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| Frequently Asked Questions - Insurance 101 Automobile Basics
Q: What is auto insurance?
A: Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the 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 coverages:
* Property coverage pays for damage to or theft of your car.
* Liability coverage pays for your legal responsibility to oters 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 seven different kinds of coverage. Most states require to buy some, but not all, of these coverages. If you are financing a car, your lender may also have requirements.
Most auto policies are for six months or one year. Your insurance company should notify you by mail when it's time to renew the policy and pay your premium.
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Q: What is covered by a basic auto policy?
A: Your auto policy may include seven coverages. Each coverage is priced separately.
Bodily Injury Liability
This coverage applies to injuries that 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 is 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.
Medical Payments and 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.
Property Damage Liability
This coverage pays for damage for 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 also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
Collision
This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. Collision coverage is generally sold with a deductible of $250 to $1000—the higher your deductible the lower your premium. This coverage applies 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 are not at- fault the at-fault party’s insurance company should pay for your damages. If your carrier is forced to repair your vehicle they will subrogate against the at-fault carrier, and if successful, will reimburse you for the deductible.
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 $500 deductible, the higher the deductible the lower the premium.
Comprehensive insurance will also reimburse you if your windshield is cracked or shattered minus your 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 in full.
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 and uninsured or hit-and-run driver. Uninsured motorist comes into play when an at-fault driver has no or insufficient insurance to pay for your total loss.
Towing and Rental Reimbursement
This coverage is available in Texas and will pay the cost of towing your disabled vehicle up to the limit purchased. While your auto is in the repair shop due to an accident or a covered comprehensive loss you will be allowed a daily allowance up to the limit purchased to rent a vehicle normally up to 30 days.
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Q: Can I drive legally without auto insurance?
A: NO! Almost every state, including Texas, 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 do not have enough assets, you must purchase at least the state minimum amount of insurance. Insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.
If you have financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
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Q: How can I save money on my auto insurance?
A: The price you pay for your auto insurance can vary by hundreds of dollars, depending what type of car you have and the limits of coverage you purchase.
Do not make your decision on price alone. You want an agent that represents numerous markets and will shop for you based on your needs and cost. You want someone that answers your questions and handles claims fairly and efficiently. Select an agent that takes the time to answer your questions and returns your calls.
Before you buy a car compare insurance costs
Before you buy a new or used car, check into insurance costs. Your premium is based in part on the car’s sticker price, the cost to repair it, its overall safety record, and the likelihood of theft. These include air bags, anti-lock brakes, daytime running lights and anti-theft devices. Texas gives you discounts for cars equipped with air bags and anti-lock brakes.
Cars that are favorite targets for thieves cost more to insure. Information can help you decide what car to buy is available from the Insurance Institute for Highway Safety (www.iihs.org).
Ask for higher deductibles
Deductibles represent the amount of money you pay before your insurance company pays toward the loss. By requesting higher deductibles , you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15% to 30%. Going to a $1,000 deductible you could save even more.
Reduce physical damage coverage on older cars
Consider dropping collision and/or comprehensive coverages on older cars. It may not be cost-effective to continue insuring cars worth less than 10 times the amount you would pay for coverage. Any claim payment you receive would not substantially exceed your premiums minus the deductible. Auto dealers and banks can tell you the worth of a car, or you can look it up online at Kelley Blue Book (WWW.kbb.com) Review your coverage at renewal time to make sure your insurance need haven’t changed.
Buy your homeowners and auto coverage from the same insurer
Many insurers will give discounts if you buy two or more types of coverage from them. You will also get a reduction in premium if you have more than one vehicle insured on the same policy.
Maintain good credit
Your credit rating may affect what you pay for insurance. Credit makes insurance rates more accurate, fair and objective. While the use of insurance scoring varies from state to state and company to company, it is a fact that drivers with long, stable credit records have fewer accidents than drivers who don’t.
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Q: How much coverage do I need?
A: Almost every state requires you to buy a minimum amount of liability coverage. Chances are that you will need more liability insurance than the state requires because accidents cost more than minimum limits. If you are found legally responsible for bills that are more than your insurance protection, you will have to pay the difference out of your own pocket. These costs could wipe you out!
The Insurance Information Institute recommends that you have a minimum of $100,000 of bodily injury protection per person and $300,000 per accident. In addition you will need to purchase property damage liability to repair what you hit. It is recommended that you carry $100,000 per occurrence of property damage liability. If your net worth is more than $300,000 consider buying additional liability. You may also consider purchasing an umbrella liability policy. An umbrella policy pays when your underlying policy limits are exhausted. If you have your homeowners and auto insurance at the same place check out the cost of coverage with this company first.
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Q: What determines the price of my policy?
A: There are many factors that influence the price you pay for auto insurance. The average American driver spends about $900 a year per car. Your premium may be higher or lower depending on:
Your driving record
The better your record, the lower your premium. If you have had accidents or traffic violations, you will pay more than if you have a clean driving record. You may also pay more if you have not been insured fro more than 30 days.
The number of miles you drive each year
The more miles you drive, the more chance for accidents. If you drive a lower than average number of miles, less than 10,000, you may pay less. In addition some companies give discounts to policyholders who carpool.
Where you live
Insurance companies look at local trends, such as the number of accidents, car thefts and lawsuits, as well as the cost of medical care and car repair.
Where you live
Insurance companies look at local trends, such as the number of accidents, car thefts and lawsuits, as well as the cost of medical care and car repair.
Your age
In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. So insurers generally charge more if teenagers or young people below the age of 25 drive your car.
The car you drive
Some cars cost more to insure than others. Variables include likelihood of theft, the cost of the car, the cost of repairs, and the overall safety record of the car.
The amount of coverage
Of course, like anything else, the more coverage you have, the more your pay
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Q: Should I purchase an umbrella liability policy?
A: If you are ever sued, your standard homeowners or auto policy will provide you with some liability coverage, paying for judgments against you and your attorney’s fees, up to a limit set in the policy. However, in our litigious society, you may want have an extra layer of liability protection. That’s what a personal umbrella liability policy provides.
An umbrella policy provides coverage when you reach the limit on the underlying liability coverage in a homeowners, auto or boat policy. The premium for an umbrella is surprisingly reasonable.
Because the personal umbrella policy goes into effect after the underlying coverage is exhausted, there are certain limits that usually must be met in order to purchase this coverage. Most insurers will want to have about $250,000 of liability on your auto policy and $500,000 on your homeowners policy before selling you an umbrella policy for a $1,000,000 or more of additional coverage.
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