AUTOMOBILE INSURANCE
"This section
contains additional data that supplements basic information contained in
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Money Matters
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in conjunction with the material contained in Your
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All too often, the family car creates headaches — and runs up bills — that seem disproportionate to its utility. Yet the automobile is an indispensable part of most of our lives, and if you own a car, you have to insure it. This section will help you make the most of your automobile insurance dollars. If you both drive and shop carefully, you can keep your automobile insurance premiums down to a manageable level. In fact, you can save a lot of money on your auto insurance if you follow my recommendations.
Driving an insufficiently insured vehicle could be financially disastrous. If you think about it, the amount of damage a ton of metal moving at 40 or more miles an hour can do is positively frightening. One wrong twist of the steering wheel, and your vehicle could be transformed from an innocuous means of transportation into an agent of death and destruction. Fortunately, the majority of drivers never make that wrong turn, but it’s a good idea to remember the fine line that separates a safe car from a dangerous one. And let’s face it: Even the most prudent of us sometimes err while we’re at the wheel.
Given the dangers inherent in driving, a good automobile insurance policy protects more than the value of your vehicle. It protects your entire financial well-being, which could be jeopardized by a single underinsured accident. But buying automobile insurance is a complicated business, and the marketplace abounds with different policies and features. The following broad types of automobile insurance coverage provide protection from about every kind of calamity that could befall you and your car.
This insurance covers injury to pedestrians and occupants of other cars and damage done by you to the property of others. Automobile insurers routinely categorize bodily injury and property liability insurance with a numerical code. For example, in a policy coded 10/20/5 (or $10,000/$20,000/$5,000), the first
number is the highest amount the insurer will pay for bodily injuries suffered by one person; the second, for all persons injured in one accident; and the third, for damage to property.
The amount of bodily-injury and property-liability insurance you need depends in part upon how much you’ve accumulated in the way of assets. Sadly, the more assets you have, the more attractive you are to plaintiffs’ lawyers. It’s the old “deep pockets” syndrome. If you are beginning to accumulate investments, you probably want at least $100,000 in coverage for each injured person, with a maximum of $300,000 per accident.
Many companies now offer a single-limit policy that covers total payments for both property damage and personal injury. Beyond the basic policy, most companies also offer an umbrella policy that covers personal liability, including liability associated with operating your automobile, that goes beyond coverage provided by the automobile policy.
This insurance covers medical payments for the policyholder and his or her family members, as well as other passengers, as a result of any accident involving the insured’s car, no matter who caused the accident. This is a relatively inexpensive, optional insurance, but it is probably not necessary if you have adequate health insurance.
Unfortunately, the drivers who most need ironclad insurance — the scofflaws whose speeding and reckless driving causes so many accidents — are the ones least likely to have it. For these drivers, the fact that state law imposes stiff penalties on uninsured drivers is of little consequence. Because of this little irony, you’d be well advised to include uninsured motorist coverage to protect yourself against the possibility of becoming entangled with an uninsured driver. This insurance covers the policyholder and any passengers riding in the car at the time of the accident. It also covers members of your family if any of you are hit by an uninsured motorist while walking or riding a bicycle. Reasonably priced coverage is commonly available.
Collision insurance covers damage to your vehicle no matter what or
who caused the accident. Premium costs vary with the amount of the
deductible, the type or car, and the type of coverage. If your car is
more than a few years old, however, collision coverage makes little
sense. Why? When a vehicle is damaged, the insurer will pay you
either the cost of repair, or the actual cash value (ACV) of the
vehicle, whichever is less. Older cars have low ACVs; the repair bill
for anything more than minor damage to an aged vehicle will usually
exceed the ACV. When this happens, the vehicle will be deemed
“totaled.” Chances are that the ACV of a totaled older
vehicle won’t be enough to cover its true replacement costs,
especially if your departed car was well maintained. So unless you
have a fairly new car, you should drop collision insurance altogether.
The more likely a driver is to send a claim to his or her insurer, the more likely the insurer is to charge a higher-than-average premium. Just as life insurance companies use complex formulas and equations to determine when you are likely to die, auto insurers must determine how likely it is that a particular driver will get into an accident or have his or her car stolen. Not surprisingly, city dwellers pay high premiums, for the chance of theft is far greater in New York or Boston than it is in Cedarburg, Wisconsin. In addition, insurers look very closely at the applicant’s age and driving record — it’s no secret that younger drivers are more accident-prone.
Another reason that geography so profoundly affects insurance rates is the fact that insurance regulations vary greatly from state to state. The absence or existence of a state “no-fault” law can affect your premium, as can a whole host of other legislative variables. While many states have adopted no-fault insurance plans, they vary in their features. In essence, no-fault insurance means that your own insurance company pays if you are in an accident whether you are at fault or not.
Finally, drivers who are convicted of motor vehicle offenses ranging from speeding to drunk driving also face higher-than-average premiums. While a speedster’s surcharge may be an annoyance, the premium that a convicted drunk driver must pay can be absolutely prohibitive.
Generally, you don’t need to purchase collision damage waiver insurance — often costing more than ten dollars a day — when you rent a car. Before you go out to rent a car, check you own automobile insurance policy. It probably covers you even when you are driving a rented car. You may even want to copy the section of your policy description that covers rental cars so that you can refer to it when you’re in the rental agency. Having your policy in writing in front of you will bolster your resolve to resist the collision damage waiver “hard sell” that the rental agent may give you.
An exception to waiving collision-damage waiver: If you are renting a car outside the United States, you may be subject to so many hassles should you be involved in an accident that it is probably worthwhile accepting this coverage to ensure your peace of mind during foreign sojourns. Other kinds of insurance offered with your rental car contract — including personal accident insurance, personal effects insurance, and liability insurance supplement — are equally unnecessary. You probably already have this coverage in your other insurance policies.
The auto insurance claims process is sometimes difficult and often
frustrating. The key to success with it is patience, and if you are
willing to wait the few weeks it takes to settle a claim, you will
probably end up with more money. If your car is stolen — here in
Massachusetts this seems to happen to each of us three or four times
a year — the typical insurance company will wait for a few weeks
for it to show up, albeit minus certain vital parts. Whatever your
reason for filing a claim, the following list of steps will help you
take appropriate actions.
1. Telephone the insurance agent or local company representative as soon as possible. Ask how to proceed and what forms and documents will be needed to support the claim.
2. If necessary, provide a “proof of loss” form as well as documents related to the claim (for example, medical and auto repair bills, a copy of the police report).
3. Immediately turn over to the insurance company copies
of any legal papers received in connection with the loss.
4. Keep careful records of expenses incurred as a result
of an automobile accident or theft that may be reimbursed under your policy.
5. Contact the insurance agent or representative regularly to insure that the claim is being settled fairly and promptly.
What should you do if you have a small claim? Many people are reticent to file small claims because they are afraid that their insurance premiums will be raised as a result. Actually, many minor automobile claims will not result in an increase in premium. You may also get into some trouble by not filing a claim. If the company discovers such “concealment,” it is often grounds for policy termination. Also, by not giving notice of an accident, you may forfeit certain policy rights, such as legal defense, in the event you are sued later on.