For most Americans auto insurance is a very expensive purchase. To make an informed decision you should learn as much as you can about the underwriting factors that affect the cost, the different amounts of coverage available, the requirements in your state, and about what insurance companies have the best rate for you.
Insurance companies underwrite to assess risk associated with an applicant. That is, what groups are at a higher risk to make more claims. The groups with a higher claim history will pay more for auto insurance. Underwriting factors that affect cost are:
- Driving Record – Drivers with previous traffic violations and at fault accidents would be placed in a higher risk group.
- Marital Status – Claims among married policyholders are less than single policyholders putting them in a lower risk group than single policyholders.
- Residence – The location where you garage the vehicle (usually your residence) also affects the rates. More claims are made from urban areas than rural areas.
- Age and Gender – Some age groups fall into higher risk groups. Males have more accidents than females. Teenagers have many more accidents than the rest of the population. A small number of states have prohibited insurance companies from using gender as a risk factor.
- Use of Vehicle – Higher annual mileage will usually result in higher cost because of the higher exposure to risk.
- Type of Vehicle – The type and cost of the car you drive will affect the cost of the insurance.
- History of Prior Coverage – If you were cancelled because of non-payment of premiums from a prior insurance company your rates in some states might be affected adversely.
- “Better Risk Discounts” – If you qualify, discounts you should ask for:
- Multiple Vehicles
- Good Student
- Safety Devices – Automatic seat belts, Anti-Lock brakes, Air Bags etc.
- Drive a low amount of miles each year
- Good Driver
- Anti-theft devices
- Driver Education courses for young and old drivers
- Auto and Homeowners policies with same company
Depending on the type of legal and financial responsibility system used in your state, you will need to purchase either automobile liability insurance or no-fault insurance.\
LIABILITY COVERAGE (LIABILITY)
BODILY INJURY LIABILITY (BI):
Covers other people’s bodily injuries or death for which you are responsible. It also provides for a legal defense if
another party in the accident files a lawsuit against you. Claims for bodily injury may be for such things as medical
bills, loss of income or pain and suffering. In the event of a serious accident, you want enough insurance to cover
a judgment against you in a lawsuit, without jeopardizing your personal assets. Bodily injury liability covers injury
to people, not your vehicle. Therefore, it is a good idea (and usually a company requirement) to have the same
level of coverage for all of your cars. Bodily injury liability does NOT cover you or other people on your policy. It
is mandatory in most states.
PROPERTY DAMAGE LIABILITY (PD):
Covers you if your car damages someone else’s property. Usually it is their car, but it could be a fence, a house or
any other property damaged in an accident. It also provides you with legal defense if another party files a lawsuit
against you. It is mandatory in most states.
PHYSICAL DAMAGE COVERAGE (COMP AND COLL)
COMPREHENSIVE COVERAGE (OTHER THAN COLLISION, OTC, COMP):
Covers your vehicle, and other vehicles (in limited scenarios) you may be driving for losses resulting from incidents
other than collision. For example, comprehensive insurance covers damage to your car if it is stolen; or damaged
by flood, fire, or animals. It pays to fix your vehicle less the deductible you choose. To keep your premiums low,
select as high a deductible as you feel comfortable paying out of pocket. This coverage is not required by a state,
but your lender or lease company may require it.
COLLISION COVERAGE (COLL):
Covers damage to your car when your car hits, or is hit by, another vehicle, or other object. Pays to fix your
vehicle minus the deductible you choose. To keep your premiums low, select as large a deductible as you feel
comfortable paying out of pocket. For older cars, consider dropping this coverage, since coverage is normally
limited to the cash value of your car. This is not required by a state, but if you have a loan or a lease then the lien
holder will require it.
UNINSURED AND UNDERINSURED MOTORIST COVERAGE (UM)
UNINSURED MOTORIST BODILY INJURY (UM):
Covers you, the insured members of your household and your passengers for bodily/personal injuries, damages,
or death caused by an at-fault uninsured or hit-and-run driver. If you are involved in an accident where the other
driver is at fault but has no insurance, your policy will cover your medical expenses, up to the limit on your policy.
UNDERINSURED MOTORIST BODILY INJURY (UNDUM):
Covers you, the insured members of your household and your passengers for injuries, damages or death caused
by the negligence of a person with insufficient insurance. If you have an accident with a person whose coverage
cannot meet your damages, your policy will meet the difference-up to the limit of liability listed on your policy.
OTHER COVERAGE TYPES
PERSONAL INJURY PROTECTION COVERAGE (PIP or MEDEX):
Covers within the specified limits, the medical, hospital and funeral expenses of the insured, others in his vehicles
and pedestrians struck by him. It is only available in certain states. Depending on the state, the covered parties
and the amount of protection may vary.
MEDICAL PAYMENTS (MEDPM):
Covers medical expenses to you and your passengers injured in an accident. There may also be coverage if as a
pedestrian a vehicle injures you. This coverage applies regardless as to who is at fault. Medical payments may also
cover policyholders and their family members when they are injured while riding in someone else’s car or when a
car hits them while on foot or bicycling. Coverage is limited to the terms and conditions contained in the policy.