Auto Insurance FAQ
Why is auto insurance sometimes referred
to as a packaged policy? What are the parts of the package?
I have an older car whose current market
value is very low - do I really need to purchase automobile insurance?
Suppose I lend my car to a friend; is that
covered under my auto insurance policy?.
What does my auto insurance policy cover
when I rent a car?
What is the difference between collision
physical damage coverage and comprehensive physical damage coverage?
What should I do if I have an accident?
Why does the premium for my auto insurance
go up if I have an accident or get a ticket?
What factors affect the cost of my auto
insurance?
What should I consider when buying auto
insurance?
Why is auto insurance
sometimes referred to as a packaged policy? What are the parts of the
package?
Before the 1950's, if you wanted to purchase all the coverage today's auto
insurance policy provides, you would have had to purchase at least four separate
policies. Changes in the laws that regulate the sale of insurance now allow
the insurance industry to sell policies that combine the separate parts into
one all-encompassing policy. The main advantages of combining the parts are
lower expenses, and therefore a lower cost to consumers, and the convenience
of being able to purchase property, auto liability and other types of coverage
in a single policy.
Part A of an auto policy is liability coverage
that protects you from lawsuits arising from either negligent operation
or ownership of a covered automobile. There are two types of coverage
in Part A - bodily injury liability (BIL) and property damage liability
(PDL).
- BIL covers the bodily injury claims of people you negligently
injure in an accident.
- PDL covers any third party property damage claims the courts determine
you must pay.
Part B provides medical payments to you and any other passengers
in the car in an accident.
Part C provides uninsured motorist and underinsured motorist
protection for the policy owner.
Both B and C are designed to compensate
you when the negligent driver doesn't have enough liability insurance
under his/her policy. Typically, Part C covers only bodily injury losses,
but property damage losses are included in some states.
Part D covers damages to your car when it is involved in
an accident.
I have an older car whose
current market value is very low - do I really need to purchase automobile
insurance?
Most states have enacted compulsory insurance laws that require
drivers to have at least some auto liability insurance (Part A). These
laws were enacted to ensure that victims of accidents are compensated
when their losses are caused by someone else being negligent. Except
for the minimum liability you may be required to buy, many people with
older cars decide not to purchase physical damage coverage. Often, the
cost of repairing an older car is greater than its value. In these cases,
your insurer will usually just "total" the car and give you a check for
the car's market value less the deductible. Many people forgo the Part
D coverage because of the relatively low value of their autos.
Suppose I lend my car
to a friend; is that covered under my auto insurance policy?
Whenever you knowingly loan your car to a friend or an associate who does not
live in your household, he or she will be covered under your policy. In fact,
even if you don't give explicit
permission each time a person borrows your car, someone is still covered under
your policy as long he or she had a reasonable belief that you would have given
permission to borrow the car. If the person lives in your household, he or
she MUST be listed on your policy in order to be covered.
What does my auto insurance
policy cover when I rent a car?
The answer to this question is not simple. In the not-too-distant past, most
auto insurance policies would extend coverage to rental cars whenever you rented
one. This is not quite true anymore. In most cases, your personal auto insurance
policy will cover only vacation car rentals. Many insurance companies no longer
extend personal auto insurance coverage for business travel. Find out what
rental car coverage you have under your policy is by calling your insurance
agent/company.
What is the difference
between collision physical damage coverage and comprehensive physical
damage coverage?
Both collision and comprehensive coverage are in Part D. Collision is defined
as losses you incur when your auto collides with another car or object. For
example, if you hit a car in a parking lot, damages to your car will be paid
under your collision coverage. Comprehensive covers most other direct physical
damage losses. For example, damage to your car from a hailstorm will be covered
under comprehensive coverage. It's important to know the differences between
collision and comprehensive coverage to make an informed buying decision. Also
keep in mind that your deductibles in these two categories are often different.
What should I do if I have an accident?
Your responsibilities after you have an accident are proscribed both by state
law and by your insurance contract.
- Obviously, the first thing you should do is be sure everyone is
all right and call an ambulance if needed.
- Second, for most accidents in most states, the police should be
notified.
- Third, give the other driver(s) involved your name, address, telephone
number, and the name of your insurance company and/or your insurance
agent. Get this same information from the other driver(s).
- Fourth, as soon as possible, contact either your insurance agent
or your insurance company to notify them that you have been in an
accident.
- Finally, there are conditions in the insurance contract you must
satisfy to receive compensation from your insurer. For example, you
must cooperate with your insurer during any investigation during
the claims settlement process. Not completing any of these actions
can result in nonpayment by your insurance company for losses that
otherwise would have been covered.
Why does the premium
for my auto insurance go up if I have an accident or get a ticket?
Actuaries and statisticians who have studied the behavior of people involved
in accidents have shown that people who have either had an accident or received
a ticket recently are more likely to have another accident in the next couple
of years than people whose recent driving record has been incident-free.
Insurance companies use this information
not to punish people, but to charge them a premium that reflects their
likelihood of having an accident. People who are more likely to have
accidents should expect to pay higher premiums.
What factors affect
the cost of my auto insurance?
The type of car you drive, what you use it for, your driving record,
your insurance financial score, where you live and even your marital
status can all affect how much your policy will cost. It's all based
on numbers;
for
example,
statistics
show that married people have fewer and less costly accidents than single
people.
What should I consider when buying
auto insurance? Things you should consider when purchasing automobile
insurance include:
- Decide how much liability coverage you want to carry. This is highly
subjective. The liability levels you have on your other policies
can serve as a guideline. Consult a financial professional if you
need more advice.
- Determine which optional coverage you will need to feel protected.
For example, do you want the optional physical damage coverage in
Part D, or is the market value of your car too low to warrant purchasing
them?
- Once you have decided what you want, you can now choose from which
type of company you want to buy a policy.
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