|
Frequently Asked Questions
Private Passenger Automobile Insurance
Why is automobile insurance sometimes referred
to as a "packaged policy?" What are the parts of the package?
Before the 1950's, if a person wanted
to purchase all the coverage that the modern day automobile insurance
policy provides, he or she would have had to purchase at least four
separate policies. Changes in the laws that regulate the sale of
insurance now allow the insurance industry to sell policies that
combine the separate coverages into one all encompassing policy.
The main advantages of combining the
various coverages are lower expenses, and therefore a lower cost
to consumers, and the convenience of being able to purchase the
property, automobile liability and other coverages in a single policy.
The standard private passenger automobile
insurance policy can have up to four different coverages. Only the
first coverage is standard - the remaining three coverages are optional.
Part A provides liability coverage
that protects the insured from lawsuits arising from either the
negligent operation or ownership of a covered automobile. There
are two coverages provided in Part A - bodily injury liability (BIL)
and property damage liability (PDL).
- BIL provides coverage for the bodily
injury claims of people you negligently injure in an accident.
- PDL provides coverage for any third
party property damage claims that the courts determine you are
responsible to pay.
Part B provides medical payments
to the policyowner and any other passengers in the car when there
is an accident.
Part C provides uninsured
motorist and underinsured motorist protection for the
policyowner.
Both coverages are designed to compensate
the injured policyowner when the negligent driver has an insufficient
amount of liability insurance under his/her own policy. Typically,
Part C covers only bodily injury losses, but property damage losses
are included in some states.
Part D covers damages to your car when
it is involved in an accident.
I have an older car whose current
market value is very low - do I really need to purchase automobile
insurance?
Most states have enacted compulsory
insurance laws that require drivers to have at least some automobile
liability insurance, Part A. These laws were enacted to ensure that
victims of automobile accidents receive compensation when their
losses are caused by the actions of another individual who was negligent.
Except for the minimum liability coverages
that you may be required to purchase, many people with older cars
decide not to purchase any of the physical damage coverages. It
is often the case that the cost of repairing the damages to an older
car is greater than its value. In these cases, your insurer will
usually just "total" the car and give you a check for
the car's market value less the deductible.
Many people forgo the Part D coverages
because of the relatively low values of their automobiles.
Suppose I lend my car to a friend,
is he/she covered under my automobile insurance policy?
Whenever you knowingly loan your car
to a friend or an associate, he or she will be covered under your
automobile insurance policy. In fact, even if you do not give explicit
permission each time a person borrows your car, they are still covered
under your automobile insurance policy as long they had a reasonable
belief that you would have given them permission to drive the car.
What coverage does my automobile
insurance policy provide me when I rent a car?
The answer to this question is not as
easy as it once was. In the not-too-distant past, most automobile
insurance policies would extend coverage to rental cars whenever
you rented one. This is not quite true anymore.
In most cases, your personal automobile
insurance policy will provide coverage only when you are renting
a car on vacation. Many insurance companies no longer extend personal
automobile insurance coverage when you are traveling on business.
The best way to find out what rental car coverage you have under
your automobile policy is to call your insurance agent/company.
What is the difference between collision
physical damage coverage and comprehensive physical damage coverage?
Both collision and comprehensive are
Part D coverages.
Collision is defined as losses
you incur when your automobile collides with another car or object.
For example, if you hit a car in a parking lot, the damages to your
car will be paid under your collision coverage.
Comprehensive provides coverage
for most other direct physical damage losses you could incur. For
example, damage to your car from a hailstorm will be covered under
your comprehensive coverage.
It is important to know the differences
between the collision and comprehensive coverages for a couple of
reasons.
- First, in order to make an
informed purchasing decision about these optional coverages, you
need to know the difference between them.
Second, the deductibles under
the collision and comprehensive coverages are often different
in amount.
What should I do if I have an accident?
The duties you need to perform after
you have an accident are prescribed both by state law and by the
terms of your contract. Obviously, the first thing you should
do is make sure everyone is all right and call an ambulance if one
is needed.
Second, for most accidents in
most states, the police should be notified.
Third, you should give the other
driver(s) involved in the accident your name, address, telephone
number, and the name of your insurance company and/or your insurance
agent. You also need to get this same information from the other
driver(s).
Fourth, at the first opportunity,
you should contact either your insurance agent or your insurance
company to notify them that you have been involved in an accident.
Finally, there are a number
of conditions in the insurance contract that you must satisfy in
order to receive compensation from your insurer. For example, you
need to cooperate with your insurer during any investigation undertaken
during the claims settlement process. Failure to complete any of
these actions can, and sometimes does, result in non-payment by
your insurance company for losses that otherwise would have been
covered.
Why does the premium for my automobile
insurance go up if I have an accident or if I get a ticket?
Actuaries and statisticians who have
studied the claiming behavior of people involved in accidents have
long known that people who have either had an accident or received
a ticket recently are more likely to have another accident in the
next couple of years than people whose recent driving record has
been incident free.
Insurance companies use this information
not to punish people who have had an accident, but to charge them
the premium that most accurately reflects their likelihood of having
an accident. People who are more likely to have accidents should
reasonably be expected to pay higher premiums.
How can I get insurance for my motorcycle?
Motorcycle insurance can be obtained
by adding a miscellaneous-type vehicle endorsement to your
existing automobile insurance policy. This endorsement will also
provide coverage for mopeds, motor homes, dune buggies and other
such vehicles.
What is no-fault insurance?
With no-fault insurance, the victims
of an automobile accident are compensated by their own insurance
company, regardless of who caused the accident. This outcome is
different from what occurs under the traditional tort system of
compensating victims of an accident.
In the tort system, the party who is
at fault is required to compensate the victims of the accident.
The idea behind no-fault insurance is to keep small claims from
being settled in our expensive legal system. To accomplish its purpose,
no-fault insurance restricts the injured person's right to sue the
negligent driver in those instances where the loss falls below a
certain threshold.
Two types of thresholds are typically
used: verbal thresholds and dollar thresholds. A dollar
threshold prescribes a dollar limit that a claim must reach
before the injured party regains his or her tort rights, and therefore
the ability to sue.
A verbal threshold uses a written
description to determine when the injured person regains his or
her tort rights. For example, a person might regain his or her tort
rights when the accident caused a serious handicap, such as permanent
loss of a bodily function.
What do I gain and what do I lose
by giving up my tort rights?
Proponents of no-fault insurance argue
policyowners gain a number of things by giving up their right to
sue in minor accidents. For example, under no-fault insurance you
typically pay lower automobile insurance premiums, collect claims
payments faster, and spend less time in court. The biggest thing
you lose by giving up your right to sue is the ability to collect
payments for pain and suffering. No-fault insurance only pays your
direct economic losses, such as hospital bills, lost wages, etc.
It does not compensate you for any pain and suffering damages that
you may incur as a result of an accident.
However, in most serious accidents,
where the likelihood of incurring these non-economic losses is greatest,
you regain your tort rights and therefore the ability to sue the
negligent party for pain and suffering.
I live in a state where I can elect
either no-fault coverage or traditional tort coverage. Which one
should I choose?
A number of states allow policyowners
to choose whether they would like no-fault insurance or traditional
tort coverage. Which one you choose depends upon your tolerance
towards the risk that you may not be able to sue for pain and suffering
damages in all accidents.
However, since the thresholds where
you regain your tort rights are usually low, many policyowners choose
the no-fault coverage because the premium can be substantially reduced
by doing so.
What factors can affect the cost
of my automobile insurance?
A number of factors can affect the cost
of your automobile insurance - some of which you can control and
some which are beyond your control. The type of car you drive, the
purpose the car serves, your driving record, and where you live
can all affect how much your automobile insurance will cost you.
Even your marital status can affect
your cost of insurance. Statistics show that married people tend
to have fewer and less costly accidents than do single people.
What should I consider when purchasing
automobile insurance?
There are a number of factors you should
consider when purchasing any product or service, and insurance is
no different.
Here is a checklist of things
you should consider when purchasing automobile insurance.
- First, purchase the amount of liability
coverage which makes sense for you.
- Second, you should decide which
optional coverages you want. For example, do you want the optional
physical damage coverages in Part D or is the market value of
your car too low to warrant purchasing them.
- Finally, once you have decided what
you want in your automobile insurance policy, you can now decide
who you would like to purchase the insurance from. For example,
you may decide you like the idea of purchasing insurance from
a mutual company rather than a stock company.
You should also decide whether you
would like an insurance agent to assist you in your purchasing decision
or if you would like to buy the insurance directly from a company
that sells insurance over the phone or through the mail.
How can I lower my automobile insurance
rates?
There are a number of things you can
do to lower the cost of your automobile insurance. The easiest thing
to do is to shop around. It is not surprising to find quotes on
automobile insurance that can vary by hundreds of dollars for the
same coverage on the same car. When you shop, be careful to make
sure each insurer is offering the same coverage. Many insurers use
the ISO policy forms, but this is not always the case.
Another way to lower the cost of your
automobile insurance is to look for any discounts that you may qualify
for. For example, many insurers will offer you a discount if you
insure multiple cars under the same policy, or if you have had a
driver education class in the last five years. Be sure to ask your
agent or your company about their discount plans.
Another easy way to lower the cost
of your automobile insurance is to increase the deductible. Simply
raising your deductible from $250 to $500 can lower your premium
sometimes by as much as five or ten percent. However, you should
be careful to make sure that you have the financial resources necessary
to handle the larger deductible.
|
