Auto Insurance

There ought to be a college-level course entitled “Understanding Insurance” because very few people are sufficiently informed to make intelligent choices when the various options present themselves. That ignorance is very costly. If you are joining us for the first time in a while, we have talked about insurance scams and life insurance. Today’s topic is auto insurance.

Since driving is a privilege, not a right, every driver is required to have at least Liability Insurance. It protects other people and their property if you cause an accident. Each state sets its own minimum levels, which are expressed in a series of three numbers, like 25/50/25. The first number is how much the insurance company will pay for injuries to any one person; the second number is the total they will pay for injuries to multiple persons in any one accident and the last number is what they will pay for property damage. If you cause more damage than that (which is very easy to do), you are obligated for the remainder.

You can also get Comprehensive Insurance which protects you if your vehicle is damaged by things like hail storms or theft. In addition, you can obtain Collision Insurance in case you wreck your own car in any way. If you have all three types (liability, comprehensive and collision) it is called “Full Coverage.” Ordinarily, this is what is required if you have an auto loan.

There are several other options for you. For instance, if you are hit by someone who has no insurance or too little, there is uninsured motorist coverage and underinsured coverage. There is extra medical coverage, work loss coverage, custom equipment coverage and others. (see explanations and more options) Generally, I do not recommend these products unless your state requires them.

If you file a claim your “deductible” becomes an issue. This is the amount you must first shell out before the insurance company pays for any of the loss. The higher the deductible amount, the more risk you take on, so the lower your premiums. (Lori Mandell explains the debate in more detail) Unless you have a habit of bouncing off of other vehicles, this is usually what I would recommend. You can save up to $200 per year just by raising your deductible.

If you have a loan on a newly purchased SUV and you also drive an old truck with no loan, you can obtain different coverage for each vehicle. Don't let them try to tell you that you have to have full coverage on both vehicles.

Regardless of your circumstances, you should discuss your policy, in detail, with your carrier. But remember that agents usually have a bias toward being over-insured. For example a specific agent may always recommend Full Coverage but if your vehicle is only worth $5,000 or so, you might do just fine with liability only. Or if you are only 25 years old and have very little net worth, you may only need minimum coverage.

If you have a loan and pay it off, you are not required to carry the same insurance. You can raise the deductible, or drop some of the coverage and pocket the savings.

Here are some good questions and the answers I got from my carrier, but do not assume your policy provides the same protection. Call your own agent to be certain.

Question: What happens to my rates if I get a ticket or am in an accident?
Answer: One such incident does not ordinarily raise your rates but any two of them probably will, depending on how much time has elapsed between the incidents.

Question: What if I get a speeding ticket in another state?
Answer: Other states do not usually report to your home state, so rates are not likely to be affected.

Question: What if I pull a boat or rent a hauling trailer?
Answer: Your auto policy should cover any damage or injuries you cause somebody else, but any damage to your boat or trailer is not covered without specifically obtaining extra insurance for that risk.

Question: What if I have a specialty car or a work truck which I only drive a couple hundred miles per year?
Answer: You do not need year-round coverage. You can obtain insurance on an “as needed” basis.

Question: If I only have liability coverage are other people in my car covered when I am at fault?
Answer: Yes.

Question: If I have passengers in my vehicle and I am involved in an accident, which is the fault of the other driver, and our injuries exceed the coverage provided by the other driver’s insurance, do you pay for the additional medical expenses?
Answer: No. but the injured party’s health insurance policy can be used, or you may have to sue the other driver to recover your losses.

Question: If I let someone else drive my vehicle, are they covered to the same extent as if I was the driver? Even if they are a worse driver?
Answer: Yes. Yes.

Question: What happens to my premiums if I let someone else drive my car and they have an accident?
Answer: This is a grey area. The insurance company will want to know if that person is going to continue driving your vehicle and other facts before they decide what to do.

Question: Will my rates go up if I am hit by an uninsured motorist and your company has to pay to fix your car?
Answer: No.

Question: Will your company pay to patch chips or repair cracks in my windshield?
Answer: We will cover the full amount with no reduction for your deductible, provided you have full coverage. But, windshields are not covered if you only have liability insurance.

Question: If my driver’s license or license plates should expire, does your insurance stay in force?
Answer: yes.

Question: Can I obtain additional medical coverage in case I injure someone else beyond the standard coverage of my policy.
Answer: Yes, and if you have a substantial net worth, this might be a good idea because of the high cost of health care these days. Another option is to get an umbrella policy (this is what I do).

Question: What, if anything, can I do, or drop from my policy, to reduce my premiums?
Answer: Varies

If you ask these questions you should be able to design a policy that is perfect for you. But, if you don’t ask them, there are two bad possibilities. 1) You may be paying for coverage you don’t need or want; 2) You might need insurance some day and find out you don’t have the coverage you thought you had.

Over time, circumstances change. For example your vehicle will depreciate, and you want to switch to a liability policy. Therefore, each year when your policy renews you should review the details to make certain you still have what you need.

Spend your savings wisely.

Next up, Health Insurance

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