Can Someone Explain These Automobile Coverages?
A driver who's unlucky or careless can maim or kill other persons
and severely damage or destroy property. This deadly potential is a
primary reason for having auto insurance. In fact, most states have
versions of financial responsibility laws which require proof that
you are financially able to pay for any damage that you may cause
while driving. Insurance policies are the most common method of
complying with these laws. More specifically, drivers are typically
required to carry liability insurance at some minimal limit which
varies by state.
Bodily Injury Liability
This covers damage or injury that you may cause to other persons.
The key is that it involves your being held financially responsible
for injuries to other persons as a result of the way you operated
your car. This coverage does not apply to your injuries.
Property-Damage Liability
This covers damage that you may cause to the property of others.
The key is that it involves your being held financially responsible
for property you may damage or destroy as a result of the way you
operated your car. This coverage does not apply to damage to your
property.
Uninsured Motorist Coverage
The limits and coverage details also vary widely by state. It
typically pays for your expenses that result from an accident caused
by an uninsured driver. Now be careful with this coverage. An
uninsured driver must be the one who is responsible for causing the
loss. "Uninsured" is typically defined to include a person who has
no insurance; a person who can't be located ("hit and run drivers");
a person who has insurance, but their insurance company is
financially incapable to provide coverage; plus other situations
which may be considered to involve an "uninsured" motorist.
IMPORTANT: The amount of protection under this coverage may depend
upon state law. Payment under this coverage part may be controlled
by the limits mandated by the state's financial responsibility law.
Or, a particular state may have specific uninsured motorist
legislation that dictates what limit or limits must be offered to
insurance consumers. In some cases, a consumer may choose to reject
the coverage. Typically, the rejection must be in writing.
Underinsured Motorist Coverage
Although the coverage concept is similar to uninsured motorist,
this coverage is for injuries caused by a driver who is inadequately
insured. Basically, it operates as excess insurance, paying for your
expenses which exceed the amount of insurance protection available
from the other driver's policy. For example. you are seriously
injured by a person who carries a bodily injury liability limit of
$25,000. Your injuries amount to $50,000. Your Underinsured Motorist
Coverage limit is $100,000. If the loss circumstances qualify for
coverage per the policy's underinsured motorist provisions, your
policy would pay the difference between $25,000 and $50,000, or an
additional $25,000.
Remember that this is merely an introduction to complex policy
coverages. Be sure to contact your agent for detailed insurance
information. Please watch for Part Two of this topic which discusses
other, typical auto policy coverages.
Cars are expensive to buy and repair and their high cost is a
strong incentive for protecting them. If you borrowed money to buy
your car, the lender was likely to make certain that you carried
comprehensive (increasingly referred to as "other than collision")
and collision coverages to pay for any damage to the vehicle.
Collision coverage
This covers damage to your own vehicle. The damage has to be the
result of your vehicle running into (colliding with) another object,
such as other vehicles, trees, light poles, mountains, etc.
Comprehensive or Other Than Collision coverage
This also covers damage to your own vehicle. The damage has to be
the result of a specific cause of loss. Although causes of loss may
vary by policy, some common causes include fire, theft, hitting an
animal, vandalism, earthquake, flood or hail.
Remember that both Collision and Other Than Collision coverages
are subject to deductibles. A deductible is merely the initial
dollar amount of a loss which is paid by you, the policy owner.
Personal Injury Protection or Medical Expense
This coverage, the available financial limits, and the exact
details of how such coverage operates vary by state. The coverage
typically handles medical expenses for injuries to you, your
passengers or people who are "around" you. It is usually a "per
person" limit. It may also cover you and members of your household
if you, as a pedestrian or while riding a bicycle, are struck by an
automobile.
Towing and Labor coverage
This coverage is to help pay for your costs to deal with a
disabled car. It could help pay for the car to be towed to a service
station or for any repair that occurs at the location of the car's
breakdown. Again, this coverage is for labor and not the cost of any
necessary parts. Typically the available coverage amount is minimal
(often between $25-$75).
Rental reimbursement
This coverage reimburses you for the expense of renting a car as
a temporary replacement. The car being replaced must be an insured
car that's unavailable for use because of that car being damaged or
destroyed due to a covered cause of loss. Coverage is also available
if use of the insured car is lost because of it being repaired or
serviced.
Remember the above information only touches upon some typical
auto insurance issues. It's always wise to contact your agent and
discuss your coverage questions and needs in detail. If you missed
it, please see Part One of this topic which discusses other, typical
auto policy coverages.
Car Insurance...Getting The Most For Your Money
Does this sound familiar?
You've been a responsible driver for many years, but you notice
an upsetting pattern; every year your car insurance premiums creep
upward. What's going on? What are you doing wrong? Well, the answer
may be "nothing." Remember that the cost of providing insurance, as
it is with other products and services, may increase for various
reasons. Factors that can affect car insurance premiums include the
following:
* Your insurance company's overall loss experience (due to a
higher level of claims)
* The increased value of newer model cars
* Increases in judgment amounts awarded in auto lawsuits
* Increased business processing and administrative expenses
What these items have in common is that they're out of your
control...so don't worry about them. However, you do have some
control over what happens with your premiums. It may be time to step
back and take a fresh look at your car insurance.
How do I evaluate my situation?
A good first step is to gather your insurance records and any
other car-related information. Next, determine if circumstances have
changed since you last dealt with your coverage. Consider your cars
or trucks, how they're now used, who are the drivers and your
driving experience. Once this information is handy it's time to call
your agent. What should you discuss? Well, here are some areas to
consider:
* If you have your home and auto insurance with the same company,
are you getting a discount?
* Does my coverage take full advantage of the discounts offered by
my company?
* I have more than one car; am I getting a credit?
* How much premium can I save by changing deductibles? Determine the
dollar amount of any loss that you can comfortably handle as an
out-of-pocket expense.
* Do my cars really need full coverage insurance? On an older car
(over six years old) you may want to drop collision and/or
comprehensive coverage and carry liability coverage only. Ask your
agent what makes sense. IMPORTANT: you must maintain these coverages
if you're still paying off a loan on your car or truck.
* Do lifestyle choices such as drinking or smoking affect my
premium?
* Does it matter that my daughter made the Dean's List? Don't think
this information is bragging since your company may give discounts
to young drivers with good grades.
* Did you know that my car has anti-lock brakes; airbag; theft alarm
system? (Some companies provide discounts for safety and anti-theft
features)
* Did you know that my son took Driver's Education?
* Does the company have accurate information on how often and how
far I drive?
* Am I with a standard carrier or do I qualify for any preferred
program?
* Is my vehicle charged an additional premium because of its type or
performance?
* Do I get a credit for my driving/claims history or for how long
I've been covered? If applicable, find out if your company rewards a
loss-free history or longevity.
Communicating with your agent
The best way to discuss your insurance needs is to be open and
honest with your agent. Giving your agent accurate information puts
him in the best position to make certain that you get the best
available premium. Carefully answer your agent's questions and
provide complete details about any tickets, accidents, or violations
in your driving history. This approach also applies to information
about who drives your cars and how the cars are used. Finally, your
agent is a terrific resource for handling errors about your account
or which may be shown in your driver records. . . so use their
expertise.
Can I Make My New Young Driver Affordable?
The cost of your car insurance may double by adding a young
driver to your policy. This article focuses on ways to control a
young driver's impact on your insurance premium.
Reducing your insurance premiums
-Have your child complete a driver training class, balancing its
cost against premium savings and gaining a more competent young
driver.
-Ask your insurer if it gives discounts to students with good
grades.
-Find a company that bases its premium on the car your new driver
usually drives instead of assigning him or her to the most expensive
vehicle.
-Does your child have to drive to school? If so, expect your company
to charge a higher premium for the increased amount of driving.
-Build a long-term relationship with your insurer. Some companies
reward longevity by forgiving a driver's first accident or minor
traffic violation.
-Make sure your new driver understands that poor driving habits can
result in higher premiums or a canceled policy.
-Increase your physical damage deductibles or, for older vehicles,
eliminate this coverage.
-If your child owns a vehicle, he or she should have a separate
policy. However, if you share the cost of the car and its insurance,
it may make sense to also own or co-own the vehicle. Your ownership
interest lets you take advantage of a multiple-car discount.
-Think carefully about giving a young driver his or her own car.
Coverage for young drivers who have full-time access to a vehicle is
very expensive. Make sure you balance convenience against cost.
Important: don’t pursue lower premiums blindly. It's important
that your young driver is protected from the financial consequences
of causing a serious accident. Further, you may need to protect
yourself since you could also be sued for an accident caused by your
son or daughter. You might consider getting higher limits of
liability by purchasing an umbrella policy. Talk to an insurance
professional about more strategies to keep your new driver
affordable.
Is Your Car Worth Less Than Your Loan?
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The Problem
Car loans and leases used to be no longer than 36 months. Today,
with vehicles now as expensive as small homes, the length of loans
and leases are typically 48 months, 60 months, or even longer. No
matter the type of vehicle, coupe, sedan, van, sports utility
vehicle, etc., they share a tendency to depreciate very quickly in
their first few years of operation. Compare this with the fact that
loan and lease payments are spread over a longer period of time. In
short order, the amount of the unpaid loan and lease agreement
balance becomes much larger than the vehicle's value. This disparity
of values, or gap, exists over much of the loan or lease period.
Making matters worse is that this gap is usually only discovered
after a total loss. The insurer pays the actual cash value of the
vehicle and, instead of being reimbursed for your total loss, you
have to pay the bank or leasing company thousands of dollars out of
your own pocket (and don't forget you have to pay your deductible
too).
A Solution?
Nobody is to blame for this problem-not the bank, leasing
company, insurer or the car manufacturer; but there are a couple of
solutions to the dilemma:
The Auto Loan/Lease Coverage Endorsement
This optional coverage is available in most states, from a variety
of insurance companies.
Coverage Leased vehicles
Reimburses you for the difference between the amount due under
the terms of the lease and the actual cash value of the auto in the
event of the auto's total loss.
Coverage Owned vehicles
Pays any outstanding indebtedness incurred by you for that
financed new vehicle in the event that there is total loss or damage
to the vehicle and the amount due under the finance agreement is
greater than the actual cash value of the automobile.
Coverage Partial Losses
On partial losses, the company will normally pay to have the
damages repaired or parts replaced, and the lease or loan gap
coverage option is not a factor in the loss settlement.
There are exclusions:
-Generally this optional coverage excludes items such as:
-Overdue lease payments.
-Financial penalties imposed under a lease for excessive use,
abnormal wear and tear, or high mileage.
-Security deposits not refunded by the lessor.
-Costs for extended warranties, credit life, health, accident, or
disability insurance purchased with the loan or lease.
-Carryover balances from a previous lease.
Auto Replacement Cost Coverage
This coverage is still fairly new to the insurance marketplace
and its availability varies by state. For an additional premium, an
owner of a new car may buy coverage to settle major losses according
to the vehicle's replacement cost rather than its depreciated,
actual cash value. There are some coverage limitations such as:
-The coverage is usually only available for cars up to six months
old
-There may be a maximum dollar amount that applies to a total loss
-The coverage may only be available for the first few years of the
car's useful life.
-Considering these limitations, this option is more suited to
narrowing, rather than closing the lease/loan gap.
Again, companies usually restrict these options for persons who
purchase the coverage soon after they acquire or lease a new
vehicle. Companies may not offer this endorsement on used vehicles.
The cost for these optional coverages is usually a percentage of an
auto's premium that's charged for physical damage to your auto. If
you have a newer vehicle and are concerned that you could suffer a
large out-of-pocket expense if your car is totaled, you should talk
to a qualified insurance professional to answer your questions and,
if you choose, to seek the coverage for you.
What Do you Mean, Exclusions?
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Some Things Still Aren't Covered
Having an auto insurance policy is a good thing. It shows that
you're a responsible driver and it likely fulfills your state's
requirements concerning the legality of your sharing the road with
other drivers.
However, even if you have auto insurance, there are a number of
instances where your automobile policy won't provide coverage. Such
instances are called EXCLUSIONS. Why should exclusions exist in an
insurance contract? Actually there are quite a few different
reasons. Some fundamental reasons are that exclusions:
Help maintain the expense of providing insurance
Prevent coverage under one policy when it should be covered
elsewhere
Prohibit coverage for losses that are against public policy.
Let's look at these reasons a bit more closely and provide some
examples.
* Help maintain the expense of providing insurance
* Prevent coverage under one policy when it should be covered
elsewhere
* Prohibit coverage for losses that are against public policy.
Let's look at these reasons a bit more closely and provide some
examples.
Help Maintain The Expense Of Providing Insurance
If an individual's auto policy could be counted on to respond to
every imaginable loss, it would also have an unimaginable premium.
Auto insurance premiums are affordable only if insurance companies
can exert some control over the losses their policies can be
expected to cover. Therefore, automobile policies generally contain
exclusions similar to the following example.
This automobile policy does not provide coverage for accidents
which involve:
* Injuries caused directly or indirectly by a nuclear weapon,
reaction radiation or contamination; or by war, civil war,
insurrection, rebellion or revolution
* Injuries involving any vehicle inside a facility designed for
racing while preparing for ,or competing in, a race.
The first instance involves losses that are beyond any insurance
company's ability to control and such losses would likely be far
beyond the ability of most insurance company's to pay.
The second instance involves losses that are strictly under an
individual's control. Insurance companies certainly want to avoid
situations where their customers choose to put themselves and their
cars in an excessively dangerous position.
Prevent Coverage Under One Policy When It Should Be Covered
Elsewhere
Most automobile policies won't provide coverage for a loss or
injury which:
* Happens while being in a vehicle that has fewer than four
wheels
* Occurs while the vehicle is being used to transport persons or
property for profit
*Happens while the vehicle is in place and being used as a premise
or residence
*Occurs while on the job, and workers compensation coverage is
either available or required for the bodily injury
*Happens while an insured is occupying, or is hit by, a vehicle that
is owned or is regularly available to an insured, but the vehicle is
not listed on the automobile policy.
* Occurs while in a vehicle that's being used in an insured's
"business." Coverage still applies if the insured is in a
private-passenger auto, an owned pickup or van, or a trailer being
used with such vehicles.
These limitations are fair. Their purpose is to make sure that
coverage which you purchase for your own car, van or truck listed on
your policy does not also provide coverage in situations which are
better covered by:
* Another person's policy
* Worker's compensation or a business policy
* Specialty coverage (such as racing events coverage)
other types of policies such as mobile home, recreational
vehicle, motorcycle or business coverage.
Prohibit Coverage For Losses That Are Against Public Policy
Some examples of this reason are when coverage is denied for
losses:
* Occurring when the injured person is occupying a vehicle
knowing that she or he does not have the vehicle owner's permission
* That were fraudulently staged by the vehicle's owner in order
to collect insurance for "phantom" injuries
Insurance would quickly be impossible to buy if policies were
expected to pay for injuries to car thieves or people who fake
accidents and injuries.
So remember, without reasonable exclusions, you or I would not be
able to enjoy the protection and security that is offered by
automobile insurance. If you have questions about exactly what is
excluded by your policy, talk to your insurance agent.
