What is auto insurance?
Auto insurance protects you against financial loss if you have
an accident. It is a contract between you and the insurance
company. You agree to pay the premium and the insurance company
agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical
coverage:
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to
others for bodily injury or property damage.
- Medical coverage pays for the cost of treating injuries,
rehabilitation and sometimes lost wages and funeral
expenses.
An auto insurance policy is comprised of six different kinds of
coverage. Most states require you to buy some, but not all, of
these coverages. If you're financing a car, your lender may also
have requirements.
Most auto policies are for six months to a year. Your insurance
company should notify you by mail when it's time to renew the
policy and to pay your premium.
Back to Top
|
What is in a basic auto policy?
Your auto policy may include six coverages. Each coverage is
priced separately.
1. Bodily Injury Liability
This coverage applies to injuries you, the designated driver or
policyholder cause to someone else. You and family members
listed on the policy are also covered when driving someone
else's car with their permission.
It's very important to have enough liability insurance, because
if you are involved in a serious accident, you may be sued for a
large sum of money. Definitely consider buying more than the
state-required minimum to protect assets such as your home and
savings.
2. 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.
3. Property Damage Liability
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.
4. Collision
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're not at fault, your insurance company
may try to recover the amount they paid you from the other
driver's insurance company. If they are successful, you'll also
be reimbursed for the deductible.
5. Comprehensive
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.
Comprehensive insurance is usually sold with a $100 to $300
deductible, though you may want to opt for a higher deductible
as a way of lowering your premium.
Comprehensive insurance will also reimburse you if your
windshield is cracked or shattered. Some companies offer glass
coverage with or without a deductible.
States do not require that you purchase collision or
comprehensive coverage, but if you have a car loan, your lender
may insist you carry it until your loan is paid off.
6. Uninsured and Underinsured Motorist
Coverage
This coverage will reimburse you, a member of your family, or a
designated driver if one of you is hit by an uninsured or
hit-and-run driver.
Back to Top
|
Can I drive legally without
insurance?
NO! Almost every state requires you to have auto liability
insurance. All states also have financial responsibility laws.
This means that even in a state that does not require liability
insurance, you need to have sufficient assets to pay claims if
you cause an accident. If you don't have enough assets, you must
purchase at least the state minimum amount of insurance. But
insurance exists to protect your assets. Trying to see how
little you can get by with can be very shortsighted and
dangerous.
If you've financed your car, your lender may require
comprehensive and collision insurance as part of the loan
agreement.
Back to Top
|
What if I lease a car?
If you lease a car, you still need to buy your own auto
insurance policy. The auto dealer or bank that is financing the
car will require you to buy collision and comprehensive
coverage. You'll need to buy these coverages in addition to the
others that may be mandatory in your state, such as auto
liability insurance.
If you've financed your car, your lender may require
comprehensive and collision insurance as part of the loan
agreement.
- Collision covers the damage to the car from an accident
with another automobile or object.
- Comprehensive covers a loss that is caused by something
other than a collision with another car or object, such as a
fire or theft or collision with a deer.
The leasing company may also require "gap" insurance.
This refers to the fact that if you have an accident and your
leased car is damaged beyond repair or "totaled,"
there's likely to be a difference between the amount that you
still owe the auto dealer and the check you'll get from your
insurance company. That's because the insurance company's check
is based on the car's actual cash value which takes into account
depreciation. The difference between the two amounts is known as
the "gap."
On a leased car, the cost of gap insurance is generally rolled
into the lease payments. You don't actually buy a gap policy.
Generally, the auto dealer buys a master policy from an
insurance company to cover all the cars it leases and charges
you for a "gap waiver." This means that if your leased
car is totaled, you won't have to pay the dealer the gap amount.
Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to
buy gap insurance to protect yourself from having to come up
with the gap amount if your car is totaled before you've
finished paying for it. Ask your insurance agent about gap
insurance or search the Internet. Gap insurance may not be
available in some states.
Back to Top
|
Do I need insurance to rent a car?
When renting a car, you need insurance. If you have adequate
insurance on your own car, including collision and
comprehensive, this may be enough.
Before you rent a car:
1. Contact your insurance company.
Find out how much coverage you have on your own car. In most
cases, the coverage and deductibles you have on your personal
auto policy would apply to a rental car, providing it's used for
pleasure and not business. If you don't have comprehensive and
collision coverage on your own car, you will not be covered if
your rental car is stolen or if it is damaged in an accident.
2. Call your credit card company.
Find out what insurance your card provides. Levels of coverage
vary.
If you don't have auto insurance, you will need to buy coverage
at the car rental counter. The following coverages are available
to you at the rental car counter:
1. Collision Damage Waiver (CDW).
Sometimes called a Loss Damage Waiver (LDW), this coverage
relieves you of financial responsibility if your rental car is
damaged or stolen. The CDW may be void, however, if you cause an
accident by speeding, driving on unpaved roads or driving while
intoxicated. This coverage generally costs between $9 and $19 a
day. If you have comprehensive and collision on your own car,
you may not need to purchase this coverage.
2. Liability Insurance.
This provides excess liability coverage of up to $1 million for
the time you rent a car. Rental companies are required by law to
provide the minimum level of liability insurance required by
your state. Generally, this does not offer enough protection in
a serious accident. If you have adequate liability coverage on
your car or an umbrella policy on your home/auto, you may
consider forgoing this additional insurance. It generally costs
about $7 to $9 a day. If you don't own a car, and rent cars
often, consider purchasing a non-owner liability policy. This
costs approximately $200 - $300 per year. Frequent car renters
sometimes find this more cost-effective than constantly paying
for the extra liability coverage.
3. Personal Accident Insurance.
This provides coverage to you and your passengers for
medical/ambulance bills. This type of insurance, usually costs
about $3 per day, but may be unnecessary if you are covered by
health insurance or have adequate medical coverage under your
auto policy.
4. Personal Effects Coverage.
This provides coverage for the theft of personal items in your
car. However, if you have homeowners or renters insurance, you
may be covered for items stolen from the car, minus your
deductible. You need to have receipts or other proof of
ownership. This type of insurance usually costs about $1.25 per
day. Some rental car companies combine personal accident and
personal effects coverage together as one type of insurance,
while others sell it individually.
The cost of insurance at the rental car counter will vary
depending on the rental car company, state, and location of the
dealer and the type of car you rent.
Some rental car companies may check your credit and driving
history and may deny coverage. Check with the rental car company
to find out its policy.
Back to Top
|
What's the difference between
cancellation and non-renewal?
There is a big difference between when an insurance company
cancels a policy and when it chooses not to renew it. Insurance
companies cannot cancel a policy that has been in force for more
than 60 days except:
- If you fail to pay the premium.
- You have committed fraud or made serious
misrepresentations on your application.
- § Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance
company can decide not to renew the policy when it expires.
Depending on the state you live in, your insurance company must
give you a certain number of days notice and explain the reason
for non-renewal before it drops your policy. If you think the
reason is unfair or want a further explanation, call the
insurance company's consumer affairs division. If you don't get
an explanation, call your state insurance department.
Back to Top
|
|
