By
Chet Cottom
What
you’ll discover in this
report:
§
Insider
secrets about how insurance
companies price your insurance
§
How
not to get ripped off
when you do buy protection
§
How
much to buy...how much not
to buy
§
Little
known facts about the six
different kinds of insurance in
a standard auto policy
§
Who’s
really covered...who’s not!
§
How
do you get the most for your
money? 11 ways to SAVE
MONEY on your car
insurance...
§
Straight
answers to the nagging questions
about Rental Car Insurance
There
are several ways you can
purchase insurance for your
car(s). You can buy it over the
Internet at literally hundreds
of different web sites. You can
call an 800 number and buy it
over the phone directly from an
auto insurance company. You can
call an insurance agent. In some
cases, you can buy it at your
bank or credit union.
It’s not surprising you can
buy it so many ways. After all,
there are hundreds of insurance
companies that sell auto
coverage in your area. How do
these companies differentiate
themselves? Some brag about
their superior service when you
have a claim. Some tout how easy
it is to buy from them. But,
often, auto insurance companies
try to compete on price. Just as
if you were buying a plane
ticket, a radio or soda pop.
*
Tip.
Some people believe auto
insurance is just a commodity.
It’s not.
You’re
not buying a soda. You’re
protecting your financial well
being...and the choices you make
could affect you for the rest of
your life.
But
before explaining how complex
auto insurance products are, let’s
talk about price. It’s pretty
complex, too.
*
Note. No auto
insurance company – no matter
what it says in its ads –
offers the lowest price for
every driver in every location.
There are companies that are
often among the lowest. And
there are companies that are
usually among the highest. But
no company is the lowest for
everybody.
*
Tip.
Also, be aware that prices
fluctuate. Sometimes
companies “buy the market”
with low prices to gain new
consumers...then their prices
gradually – or not so
gradually – sneak up.
They
also have to change prices based
on their profitability, losses
and other factors.
Every
company has a slightly different
appetite for the risks it wants
to take on. Some insurers want
only very good drivers who have
no tickets and no accidents.
Some companies, believe it or
not, actually want bad drivers.
In fact, these companies
specialize in insuring people
with lousy driving records.
Some
companies target drivers who
live in certain areas. There are
insurers that really like to do
business in big cities, and
there are others that would
prefer to stay away from highly
populated areas.
*
Tip. Remember that
sometimes “you get what you
pay for.” The cheapest
option may not provide you or
your family with the best
protection. The saying
goes, “you don’t need
insurance until you have a
claim.” When you do have
a claim – something that goes
wrong – that’s a terrible
time to discover you don’t
have adequate
protection!
If
you think auto insurance is a
commodity, consider this:
A
person with a good driving
record will pay three, five,
even 10 times less
than a driver with a couple of
tickets, an accident or who has
been cited for and convicted of
driving under the influence.
A
person who lives in a major city
– say Los Angeles, Chicago,
Houston or Denver – will pay
three, four, even five times more
than someone who lives in a
rural area or small town, even
though the two have the same
driving records.
*
Example. The last
two paragraphs are average
differences. Auto insurers are
all over the map on prices in a
given area. Say you live in
Everywhere, U.S.A. (don’t we
all). Say you have a good
driving record. One insurance
company might charge you $500 a
year for a policy that provides
almost every coverage available.
Another insurer might charge you
$1,500.
As
you can see, it can pay to shop
around. Just be sure:
§
You really understand the
different coverages in your
policy, or,
§
You have an agent you
really trust who can examine
coverages and prices for you.
So
far, we’ve been talking about
“auto insurance” as if it
were, well, a commodity. The
fact is, you can buy a lot of
auto insurance, or a little.
Most states, more than 40,
require you to have auto
insurance.
But
they don’t require you to have
much. In states that have
so-called mandatory auto
insurance laws, all you are
required to buy is a little bit
of liability coverage. This is
so you can pay for some of the
damage your car does to other
cars and other people not
in your car.
How
much are you required to buy? In
most states with mandatory auto
insurance laws, the minimum
needed is liability that
provides 1) $15,000 for any
person involved in an accident
with you, 2) a maximum of
$30,000 for all
persons in the accident, and 3)
$5,000 for damage to the other
vehicle(s) involved. That’s
not much. In fact, it’s next
to nothing.
*
Tip.
The minimum amount of insurance
required by most states is not
much. Seriously consider
getting more protection in order
to protect your financial
health.
*
Note. Notice that mandatory
auto insurance laws do not
require you to buy coverage for
your own car. Or coverage for
your injuries. Or coverage if
you are hit by someone who doesn’t
have insurance.
If
you buy just the minimum
coverage required by law, you
are leaving your assets at
considerable risk. Your car,
obviously. And your home, if you
are at fault in an accident that
causes serious injuries to the
other parties.
And
how far do you think $5,000 will
go if you total somebody’s
Lexus? Not far enough!
The
auto insurance “commodity”
is actually a product with six
distinct coverages:
Let’s
look at them here.
1.
Bodily Injury
Liability – It pays the
medical and other expenses of
those people injured or even
killed in accidents you cause.
This is required by most states,
usually with a minimum coverage
of $15,000 for any person
involved in an accident with you
and no more than $30,000 for all
the persons in the accident.
2.
Property Damage
Liability – It covers the
damage your car causes to
property. Usually, that’s the
other car or cars involved in
the accident, but it also covers
damage you do to any object you
hit. Garages, buildings,
lampposts, fences, whatever.
This is also required in most
states, usually with a minimum
coverage of $5,000.
3.
Collision – This
is for damage done to your car
when it collides with other
vehicles (your fault) or other
objects (again, your fault).
4.
Comprehensive –
This covers damage to your car
that results from something
other than a collision with
another vehicle. As examples,
damage caused by vandals or a
wind-blown tree hitting your
car. It also includes coverage
for theft.
5.
Medical Payments
– It pays medical, and even
funeral, expenses for you as
well as members of your family
and passengers in your car if it
is involved in a collision,
regardless of who caused the
accident. It also covers you as
a pedestrian if a vehicle hits
you.
6.
Uninsured/Underinsured
Motorist – This pays for
injuries to you and, in some
policies, damage to your car if
you are hit by a driver who
doesn’t have insurance – or
by someone who doesn’t have
enough insurance to cover your
losses. In most states, more
than 10% of motorists don’t
have any insurance. In some
states, as many as three out of
10 drivers don’t have
coverage.
Many
of those who do have insurance
don’t have enough to cover the
damages and injuries that would
result in a major collision. If
you don’t have this coverage,
which is often referred to as
UM/UIM, you are taking a risk.
UM/UIM also provides coverage
for any injuries you suffer if
you are hit while walking or
riding a bicycle by a driver
with inadequate or no insurance.
There
are additional coverages you can
buy. You can purchase towing
coverage, which will pay the
costs if your car needs to be
transported after an accident.
If you’re a member of an auto
club, you don’t need this
coverage.
You
can buy rental reimbursement,
which will pay for a rental car
you use while your vehicle is
being repaired. (If the accident
was not your fault, the cost of
the rental car is automatically
picked up by the other person’s
insurance company.)
While
there are six main coverages in
an auto insurance policy, there
are numerous options to consider
for each coverage.
How
much insurance do you need?
Bodily
Injury Liability –
You can buy the minimum required
by law, say $15,000 per person,
$30,000 per accident. Or you can
buy limits as high as $500,000,
even $1 million. Remember that
someone you hit can sue you for
everything you have.
*
Tip.
If you have a home, own
stock and have a decent income,
you should probably buy, at minimum,
limits of $100,000 per person,
$300,000 per accident. If you
have more than $300,000 in
assets, you should buy higher
limits or an umbrella
policy. Consult with
your professional agent about
this!
Many
auto insurance companies now
sell what are called combined
single limit (CSL) coverages,
which have no per-person limit.
If you buy, say, $300,000 CSL,
that means your policy will pay
a maximum of $300,000. All of
that could go to one person, if
needed.
Some
companies include property
damage liability in the CSL,
which means that if you total
someone’s antique car, your
policy could pay up to $300,000
for property damage. CSL
coverage costs more than
traditional limits, but it can
be worth it if you have any
significant assets.
*
Tip. Many insurance agents
believe CSL is so important to
have, they strongly urge their
clients to buy it if it is
available.
Property
Damage Liability –
Several years ago, $25,000 was
considered the maximum most
people needed for this coverage.
Not anymore. There’s a lot of
$50,000, $60,000, even $70,000
cars and sport utility vehicles
on the road these days.
*
Tip. Because of all
the super-expensive cars on the
road today, you should seriously
consider at least $50,000 of
coverage, assuming you don’t
have CSL coverage; $75,000 might
be preferred.
Collision
–
Consider how much you can afford
to pay to have your car fixed if
you have an accident. Auto
policies have several deductible
options.
*
Note.
Deductible? That’s the
part you pay before
the insurance kicks in. You can
buy deductibles of $100, $250,
$500, even $1,000. Obviously,
the lower the deductible, the
more this coverage will cost.
Unless
you’re planning to have a lot
of accidents, it’s probably a
good idea to have a deductible
of at least a couple of hundred
dollars. (By the way, the
deductible does not apply if
someone else hits you and that
person’s insurance is used to
pay for your car’s damages.)
Comprehensive
–
Like collision, there’s a
deductible with comprehensive,
although it is often lower. For
example, if you have a $250
deductible for collision, your
comprehensive deductible will
be, say, $100.
*
Note. While collision and
comprehensive will pay for the
damage or loss to your car,
neither coverage will pay for
everything on or in
your vehicle. Most policies
exclude things like CB radios,
two-way radios, car phones,
cassettes and CDs.
Further,
if you add special features to
pickups, vans or SUVS, these
things probably will be excluded
as well. In fact, it’s a good
idea for you to talk to your
insurance agent about any
high-tech equipment or special
features you have added to your
vehicle.
Many,
perhaps even most, of these
features aren’t covered in the
standard policy. It is possible,
however, to obtain special
coverage for the high-tech
equipment or special features in
your vehicle. Your agent can
advise you of the options.
Medical
Payments (also
called Personal Injury
Protection) – Some people
elect not to buy this coverage
because they believe their
health insurance is enough in
this regard. That’s true –
to an extent.
*
Note. Unlike your health
insurance, medical payments
coverage can reimburse you for
income lost as a result of
injuries suffered in an auto
accident. However, medical
payments coverage is not nearly
as comprehensive as most health
insurance plans. Still, medical
payments coverage, which usually
costs less than $100 a year, is
probably a good buy for most
people.
In
addition, medical payments
coverage provides protection for
passengers in your vehicle for
medical expenses incurred and
income lost. In some states,
medical payments coverage is not
relevant. These are states that
have so-called no-fault auto
insurance systems. Basically,
regardless of who’s at fault,
your insurance company pays for
damage to your car and/or
injuries you incur. Personal
injury protection is included as
part of your coverage.
Uninsured/Underinsured
Motorist –
For most people, it’s a good
idea to have the same limits for
UM/UIM as they have for bodily
injury liability. But remember,
UM/UIM coverage is for you.
It pays for your injuries and,
in some policies, damage to your
car if the person at fault in an
accident with you cannot. Since
you based your liability limit
on what you have to lose, you
should do the same with UM/UIM.
All
the coverages in your auto
policy apply when you are
driving, but they also apply
when other people are driving
your vehicle. The coverages
are actually for the car, not
the person.
*
Note.
However, if someone is going
to be a regular user of your
car, that person’s name needs
to be added to the policy.
Your
insurance company wants to know
who’s going to be using the
car. That stands to reason.
After all, you could be a great
driver, with no tickets or
accidents. But your spouse, your
teenage child, your reckless
cousin could be a lousy driver.
If
you let these people drive your
car without telling your insurer
and these people keep getting in
accidents, your insurance
company isn’t going to be very
happy. In fact, the company
will probably cancel your
policy.
*
Tip.
It’s not wise to risk
losing your policy by failing to
disclose who’s driving the
insured vehicle. Keep in mind,
however, that if you add drivers
with lousy records or who haven’t
had much driving experience,
your premiums will definitely go
up.
Any
parent of a driving teenager can
tell you this. Teenagers are
notorious for getting tickets
and having accidents. They are
also very inexperienced drivers.
As such, when your child gets
his or her license, your
insurance premiums will go up
when you add your child to the
policy.
If
you buy all six of the major
auto insurance coverages, your
policy will cover you in most
every instance in which you
cause damage or injury to your
car, yourself, your passengers,
or drivers and passengers in
other vehicles.
But
not all.
*
Note. The standard auto
insurance policy has some “exclusions,”
which is insurance-ese for, “We
won’t cover that.” Here are
some examples where your auto
policy won’t provide coverage:
§
If you intentionally try
to cause damage to your car or
another vehicle. This includes
liability coverage.
§
If you are using the
vehicle to transport other
people for a fee. (This does not
apply to car pools where the
expenses are shared.)
§
If you are using the
vehicle for certain business
activities. This does not
include traveling to see clients
or taking a standard business
trip.
§
For damage caused by
normal wear and tear, freezing,
mechanical or electrical
breakdown, or road damage to
tires.
§
If your car is damaged
because of radioactive
contamination, intentional or
accidental discharge of nuclear
weapons, war, insurrection,
rebellion or revolution.
You
can get sideways with your
insurance company because you
haven’t been upfront about how
you are using your vehicle. For
example, do you drive your car
to work? If so, you will pay
more for auto insurance than if
you take mass transit. In fact,
the further you have to drive to
work, the more you will pay.
*
Tip.
If you drive to work and
tell your insurance company you
don’t, you have basically
committed fraud. Resist
this common temptation, even if
it will save you a few dollars.
*
Example.
Say you have an
accident on the way to work.
Say, also, that you have told
your insurance company you don’t
drive to work. Your insurer
could technically argue that it
is not obligated to provide
coverage. It is unlikely,
however, that this will happen.
Why?
Because the insurer would have a
difficult time proving that you
drove every day. Perhaps this
was a one-time thing, or a
fairly rare event. In any case,
by lying about driving to work,
you’ve given your insurance
company a good reason to cancel
your policy.
Honesty
is the best policy when it comes
to insurance. Insurance fraud is
a huge problem in this country.
Claims are frequently padded
with nonexistent damages.
Accidents are staged. Injuries
are faked.
*
Fact.
It is estimated that fraud
accounts for as much as 25 cents
to 30 cents of every
auto insurance premium dollar.
Think about that. If even half
the auto insurance fraud in this
country were wiped out in the
next year, you would pay 12% to
15% less for your next policy.
Do
you use your personal car for
business? Do you have access to
a company car? If the answer to
either question is yes, you
could have potential coverage
gaps.
*
Example.
Let’s say you use
your personal car for business.
It’s possible your employer is
providing some coverage for you
through your employer’s
commercial auto policy. Some
coverage. For the most part, the
coverage is for liability only,
and often this commercial auto
policy doesn’t even apply
until the limits on your
personal auto policy are
exhausted. (This is what
insurance people call “excess”
coverage.)
*
Tip.
You should talk to your employer
about what, if any, coverage is
available to you through the
company’s commercial auto
policy. That way, if you have an
accident while on company
business, you know who (or which
insurance company) to call.
If
you use your personal car for
regular business purposes –
trips, visiting clients, etc.
– your personal auto policy
probably provides enough
coverage for these activities.
(Assuming you have “enough”
coverage to begin with.)
But
what if your car is actually a
source of revenue? You make
deliveries, for example. In that
case, you likely need a
commercial auto policy as well.
*
Note. In fact, if you
have an accident while
delivering a product or using
your car as a taxi, your
personal auto insurer may well
deny your claim. Talk to your
agent to make sure you have
coverage for all the business
activities for which you use
your car.
What
about company cars? Well, they
can be an insurance problem, if
you use the company car for
business and pleasure, and
particularly if you don’t have
a car of your own. If you don’t
have a car, you probably don’t
have a personal auto policy. If
you don’t have a car (or
personal auto coverage), but use
a company vehicle for pleasure,
you are inviting disaster if you
have an accident during a
pleasure trip.
*
Tip.
If you are in this situation,
you should have what is called a
non-owned personal auto policy.
Such
a policy can also come in handy
if you don’t have a car and
you rent a vehicle on a trip.
Your non-owned auto policy will
cover you and your rental car if
you have an accident. Otherwise,
you would probably need to buy
coverage from the rental car
company, coverage that is very,
very expensive.
*
Tip.
You can have coverage gaps even
if you have a personal auto
policy and use a company car for
pleasure. Or if your spouse
and/or children use the company
car for pleasure. Find out from
your employer the extent of
coverage that is available for
your corporate car. Once you
know the extent, talk to your
insurance agent about what
additional coverage you might
need.
So
you’re shopping around for
auto insurance. What do you need
to know? Well, there are lots of
ways – at least 11 –
that you can save money. Many of
these money-saving ideas may
apply to you.
1.
One Insurer,
Multiple Policies – Do
you have a homeowners or renters
insurance policy? If so, is it
with the same insurance company
that provides your auto
insurance? If the answer is no, you’re
paying too much – for both
policies. Almost every
insurance company that sells
auto insurance wants its
policyholders to also buy
homeowners or renters insurance
from that company.
These
insurers offer so-called
multi-policy discounts. Usually,
these discounts are at least 10%
and some insurers apply the
discounts to both the auto and
the homeowners/renters policy.
*
Tip.
Talk to your agent about
multi-policy discounts.
2.
Good Driver, Good
Price? – It’s no
secret that the better your
driving record, the less you
will pay for auto insurance. But
did you know that most people
qualify as “good drivers”
and are eligible for discounted
premiums? Some good drivers pay
a lot more than others, however.
Many
auto insurers are actually a
collection of several insurance
companies in which each caters
to a certain type of driver. The
worst drivers go in one company,
the best in another, and a lot
of people wind up in one of the
middle companies.
These
middle people pay less than the
worst drivers, but more than the
best. The thing is, many of
these middle people have driving
records that are just as good as
those who are insured by the
companies that offer the lowest
rates. Yet these middle people
are paying more. Why?
The
usual reason is that they don’t
know any better. No one told
them which insurance company in
the group had the best prices.
And, probably, no one told them
there was even a group of
insurance companies. If
you have a spotless driving
record, there’s no reason you
shouldn’t be paying the lowest
price a group of insurance
companies has to offer.
*
Tip.
Make sure you’re getting the
best discount for your driving
record. Talk to your
agent. And remember, be a
safe driver. It will save
you money.
3.
The Beauty of the
Bus (or Other Mass Transit)
– Do you drive to and from
work? If you do, you are
literally paying a premium to do
so. Insurance companies charge
you significantly higher
premiums if you drive to work.
And, the longer your commute (in
miles, not minutes), the higher
the premium.
*
Tip.
Some drivers should consider
mass transit. Yes, there’s a
price there, too. But you will
reap the savings of gas and
lower insurance costs.
4.
Low Mileage, Low
Price – On average,
people drive 1,000 to 1,250
miles a month. That is what
insurance companies consider
average use.
*
Tip.
If you drive less than the
average, you could be eligible
for low-mileage discounts, which
some insurers offer.
5.
High-Profile,
High-Cost – The type
of car you drive is a major
factor in what you pay for
insurance. Is your
vehicle a magnet for thieves? Is
it more expensive to repair than
most cars? If the answer to
either of the last two questions
is yes, you’re paying more
than the average car owner for
insurance.
*
Note. To get detailed
information on your vehicle(s)
– or a vehicle you’re
thinking of buying – write to
the Insurance Institute for
Highway Safety at 1005 North
Glebe Rd., Arlington, VA 22201
and ask for the “Highway Loss
Data Chart.”
6.
Raise Your
Deductible – The
deductible is the amount you pay
before insurance kicks in if you
have a claim. For example, if
you have a $250 deductible and
you have an accident in which
your car sustains $1,000 in
damage, you pay the first $250
and your insurer pays the
balance, $750. The lower the
deductible you choose, the more
you pay. If you have assets, you
can probably afford to absorb at
least $250 and probably $500 if
you have a claim.
*
Tip.
If it’s been years since you’ve
had an accident, you may be
better off raising your
deductible and paying less each
year for insurance.
7.
Drop Unnecessary
Coverages – Let’s
say you have an older car, one
not worth very much. There’s
really little point in having
collision and comprehensive
coverages. You don’t have much
to protect. Remember, too, that
you have to subtract your
deductible from any potential
payout you might get.
*
Tip.
As a general rule, any car worth
less than $1,000 shouldn’t
have collision and comprehensive
coverage. Between
the deductible and the extra
expense of these coverages, the
cost is probably greater than
the benefit. How much is your
car worth? An auto dealer can
tell you, or there are plenty of
books that have values of
vehicles going back many, many
years.
8.
Discounts,
Discounts, Discounts –
Auto insurance companies offer
several discounts for a variety
of reasons. The car has
automatic seat beats, air bags,
anti-lock brakes, anti-theft
devices, etc. The driver is a
good student, which is
especially valuable if you have
teenage children who will be on
your policy.
*
Tip.
Make sure you are taking
advantage of all the discounts
available to you!
9.
Taking the
Defensive – Many
insurance companies also offer
discounts to those who have
taken defensive driving courses
recently.
10.
Low-Cost and
High-Cost Areas – Are
you planning to move? If you
are, you should take into
account the cost of insurance.
Generally, the more urban the
area, the higher the premium.
The costs can vary even within a
community.
*
Fact. Rates can
really vary from state to state.
If you’re living in New
Jersey, Massachusetts or Hawaii,
you’re paying several times
more, on average, than you would
in North Dakota, South Dakota or
Idaho.
11.
Credit Where Is (Or
Is Not) Due – Is your
credit record better than your
driving record? If you have a
good credit record, you could be
eligible for discounted premiums
from several auto insurance
companies.
*
Fact. Many insurers now use
your credit history as a major
factor in determining what to
charge you for auto insurance.
In some cases, with some
companies, you could save money
by shifting your business to an
insurer that uses credit as a
rating factor – even if you
have a so-so or poor driving
record. There is another side to
this coin. If you have a poor
credit history, you could save
money by moving your auto
insurance to a company that does
not use credit as a rating
factor. Many insurers do not use
credit as a factor.
*
Tip.
Regardless of your credit
status, you should talk to your
agent to make sure you have the
best situation given your credit
record, good or bad.
Whatever
your driving record or coverage
needs, you should shop around,
or let an experienced insurance
professional shop around, for
the best deal for you. There are
literally thousands and
thousands of coverage options
from hundreds and hundreds of
insurance companies.
In
addition, not only should you
try to get the best deal you
can, you also need to make sure
you have all the coverage you
want/need. Using an Independent
Insurance Agent is usually your
best bet to get the most value
for your auto insurance dollar.
*
Example.
You’ve just started
your vacation. You’ve arrived
at your destination, collected
your luggage, and are in the
process of renting a car. You’ve
given the person behind the
counter your driver’s license
and credit card, and now you are
being asked if you want to buy
“coverage” from the rental
car company.
Do
you need it?
Probably
not, but how can you be sure?
The best way is to be prepared
and know the answer to this
question before you leave on
your vacation.
So
why shouldn’t you buy
insurance from a rental car
company? The person behind the
counter is (usually) not a
licensed insurance professional.
He or she is not conversant with
insurance laws and whether your
own personal auto policy covers
you when you rent a vehicle (in
most circumstances, it does).
Some
rental car company personnel may
say you are required to buy the
coverage (not true) or you will
be personally liable for any
damage to the car while you’re
renting it (most likely, not
true).
*
Fact.
While it’s true you could
be making a costly mistake if
you need the rental car coverage
and don’t buy it, you’re
also making a costly mistake if
you buy it when you don’t need
it.
Rental
car insurance is incredibly
expensive. On a daily basis,
which is how it is sold, the
rental car coverage can cost 10
to 20 times more than your
personal auto policy.
If you buy all the coverages
offered by the rental car
companies, you could easily
double the daily cost of your
rental
vehicle.
So
who needs to buy the rental car
coverage? Well, here’s who
doesn’t. If you have insurance
for your own cars, including
collision and comprehensive
coverages, you don’t need the
rental car insurance –
provided you are not renting the
vehicle for business purposes.
If
you’re on vacation, no
problem. Just say no. If you’re
on vacation but planning to do
some business, you’re probably
OK. But you should talk to your
auto insurance agent if you mix
business and pleasure on the
trips where you rent cars.
