Business & Finance :: February/March 2007
Know Your Auto Insurance Facts
So you have to have auto insurance. When was the last time you looked at the policy? Most likely the policy hasn’t been reviewed since you purchased it. In reality most people never think twice about their auto insurance until the time of an accident. My hope is that this segment will give you a better understanding of the coverages available and why you need to carry those coverages.
For most people, buying an automobile is their first major purchase. Actually, a new car is second only to a home as the most expensive purchase many consumers make. With new vehicles prices averaging over $28,000* it’s easy to see why one would want to protect that investment. While coverage for damage to your automobile is one part of the policy, some will argue that liability protection (including protection from lawsuits) is more important.
Liability coverage pays for the injuries or damage you (or someone driving your car) cause to other people or their property. The two liability coverages are called bodily injury liability and property damage liability. Every state has different laws dictating the minimum coverage you must carry for this. Delaware requires proof of insurance before registering a vehicle and other states use the honor system where you only have to provide proof of insurance if you have an accident or violation. The required minimum coverage limit is 15/30/10** in Delaware.
Let’s say you have an accident: you are distracted momentarily and rear end the BMW in front of you which has 3 people in it, all of whom suffer some injury, and you push the BMW into the vehicle in front of it. If you are carrying liability coverage of 15/30/10 that means your insurance company will cover the cost of any one person’s injuries, rehabilitation expenses, pain and suffering and time lost from work up to $15,000; the maximum paid for the accident will not pay more than $30,000 regardless of the number of people injured (this is the bodily injury portion). In addition your insurance company will pay up to $10,000 for the property damaged.
So 3 people are injured; let’s say their injuries total $75,000, the BMW has front and rear damage of $13,000 and the vehicle in front of it has $5,000 damage. Your policy will pay $30,000 for all injuries and $10,000 for property damage; where does the remaining $45,000 for bodily injury and $8,000 for property damage come from? Once your policy pays the maximum limits, you could be held personally responsible for the remaining amount. It is generally recommended that you carry more than the state minimum coverage to protect yourself from this financial risk.
The next coverage provided under an automobile insurance policy is medical payments coverage. This provision protects you and your passengers if any one is hurt in a car accident, regardless of who’s at fault. The coverage also extends to you and your family members if you are a passenger in someone else’s car or if you are a pedestrian injured by an automobile. In Del-aware this coverage is referred to as Personal Injury Protection or PIP. This coverage pays the medical bills resulting from an accident up to a per person maximum; in Delaware the minimum is $15,000. There can be deductibles and no waiting period under this coverage and prescription drugs related to the injuries are covered. This coverage also allows one to collect for lost wages and rehabilitation expenses, two things that regular medical payment coverage doesn’t protect.
A third coverage provided by an auto policy is uninsured and underinsured motorist coverage. This coverage is quoted similarly to bodily injury liability. Even though mandatory insurance laws exist in 48 states, nearly 15% of all accidents are caused by uninsured drivers*** Uninsured motorist coverage provides protection for you and your passengers when you are injured in an accident with an uninsured motorist. It will cover your medical bills, rehabilitation expenses, lost wages and pain and suffering; things you could have claimed against the at-fault party’s insurance if they had it. Underinsured motorist coverage will cover those same losses if the at fault party’s coverage is insufficient for your loss and you carry more coverage on your underinsured provision than the at fault party carries for liability.
Protection for your automobile is provided under the collision and comprehensive portions of a policy. Collision coverage applies when you have an accident involving another vehicle or object (such as a telephone pole, guardrail, a building) or when you overturn your vehicle. Comprehensive coverage applies in losses involving fire, theft, vandalism, broken glass, hitting an animal, flood or hail damage and other losses not caused by collision. Payments to you under these coverages are made on an actual cash value (ACV) basis for damage to your automobile in excess of your deductible.
It is important to note that an insurance company will never pay more to fix your car than the vehicle is worth. Meaning, if after an accident you get an $8,000 estimate from a body shop to repair your vehicle but the vehicle is only worth $6,000 then you would only receive $6,000 minus your deductible. Common collision deductibles are $500 or $1,000 and common comprehensive deductibles are $100 or $250. If your automobile if financed, then the bank requires comprehensive and collision coverages until that loan is paid off.
Additional coverages are available through many insurance companies. These include: towing and emergency road service and rental car reimbursement. Towing and emergency road service coverage typically has a per disablement maximum of $50. The rental car reimbursement provision will help pay for a rental car up to a stated amount, if you need one following an accident. Common coverage is $30 per day, with a maximum of $900 per claim if a rental car is needed for an extended period of time.
Automobile insurance rates are based on many factors including where you live, your age, what you drive, how much you drive and the coverage you carry. One way to keep your insurance cost down is to take high comprehensive and collision deductibles. As a vehicle gets older and is not financed, many people choose to drop these two coverages completely as a way to save money.
But remember the coverages carried are just one of the factors contributing to the cost of insurance. There are things you can do to make sure that you get the best price possible. The first is to maintain a clean driving record. Your motor vehicle record is used as a predictor of future experience. Accidents and violations stay on your record for 3 years and major violations and suspensions stay on for 5 years. Many companies now use a scoring model that combines your driving record with a variety of other information, including certain elements of your credit history and prior insurance claims to determine your cost for insurance. This means that paying bills on time could affect your insurance rate, as could the number of claims you file on the policy.
As important as it is to have automobile insurance, it’s even more important to know and understand your policy before you need to use it.
Lisa Broadbent-DiOssi is an agency owner with Nationwide Insurance. There are two locations serving New Castle County: 20 Polly Drummond Hill Road, Newark, DE 19711 and 715 Greenbank Road, Wilmington, DE 19808. For more information or an insurance quote, contact their Newark office at 302-731-0044 or their Wilmington office at 302-998-2224.
Lisa is a third generation agent with twenty years experience in the insurance industry. Born and raised in New Castle County, she is the Past President of the National Association of Insurance and Financial Advisors of New Castle County (NAIFA-NCC), Vice President-Elect of the NAIFA Delaware, Leadership In Life Institute (LILI) moderator for the state of Delaware and has obtained her Life Underwriters Training Council Fellowship.
References:
*According to the National Automobile Dealers Association.
**http://info.insure.com/auto/minimum.html
***Insurance Information Institute and http://www.ircweb.org/News
/20060628.pdf
www.whyinsurance.org
