at the time you purchase the inisurance.
Collision coverage helps to pay for repair to or replacement of your car if it is in an accident. The accident does not have to involve another vehicle or object; that is, it could be a single car accident, such as a rollover or skidding off of the road. The maximum amount paid for repair or replacement is the car's actual cash value, less the amount of the deductible you select. If the cost to repair the car exceeds the cost to replace it, most insurance companies will pay you only the wholesale value of your car.
Comprehensive coverage pays for all non-collision losses to your car, such as theft, fire, flood, hail, falling tree limbs, vandalism, glass breakage due to road gravel, and the like. Some insurance treat animal strikes (such as deer, dogs, etc.) as collision claims rather than comprehensive. This is another item to verify with your insurance company before signing the dotted line.
Uninsured Motorist Bodily Injury coverage pays the medical expenses, lost wages, and other damages for you and any passenger if your car is struck by an uninsured driver. Uninsured Motorist Bodily Injury coverage will pay your medical bills, up to the maximum amount you select when you purchase the insurance if the other driver has no insurance coverage whatsoever.
Underinsured Motorist Bodily Injury (note that this is underinsured, not uninsured) coverage pays the medical expenses, lost wages, and other damages for you and any of your passengers if your car is struck by underinsured driver. If the driver of the other car didn't carry enough bodily injury coverage to pay all of your medical bills, then your Underinsured Motorist Bodily Injury coverage makes up for the shortfall. The maximum amount paid by this coverage is capped at an amount you select when you purchase the insurance.
Uninsured Motorist Property Damage pays for damage to your vehicle if it is struck by an identified, at-fault, uninsured driver. With some insurance companies, this option is only available to you if you do not purchase collision coverage.
In some states, both uninsured and underinsured motorist bodily injury are bundled into a single coverage. In the states where it is offered, this coverage may be mandatory. This coverage does not pay for damage to your vehicle. If you have collision coverage, the vehicle repair or replacement will be covered by that part of your policy. If you do not purchase collision or comprehensive coverage, you can purchase uninsured motorist property damage coverage.
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