Auto
What
is auto insurance?
What is in a basic auto policy?
Can I drive legally without
insurance?
What
if I lease a car?
Do
I need insurance to rent a car?
What's the difference between
cancellation and non-renewal?
What
is auto insurance?
Auto insurance protects
you against financial loss if you have an
accident. It is a contract between you and
the insurance 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 coverage:
An
auto insurance policy is comprised of six
different kinds of coverage. Most states require
you to buy some, but not all, of these coverages.
If you're financing a car, your lender may
also have requirements.
Most auto policies are for six months to a
year. Your insurance company should notify
you by mail when it's time to renew the policy
and to pay your premium.
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What
is in a basic auto policy?
Your auto policy may include six coverages.
Each coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries 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's 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.
2.
Medical Payments or 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.
3.
Property Damage Liability
This coverage pays for damage 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
it also includes damage to lamp posts, telephone
poles, fences, buildings or other structures
your car hit.
4.
Collision
This coverage pays for damage to your car
resulting from a collision with another car,
object or as a result of flipping over. It
also covers damage caused by potholes. Collision
coverage is generally sold with a deductible
of $250 to $1,000-the higher your deductible,
the lower your premium. 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're
not at fault, your insurance company may try
to recover the amount they paid you from the
other driver's insurance company. If they
are successful, you'll also be reimbursed
for the deductible.
5.
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 $300 deductible, though you may
want to opt for a higher deductible as a way
of lowering your premium.
Comprehensive insurance will also reimburse
you if your windshield is cracked or shattered.
Some companies offer glass coverage with or
without a 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 off.
6.
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 an uninsured or hit-and-run
driver.
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Can
I drive legally without insurance?
NO! Almost every state 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 don't have enough assets, you must
purchase at least the state minimum amount
of insurance. But insurance exists to protect
your assets. Trying to see how little you
can get by with can be very shortsighted and
dangerous.
If you've financed your car, your lender may
require comprehensive and collision insurance
as part of the loan agreement.
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What
if I lease a car?
If you lease a car, you still need to buy
your own auto insurance policy. The auto dealer
or bank that is financing the car will require
you to buy collision and comprehensive coverage.
You'll need to buy these coverages in addition
to the others that may be mandatory in your
state, such as auto liability insurance.
If you've financed your car, your lender may
require comprehensive and collision insurance
as part of the loan agreement.
- Collision covers the
damage to the car from an accident with
another automobile or object.
- Comprehensive covers
a loss that is caused by something other
than a collision with another car or object,
such as a fire or theft or collision with
a deer.
The leasing company may also
require "gap" insurance. This refers to the
fact that if you have an accident and your
leased car is damaged beyond repair or "totaled,"
there's likely to be a difference between
the amount that you still owe the auto dealer
and the check you'll get from your insurance
company. That's because the insurance company's
check is based on the car's actual cash value
which takes into account depreciation. The
difference between the two amounts is known
as the "gap."
On a leased car, the cost of gap insurance
is generally rolled into the lease payments.
You don't actually buy a gap policy. Generally,
the auto dealer buys a master policy from
an insurance company to cover all the cars
it leases and charges you for a "gap waiver."
This means that if your leased car is totaled,
you won't have to pay the dealer the gap amount.
Check with the auto dealer when leasing your
car.
If you have an auto loan rather than a lease,
you may want to buy gap insurance to protect
yourself from having to come up with the gap
amount if your car is totaled before you've
finished paying for it. Ask your insurance
agent about gap insurance or search the Internet.
Gap insurance may not be available in some
states.
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Do
I need insurance to rent a car?
When renting a car, you need insurance. If
you have adequate insurance on your own car,
including collision and comprehensive, this
may be enough.
Before you rent a car:
1. Contact your insurance
company.
Find out how much coverage you have on your
own car. In most cases, the coverage and deductibles
you have on your personal auto policy would
apply to a rental car, providing it's used
for pleasure and not business. If you don't
have comprehensive and collision coverage
on your own car, you will not be covered if
your rental car is stolen or if it is damaged
in an accident.
2. Call
your credit card company.
Find out what insurance your card provides.
Levels of coverage vary.
If you don't have auto insurance, you will
need to buy coverage at the car rental counter.
The following coverages are available to you
at the rental car counter:
1. Collision Damage Waiver
(CDW).
Sometimes called a Loss Damage Waiver (LDW),
this coverage relieves you of financial responsibility
if your rental car is damaged or stolen. The
CDW may be void, however, if you cause an
accident by speeding, driving on unpaved roads
or driving while intoxicated. This coverage
generally costs between $9 and $19 a day.
If you have comprehensive and collision on
your own car, you may not need to purchase
this coverage.
2. Liability
Insurance.
This provides excess liability coverage of
up to $1 million for the time you rent a car.
Rental companies are required by law to provide
the minimum level of liability insurance required
by your state. Generally, this does not offer
enough protection in a serious accident. If
you have adequate liability coverage on your
car or an umbrella policy on your home/auto,
you may consider forgoing this additional
insurance. It generally costs about $7 to
$9 a day. If you don't own a car, and rent
cars often, consider purchasing a non-owner
liability policy. This costs approximately
$200 - $300 per year. Frequent car renters
sometimes find this more cost-effective than
constantly paying for the extra liability
coverage.
3. Personal
Accident Insurance.
This provides coverage to you and your passengers
for medical/ambulance bills. This type of
insurance, usually costs about $3 per day,
but may be unnecessary if you are covered
by health insurance or have adequate medical
coverage under your auto policy.
4. Personal
Effects Coverage.
This provides coverage for the theft of personal
items in your car. However, if you have homeowners
or renters insurance, you may be covered for
items stolen from the car, minus your deductible.
You need to have receipts or other proof of
ownership. This type of insurance usually
costs about $1.25 per day. Some rental car
companies combine personal accident and personal
effects coverage together as one type of insurance,
while others sell it individually.
The cost of insurance at the rental car counter
will vary depending on the rental car company,
state, and location of the dealer and the
type of car you rent.
Some rental car companies may check your credit
and driving history and may deny coverage.
Check with the rental car company to find
out its policy.
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What's
the difference between cancellation and non-renewal?
There is a big difference between when an
insurance company cancels a policy and when
it chooses not to renew it. Insurance companies
cannot cancel a policy that has been in force
for more than 60 days except:
- If you fail to
pay the premium.
- You have committed
fraud or made serious misrepresentations
on your application.
- § Your driver's
license has been revoked or suspended.
Non-renewal is a different
matter. Either you or your insurance company
can decide not to renew the policy when it
expires. Depending on the state you live in,
your insurance company must give you a certain
number of days notice and explain the reason
for non-renewal before it drops your policy.
If you think the reason is unfair or want
a further explanation, call the insurance
company's consumer affairs division. If you
don't get an explanation, call your state
insurance department.
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