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The 10 Most Asked Questions About Auto Insurance Answered:Introduction
Why do some people pay more for automobile insurance than others? What types of coverage should I have? How can I save money on my insurance premiums?
The answers to these and other commonly asked questions about auto insurance are explained briefly in this booklet, developed by the companies of the Utica National Insurance Group.
State laws require you to carry a certain amount of auto insurance on the car(s) you drive. This booklet provides some of the basic information you'll need to know about that insurance, which should help you when it's time to talk about auto coverage with your insurance agent.
Question 1:
How are rates determined?
Answer:
Rates are based on experience - not on what has happened to one driver but on what has happened to millions and millions of drivers who share some similar characteristics.
This past experience helps insurance companies predict the likelihood of future losses. It doesn't predict which drivers will have accidents but helps determine the probability of accidents and the severity of losses for a group as a whole. After all, in order for an insurance company to operate effectively for its policyholders, it must have some idea of what its costs will be.
Some characteristics that affect rates involve both the driver and his/her car.
In many states, a driver's age, gender and marital status affect his/her insurance rate. As a group, for instance, single males under age 25 are the most expensive to insure, so they tend to pay the highest rates (see question 2).
In states such as Pennsylvania and California, however, regulations prohibit insurance companies from basing their rates on some of these factors. Check with your insurance agent to be sure what rating factors are considered in your state.
Generally, an individual's driving record will have some affect on his/her rates. A driver with a history of traffic violations and accidents, for example, will pay higher premiums.
The type of car being insured also affects insurance rates in the following ways:
Use - What the car will be used for greatly determines the kinds of risks to which it will be exposed. For example, a businessman or businesswoman who drives to and from work each day through a large city will have more chances of becoming involved in an accident than someone who might make only a trip to the market in the course of a week.
Territory -The United States is divided into "rating territories." Certain areas of the country, particularly some cities, have many times more claims - in number and severity - than other areas that are less congested. So you could pay more, depending on where you live.
Age and Cost of Car - Obviously, there's a vast difference in the cost of replacing a five-year-old Ford Taurus and a brand new Rolls Royce. Some cars cost more, and older cars lose their value. The age and cost of a car affect the cost of insuring it.
Repair Costs ‐Some cars are known to damage more easily and/or to be more expensive to repair.
Theft - Thieves are almost as choosy when stealing a car as you were in buying it. They'll take an expensive sports car before bothering with a broken-down "heap." That sports car, then, is more expensive to insure.
Question 2:
Why do young drivers pay more for insurance?
Answer:
Highway fatalities peak within the youthful driver classification, generally with those under the age of 25. In fact, the motor vehicle death rate per 100,000 people is highest among 18-24 year olds (according to an analysis of fatality data from the Insurance Institute for Highway Safety).
Let's look at three significant characteristics individually:
Age - Statistics overwhelmingly bear out a simple truth: young drivers, as a group, have more accidents than other driver groups. There are several reasons for this. Age reflects driving experience and skill, emotional maturity, and judgment. These, in turn, may affect the amount and type of driving and attitudes toward safety. The cost of losses per insured car are more than twice as high for drivers under age 25 as for those older than that.
Gender - Loss costs for males under age 25 are significantly higher than for females in that age group. This is due to the different driving habits and attitudes of males and females in this age group.
Marital Status-This factor also is more significant when applied to under-age-25 males, only about a fifth of whom are married. Although it's not as simple as the thought that "marriage brings maturity," loss costs still run more than half again as high for the young unmarried male versus his married contemporary. That's because there are real differences in habits and lifestyles, including miles driven and drinking tendencies.
Question 3:
Why are rates higher for smaller and/or newer cars?
Answer:
The cost of your car relates directly to the cost of insuring it, and new cars cost more than old cars. Also, some smaller cars and sports cars damage more easily and more extensively in an accident and cost more to repair.
Question 4:
Why do rates vary among companies?
Answer:
Certain costs make up car insurance prices. The insurance company must layout money for claims - including medical expenses, auto repair costs, lawyer fees and lost wages - and for its own expenses for employee wages, supplies, agent commissions and other costs of doing business. For the most part, each state regulates what an insurance company can charge. But companies have different losses and expenses, so their prices for insurance vary because their costs of doing business differ.
But when you shop around for an insurance policy, don't just look at price. Also consider what your money will get you: coverage, service, the agent's professionalism, and the insurance company's financial strength and reputation regarding claims handling, speed of settlement, and complaint activity.
Question 5:
How can I save money on my auto insurance premium?
Answer:
1. - Take advantage of higher deductibles. A "deductible" is the amount of money you must pay for a loss before your insurance begins to pay. For example, if your deductible is $250 and you have a covered loss of $650, the insurance would pay $400.
Review your deductibles to see what level you can afford. The higher the deductible, the less insurance you're buying and the more money you're saving. Generally, insurance is meant to provide for those losses you can't afford, so it makes sense for you to pay small affordable losses yourself and leave the significant loss expense to your insurance company.
You have deductibles on your auto policy for physical damage coverage, which includes comprehensive coverage (fire, theft) and collision. If you drive an older car that is of little value, you may want to drop collision and comprehensive coverage, because the economic loss would be small if the car were damaged in an accident. Remember, though, that you would have to pay for damages or repairs to your car if you drop this coverage.
2. - Look into discounts that may be available. Discounts vary with different companies, and each state has its own regulating agency to approve a company's insurance policy and its provisions and discounts. It's possible that not all of the following discounts are available where you live, so check with your agent to see whether they apply:
a. - Multi-access discount (when you insure two or more cars with the same company);
b. - Antitheft device discount;
c. - Driver education and/or good student discounts;
d. - Defensive driving course discount;
e. - Good driving record discount;
f. - Passive restraint (airbags and automatic seatbelts) discount;
g. - Anti-lock brake discount;
h. - Car pool discount;
i. - Loss experience discount - Some insurers also offer a discount based on the ranking of a car's "loss experience" - that is, how expensive or inexpensive that car has been to fix, based on previous claims by owners of that model.
Question 6:
What do the following coverage mean?: Bodily Injury Liability, Property Damage Liability, Uninsured/ Underinsured Motorist, Medical Payments, Collision, Comprehensive, Personal Injury Protection.
Answer:
They generally refer to insurance to pay for damages and injuries to others (liability) and insurance to pay for damage to your own vehicle.
In general, the liability policy protects you if somebody takes legal action against you. You have the right to bring suit against someone if you think he/ she was to blame. This action is your own, however, and doesn't involve your insurance company.
Bodily Injury Liability - This insurance applies to you, a family member in your household or anyone with permission to drive your car. It provides money to pay claims for medical expenses or legal judgments against the policyholder that result from injuries or death to passengers in the car, pedestrians or people in other cars.
You and your family also are covered for injuries to others if you drive someone else's car with that person's permission.
Since your car can cause serious injury or death, damages could reach astronomical sums, amounts which few people could pay themselves. The liability portion of your policy is your protection. In fact, most states require that you have certain levels of liability insurance or prove that you have the equivalent in financial resources.
With rising costs and settlements, it's wise to obtain liability limits higher than the legal minimums. These usually can be purchased at a modest additional cost. Consult your agent for specifics.
Property Damage Liability - This covers damage to another person's property when you are to blame.
Uninsured/Underinsured Motorist CoverageYou and your family are covered for bodily injuries you sustain in a hit-and-run accident, injuries caused by someone without insurance, or injuries caused by someone with a policy that doesn't cover all the injury costs. Also covered are guests in your car, you and your family when you're passengers in someone else's car, or you and your family it you're injured as pedestrians. In some states, this insurance is optional, and in most states it doesn't cover property damage.
Medical Payments - Medical expenses are paid for you and your passengers in an accident involving your car, without regard to fault. In states where "no-fault" (question 7) includes medical and other coverages, this insurance isn't as important as it used to be, because benefits are paid under the "medical payments" provision after the "no-fault" limit is passed or if "no-fault" doesn't apply. This provision also covers injuries to you or your family that occur while you're in another car or if you're struck by a car as a pedestrian.
Collision - Collision coverage pays, without regard to fault, for damage to the insured car if it collides with another vehicle or a fixed object (such as a telephone pole) or if the car overturns. Collision does not pay for injury to other people or damage to their property. You must carry a minimum deductible of $100 in most states. Higher deductibles yield lower insurance premiums (see question 5).
Comprehensive Insurance-This pays, without regard to fault, for all other damages to your car not covered by collision. These can include theft, fire, flood, wind, vandalism, falling objects, and glass breakage. There typically is a minimum deductible of $50. Glass coverage may be sold in some states without a deductible.
Personal Injury Protection (PIP) - This is your "no-fault" coverage, in states that have such laws. (See next question.)
Question 7:
What is "no-fault" and how does it affect me?
Answer:
To answer the second part of that question first, it affects you if you live in a state that has passed a "no-fault" law. A number of states have done this, so when you insure or renew, be sure to inquire about the law and its specific provisions regarding dollar amounts.
"No-fault" laws apply to personal injury protection only, not to physical damage to your car. Under the old law, if you were in a personal injury accident, you had to prove who was at fault (legal liability) before any expenses relating to the injury could be paid. This could involve long periods of time and huge legal bills, with no consistent guarantee as to the payment of actual losses.
Under "no-fault," each person's insurance company pays any medical or hospital expenses and lost income immediately, without regard to who is to blame for the accident. Some laws also provide payment of a certain amount per day for other accident- related expenses and a small death benefit payable to the estate of anyone killed in the accident.
You still can sue, or be sued, for damage to property, and in some circumstances may sue or be sued for damages that exceed policy limits.
Question 8:
Am I covered if someone else drives my car or if I rent a car?
Answer:
Yes. If there are other licensed drivers in your household, you should notify your insurance company.
You also should know what provisions your insurance makes for you when you rent a car. It may help you avoid paying for coverage you already have.
Car rental agreements provide the minimum liability coverages as required by law. A rental company may ask you to accept additional liability insurance at a cost to you, accept a deductible ($250 or more - if the car gets damaged, you'd then pay that amount), or pay an additional charge to waive the deductible.
Know your policy's coverage. If you have higher liability limits than the rental agreement, your policy will pay when the rental company's runs out. If you have higher liability or physical damage coverages that extend to non-owned cars, you won't need to buy the rental company's higher limits.
Question 9:
What is comparative negligence?
Answer:
In states with this law, the negligence of people involved in an accident affects the payment of damages. For example, if you're found to be 50 percent to blame for an accident, you would be awarded only 50 percent of the damages you claim. In some cases, if you are more to blame than the other person - 60/40 for example - you can't collect anything.
Contributory negligence is more stringent. In some states with this statute, if you contributed in any way (perhaps were assigned as little as 20 percent of the blame) you can't recover damages at all.
Question 10:
How do I file a claim to get prompt and fair treatment and the maximum amount to which I am entitled?
Answer:
There are some simple yet important procedures to follow to make the experience of an accident and, subsequently, filing a claim easier:
a. - Review your policy. Know what you're covered for, the limits of coverage, and the insurer's obligations to you under the contract.
b. - If you have an accident, give your name and address to the others involved or to a police officer before leaving the scene.
c. - Get the names, addresses and insurance companies of others involved. Also get the names and addresses of any witnesses.
d. - Don't express an opinion about who was at fault. Don't talk about the accident or give any statements or reports to anyone except the police or your insurance representative.
e. - Report the accident immediately to your insurance company representative, even it it appears to be minor. Someone may claim injury later - and blame you. It you don't notify your agent, you may void your coverage because your prompt notification is usually a requirement. Prompt notification also helps your insurance representative get the story of the accident on paper, before time fades important details from your mind that may help later, if the insurance company is called on to present your position. Also follow the accident-reporting requirements of the state you are in and of the local police.
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