autoinsurance

Automobile Insurance

The crazy thing about car insurance is that millions of people pay for it, yet so few people can even tell you how much coverage they actually have, or what the policy even covers. Commonly, these people will say "I don't know how much money I'm covered for, but I have full coverage." The sad reality is that we find most people like this actually have the least amount of coverage. If that is you, don’t worry about it. We're here to help you understand your policy in the simplest way possible. We’ve taken the time to break down every bit of the policy, so that you will be able to decide whether or not you have enough coverage. Plus, we’ll give you key tips along the way that may even help you lower how much you spend on car insurance, or even get you more coverage for what you already are spending.

Before our recommendations will make any sense whatsoever to you, you need to at least understand the basics of what your car insurance policy covers. Here are the main parts of your car insurance policy that are required by most states. This is the section usually labeled on your policy as Liability.

Types of Coverage

WHAT does it cover?

WHO does it cover?

Liability Coverage

Bodily Injury

Injuries you cause to other people after you hit them with your vehicle

The other people that you hit with your vehicle while you are driving it,

not you!

Property Damage

Damage you cause to someone else's property after you hit it with your vehicle. Examples of someone else's property could be a vehicle, a fence, a light post, a house, a bicycle, etc.

The property belonging to someone else, not your vehicle!

Uninsured Motorist Bodily Injury

Injuries caused to you and your passengers by another driver who does not have any insurance, at all. It also covers you and your household family members if you are walking on foot and hit by a driver who does not have any insurance.

You and your passengers

Underinsured Motorist Bodily Injury

Injuries caused to you and your passengers by another driver who does have insurance, just not enough insurance to pay for all of your expenses related to injuries and medical bills.

You and your passengers

Uninsured Motorist Property Damage

Damage to your vehicle that was caused by another driver who did not have insurance.

Your vehicle

Underinsured Motorist Property Damage

Damage to your vehicle that was caused by another driver who did have insurance, just not enough insurance to pay for all of the damage.

Your vehicle

Now, there are two other types of coverage within the Liability section of your policy that are commonly referred to as No-Fault coverage. Basically, it's coverage that pays you regardless if you are the cause of the accident or if someone else hits you. In most states this coverage is optional, however some states may require you to have one, or both, of the types of coverage shown below.

Types of Coverage

WHAT does it cover?

WHO does it cover?

Other Liability Coverage

Medical Payments

This coverage pays for any reasonable and necessary medical expenses that you incur as a result of an accident, regardless whether or not you are at fault. Even though you may have excellent health car coverage, you may still be responsible for some out-of-pocket costs. It pays for doctor visits, hospital stays, surgery, x-rays, funeral costs and ambulance costs. This coverage applies to both you and any passengers in your vehicle. It even covers you and anyone in your household that is struck by a vehicle while walking as a pedestrian.

You and your passengers

Personal Injury Protection

This coverage pays for everything that Medical Payments coverage pays for, plus funeral expenses, temporary loss of income, child care and other necessary household services, such as cleaning your home. This coverage applies to you and others in your household. In other words, if you crash your car and are unable to work as a result of your injuries, PIP coverage will pay you for the temporary loss of income. Payments received for this coverage are non-taxable.

You and your passengers

Now we get into the coverage that actually applies to your vehicle. This coverage is completely optional and is not required by any state. However, most people are required to have this coverage by their bank if the vehicle is leased or financed.

Types of Coverage

WHAT does it cover?

WHO does it cover?

Optional Coverage For Your Vehicle

Collision

This covers damage to your vehicle that was either caused by you striking an object (a car, debris in the road, a pothole, a tree, etc.), or by a hit-and-run driver. This coverage is paid to you based on the Actual Cash Value (ACV) of your vehicle at the time of the loss, meaning the older your vehicle is, the less money you'll get. This coverage is completely optional, although a bank will most likely require you to have this coverage if you are financing or leasing the vehicle.

Your vehicle

Comprehensive or

Other Than Collision

This covers damage caused to your vehicle by means that were beyond your control (theft, vandalism, fire, flood, and hail, as well as if your vehicle hits an animal. It also covers the full cost of any minor glass chips that need to be filled on the windshield without any deductible. This coverage is completely optional, although a bank will most likely require you to have this coverage if you are financing or leasing the vehicle.

Your vehicle

Waiver of Deductible

This coverage means that you will not have to pay your Collision deductible if you are not at fault in an accident. This coverage is not available in most states.

Your vehicle

Lastly, here are the remaining optional types of coverage available by most insurance companies. Some companies may offer gimmicks, such as Accident Forgiveness and Vanishing Deductibles, however we are not going to discuss these things since they vary from company to company and usually just benefit the company's bottom line, not your wallet.

Types of Coverage

WHAT does it cover?

WHO does it cover?

Other Optional Coverage Related To Your Vehicle

Full Glass Replacement

This coverage pays for the cost of replacing broken glass on your vehicle, meaning the window is broken beyond repair and must be replaced. Most companies that offer this coverage will cover the full cost of the glass replacement without any deductible. Some other companies, however, may require a small deductible around $50 or $100. This coverage is only available when you purchase Comprehensive/Other Than Collision coverage.

Your vehicle

Towing / Roadside Assistance

This coverage is meant to cover emergency towing designed for towing short distances. It should not be considered an alternative to AAA towing service. With most companies, this coverage will only tow up to 10-15 miles to anywhere you want the vehicle towed to, or up to 40-50 miles to the nearest dealership. It also provides service when you lock your keys in the vehicle, have a dead battery, or need a flat tire changed.

Your vehicle

Rental Reimbursement or

Substitute Transportation

This coverage will reimburse you for the daily cost of having to temporarily rent a vehicle after your vehicle has been damaged in a covered loss. This is not coverage for when you rent a vehicle to take a trip! Most companies offer some amount of coverage for free, usually around $15-20 per day, with higher daily reimbursement amounts available at an additional cost.

Your vehicle

Loan-Lease Payoff

This coverage is what people refer to as "gap" coverage. Basically, if you total your vehicle, your insurance policy will cover the "gap" between what your vehicle is worth and how much money you owe on your loan or lease. If you total your car that is only worth $7,000 but you still owe $9,000 to the bank, your insurance policy will pay the $2,000 "gap".

Your vehicle

Well, there you have it! That is essentially your entire car insurance policy broken down, section by section. Now that you have a pretty good understanding of what each part covers and who it covers, let's point out some important things that your insurance agent/representative may not have discussed with you.

Important Info Your Agent May Not Have Mentioned

Should you keep Collision coverage on your 23-year old vehicle?

Absolutely not! You should have dropped that coverage 6-years ago! As we just discussed, the older vehicle gets, the less money you get when you file a claim. Plus, when you file a claim for Collision damage, it will most likely increase the cost of your policy for the next 3-years! You would be better off dropping the coverage and putting the money you save into the maintenance of your vehicle to extend its life.
- But what if my car has really low miles?
  - If your vehicle is older, but has very low miles, then that usually means your vehicle is likely collectible and may have appreciated, not depreciated, in value. If this is the case, then you should be insuring the vehicle with a classic car insurance company like Hagerty or Grundy, or you should be insuring the vehicle with a company that offers a Stated Value policy, where you choose how much money you want to insure it for. For example, a 1997 Toyota Supra non-turbo sold new for $29,000 in 1997. Today, even with close to 100,000 miles, the cars are selling for upwards of $40,000, or more. We'd be afraid to drive around the block with that car if it were insured on an Actual Cash Value (ACV) policy! Most regular car insurance policies pay based on Actual Cash Value (ACV). Look at your policy and check the line that says "Collision". Usually it will say "ACV less $500 deductible", or something very similar.

I haven't had any accidents, tickets or claims, but my rate keeps going up. Why?

Well, the short answer, which many agents/representatives will tell you, is that the company paid a lot of money in claims. Now, that is sort-of true. It doesn't mean that your rates went up because of other drunk drivers that caused accidents. What is means is that the company had to pay our more claims over a period of time than they anticipated. A great example of this is all of the fires in California. Tens of thousands of vehicles were destroyed by recent fires, which resulted in hundreds of millions of dollars in comprehensive claims for fire damage. Insurance companies have no way to predict these types of events and raising the rates they offer is the only way they'll ensure they have the money to pay claims for future natural disasters. Compound that with hurricanes in other parts of the country, windstorms, hailstorms, tornadoes, and snow, and insurance companies are paying out a lot of the money they take in through customer payments. The more frequent these natural disasters occur, the less likely you are to see your rates stay the same, or decrease. Now, there are other major factors that possibly could be the reason(s) your policy has increased in price. Here are some of the other reasons:
- Your credit score has gone down compared to the previous year.
  - In most states, your credit score has a significant impact in the price of your insurance. Statistical industry data shows that there is a direct correlation between good credit scores and clear driving records. The same data also shows that drivers with poorer credit scores tend to have poorer driving records. So, when it comes to trying to predict the likelihood as to whether or not someone may have claims in the near future, a person's credit score is a reliable measure of the risk to an insurance company. Keep in mind, this is only one factor, not the sole factor, that affects your insurance rates.
- You had two vehicles insured on your policy, but the price of the 2nd car increased when you sold the 1st car and removed it from your policy. Why?
  - Most companies offer a Multiple Vehicle discount, which can lower the cost of your policy, compared to insuring the vehicles on two separate policies. Naturally, if you have two vehicles but then sell one, you are going to loose the Multiple Vehicle discount because you are no longer insuring multiple vehicles. It is what it is. If you don't like the price, shop around with other companies!
- You had a Collision claim for damage to your vehicle.
  - After you file a claim for Collision damage, you will likely see an increase in your rate for the next 2-3 years. Whether the claim was for $1K or $10K, you should expect the price of your insurance to go up. How much it will go up depends on many factors. For example, if you filed a Collision claim and your credit score is lower than it was last year, the combination of the two negative factors could have a huge impact in your price. Before you file another Collision claim, think about how much damage there is and if it might make more sense to pay to fix the damage yourself, rather than file a claim. At the end of the day, insurance was originally designed to insure you for the things you cannot afford to pay for on your own, a worst-case scenario total loss. If you have the financial means to go out and buy multiple brand new vehicles in cash today without it emptying your bank account, then maybe you should consider self-insuring your vehicles and just purchase Liability coverage only.
- You had a Comprehensive claim after a deer ran into your vehicle.
  - Many companies do not increase your rates after filing a Comprehensive claim. However, prior to filing the claim, you may have been receiving a "Claim Free" discount, or something similar. Once you file a claim for anything, you should expect that discount to be removed, which will cause your insurance to increase.
- You got divorced, or your spouse passed away.
  - Statistical industry data shows that married drivers usually have higher credit scores, good driving records, and few, if any tickets, making them low risk. The same data shows that single drivers have a higher probability of causing accidents, filing claims and having multiple tickets, classifying them as higher risk. The riskier you appear to an insurance company, the higher the rates they will offer to you.
- You bundled your home insurance with the same company last year, however you canceled the home insurance after you sold the house.
  - Most companies offer a Multiple Policy discount when you combine your home, condo or renters insurance. If you cancel the other policy, then you should expect your insurance company to remove the bundle discount. With many companies, this could increase your car insurance by as much as 5-15%. It is what is it. If you don't have multiple policies any longer, you don't get the discount!
- You moved to a new house or apartment.
  - Location has an impact on your insurance rates, but not for the reasons you're likely thinking of. Insurance companies don't consider "good neighborhood" vs "bad neighborhood". In other words, you won't pay a higher rate simply because you live in a neighborhood of multi-family homes instead of a 4,000 sqft. house. Insurance companies look at how many claims they have paid in the area where you currently live and compare that to the amount of claims they have paid in the new area where you have moved. If there are more Collision & Comprehensive claims in the county that you moved from, for example, then the cost of your insurance might decrease when you move to the new location. However, it could also cause your rate to increase if the risk of a potential future claim is higher at the new location. It is what it is. If you don't like it, price shop other companies or move somewhere else if it is that big of a deal!