Thursday, March 5, 2009

Auto Insurance 101

The past few months have been rather busy at our insurance agency as our policyholders are trying to find ways to save money. I thought I might share some information that could possible help you save on auto insurance. Each state is different in what coverages are called and/or offered so I am going to be as general as possible. I was licensed in all 50 states years ago and with the exception of New Jersey, New York, Massachusetts, and California, insurance policies are fairly the same. As always, talk to your agent about reviewing your policy. This should be done on a consistent basis -usually every 2-3 years to make sure the information is correct. It is amazing how many people set up their policies and then only call when they need to change vehicles or sell their homes. I have been trying to go through our book of business to proactively look for unnecessary coverage that could save our insureds money, but not all agents do this.

When it comes to your auto policy, there are certain coverages that are mandatory based on your state. Usually this is called your liability. It is broken down into 3 numbers and will look like this AA/BB/CC (ie 100,000/300,000/100,000). The liability portion of your policy are the limits you selected to payout in the event you cause an accident. The first number AA is the maximum dollar amount the insurance will payout to any 1 individual injured in an accident. The second number BB is the total dollar amount paid out to all individuals injured in an accident. What that means is when there are more than 1 persons injured in an accident, the insurance company will not pay out more than the limit selected for all their injuries. So if your limit is 300,000 and 4 people are injured in an accident with medical costs of 450,000, the insurance will only pay 300,000 (more on that later). The last number CC is the property damage limit. Property damage includes hitting another vehicle or object such as telephone pole, guard rail, house, etc.

Another item on your policy that is usually mandatory varies in name based on your state. Most states will call it First Party Coverages but other states call it Personal Injury Protection, Tort, etc. This coverage determines your ability to seek financial compensations for injuries caused by others. Basically it is your right to sue and you can choose to have the ability to sue for all injuries and pain and suffering or you can limit your right to sue for only death, permanent disfiguration, drunk drivers, out of state drives. What you can sue for varies from state to state so the previous may not be valid for your state. Medical payments also falls under this coverage and this pays for for your injury arising out of the maintenance or use of a motor vehicle.

The following coverages may be mandatory in your state, but for many these are elective. They include the following:

Funeral benefits
Loss of income
Death,Dismemberment,Loss of sight
Uninsured motorists (pays medical expenses to you if injured by driver without insurance)
Underinsured motorists (pays medical expenses to you if injured by driver who carries insurance but their limits do not cover your costs)
Comprehensive (also called Other than Collision)
Roadside service
Rental Reimbursement

So how do you determine how much insurance you need? Well, that's hard. When it comes to your liability limits, if you cause an accident and the damages are above your limit, you can be sued for the difference. With courts awarding higher pain and injury claims it is wise to select liability limits as high as you can afford or supplement with Personal Umbrella Policies. Insurance companies consider anyone over the age 25 as an adult driver and if you have a clean driving record it is not highly expensive to carry higher liability limits. Just ask your agent for a quote.

When it comes to your First Party Benefits- medical payments, right to sue, etc there are several things to consider. First, with medical payments, do you carry private medical insurance? If so, does your private health insurer cover auto accident injuries? If you have good medical insurance that does cover accident injuries then you may only need to carry the minimum mandatory coverage or in some states opt out of it. BUT first find out if your medical insurance will cover auto accidents before electing to opt out of it! As far as your right to sue, it is a personal decision. You do save money by electing to limit your right to sue versus being able to sue for all medical damages and pain and suffering, but again it is something you have to ask yourself. It is hard especially if you have never been in an accident to know how you would react or if you would want to sue.

Many states offer uninsured and underinsured as optional benefits while others have it mandatory. It is not very expensive and many states allow you to stack the coverage if you have more than one vehicle. So if your limits are 50,000/100,000 and you have two cars with the stacking option it then gives each vehicle medical coverages of 100,000/200,000. There are a couple of states that include property damage to this coverage as well. I always suggest to my policyholders that carry this coverage to select limits equal to your limits of liability. You should insure yourself with the same limits as you insure for others.

Funeral benefits, loss of income, and death coverage are usually the most inexpensive coverages over all, sometimes only a few dollars a year in premium. But when you are trying to save money every penny counts!

Collision pays for damages to your car when you cause an accident and comprehensive covers damage to your car caused by lightening, wind, animals (deer,etc) and others. It also covers damage to your windshield. Comprehensive and collision may be mandatory coverages if you carry a loan on your vehicle. If so, look to see what deductibles you carry. The higher your deductible the lower your premium. But make sure you can afford the deductible -have in emergency fund- and also many finance companies may not allow you to have deductible over $500 for the very reason mentioned. If you cannot afford the deductible you may not get the damage fixed and the value of the car goes down. If your vehicle is paid in full then you may not want to keep comprehensive and collision. The best way to determine this is to find out how much the vehicle is worth. Then compare that to what your deductible is and what you are paying for that coverage. For example, lets say you have a 2000 Pontiac worth $1500. You carry a $500 deductible for collision and pay $500 a year for the coverage. If you have a total loss of the vehicle you will only get $1000 after you pay your deductible. Although that sounds good as it could be used as a down payment for another car, if you think about it you could take the $500 deductible and $500 premium you pay and put that away in a savings account. Plus each year your paying $500 which could be put in a savings account. As usual, it does come down to being a personal decision. Comprehensive is not too expensive even when you carry a small deductible or no deductible. Most people will still carry comprehensive even when they take off collision especially if you live in area like me with a lot of deer and roads that need snow and ice plowing in the winter.

Whew... only a couple more coverages. Rental reimbursement and towing may also be offered. Rental reimbursement will only cover rental vehicles for you when you have a comprehensive or collision claim. It does not cover maintenance issues or breakdowns. Also if you do not carry comprehensive or collision coverage then you may not even be eligible to have the coverage. Same if your state offers towing. This is similar to having AAA coverages but you may see limitations regarding how much your insurance will pay for a service or if you have a tow - how far they will tow as it does not cost you much to carry.

Another important thing to look over when it comes to your policy is discounts. Each state varies in what they will offer or age limitations but the common ones include the following:

Multicar discounts
Multipolicy discounts
Defensive Driver Course (usually anyone over age 50/60)
Accident Free/Forgiveness
Driver Training (usually from age 16-25)
Good Grade (again 16-25)
Anti-theft (if your car has one- and no The Club does not count!)
Air Bags (if your car has them)
Low Mileage (usually less than 7500 miles driven per year)

Plus insurance companies may have different policies depending on your driving record and other factors. Usually they will have a standard rate policy (higher premium) and a preferred rate policy (lower premium). Ask what policy you have and if you are in the higher premium policy review why and when you may be eligible for preferred. Many times it may be due to driving record, lapse of insurance or other factors. Some insurance companies will write the policy at the higher rate and after some time it may be eligible to be put in the better policy.

Also review each driver and car they are listed on to make sure the information is correct.

Again, this information is meant to be a general review of what to look for in your policy and to ask your agent. This is not by any means meant to be used for any claims nor am I endorsing any specific coverage or insurance agency. Just general information to help you better understand your auto policy.

Hope this helps!

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