MOTOR VEHICLE RISKS
Owning a vehicle puts you in a position of high economic risk. You might have an accident and injure yourself or other people. You might damage your vehicle or others' property. Your vehicle might be vandalized or stolen. Someone could sue you because of an accident.
Treating injured people and repairing damaged property resulting from an automobile accident can take all of the assets of a person who does not have insurance. The amount of money paid to injured people and to owners of damaged property has increased dramatically in recent years. Vehicle insurance provides protection from the financial risks involved with owning and driving a car.
Sometimes you cannot avoid an accident. No one may be directly blamed for it. However, in most cases someone is at fault. The person who is legally at fault is liable for damages and financial losses that result from the accident. Although you may think you are faultless, you can be sued. If you are insured, your insurance company will provide legal defense for the suit. If the court decides that you are legally liable for injuries or damage to property, your insurance company will pay up to the limits stated in your insurance policy.
Individual states regulate laws related to vehicle insurance. Most of these laws benefit responsible drivers. Owners of vehicles
should know about financial responsibility laws and compulsory insurance laws.
Financial ResponsibilityAll states have some type of financial responsibility law . These laws protect the public from financial loss caused by drivers. If you cause an accident and cannot pay for damages or injuries through insurance, the legal system may take other action. Your savings or property may be taken. Your driver's license will also likely be suspended or taken away. Financial responsibility laws make you legally responsible for any injuries you cause to people. You are also responsible for damage to the property of others.
Compulsory InsuranceMost states require drivers to carry certain types of automobile insurance before they can get a license for their car. In these states, it is compulsory that an automobile owner have insurance for personal injury and property damage. Compulsory insurance laws may not allow a driver to register a car or get a driver's license without proof of the required insurance coverage.
Owning a vehicle puts you in a position of high economic risk. You might have an accident and injure yourself or other people. You might damage your vehicle or others' property. Your vehicle might be vandalized or stolen. Someone could sue you because of an accident.
Treating injured people and repairing damaged property resulting from an automobile accident can take all of the assets of a person who does not have insurance. The amount of money paid to injured people and to owners of damaged property has increased dramatically in recent years. Vehicle insurance provides protection from the financial risks involved with owning and driving a car.
Sometimes you cannot avoid an accident. No one may be directly blamed for it. However, in most cases someone is at fault. The person who is legally at fault is liable for damages and financial losses that result from the accident. Although you may think you are faultless, you can be sued. If you are insured, your insurance company will provide legal defense for the suit. If the court decides that you are legally liable for injuries or damage to property, your insurance company will pay up to the limits stated in your insurance policy.
Individual states regulate laws related to vehicle insurance. Most of these laws benefit responsible drivers. Owners of vehicles
should know about financial responsibility laws and compulsory insurance laws.
Financial ResponsibilityAll states have some type of financial responsibility law . These laws protect the public from financial loss caused by drivers. If you cause an accident and cannot pay for damages or injuries through insurance, the legal system may take other action. Your savings or property may be taken. Your driver's license will also likely be suspended or taken away. Financial responsibility laws make you legally responsible for any injuries you cause to people. You are also responsible for damage to the property of others.
Compulsory InsuranceMost states require drivers to carry certain types of automobile insurance before they can get a license for their car. In these states, it is compulsory that an automobile owner have insurance for personal injury and property damage. Compulsory insurance laws may not allow a driver to register a car or get a driver's license without proof of the required insurance coverage.
AUTOMOBILE INSURANCE COVERAGE
Insurance companies offer several types of auto insurance protection. The two main categories are personal injury coverage and property damage coverage. Figure 20-1 summarizes the types of automobile insurance coverage.
Personal Injury CoveragePersonal injury coverage includes bodily injury liability, medical payments, and uninsured motorist protection. These three types of coverage are the main source of money paid in claims by automobile insurance companies.
Bodily Injury Liability Protection
Insurance that protects a driver from claims resulting from injuries or deaths for which the insured is at fault is bodily injury liability coverage. This type of insurance covers people in other cars, passengers riding with the insured, and pedestrians. The insured and, in most cases, the insured's immediate family are not covered.
Dollar amounts of bodily injury coverage are generally expressed as two numbers, such as 100/300. The first number refers to the limit in thousands of dollars that the insurance company will pay for injuries to any one person in an accident.
For example, with 100/300 bodily injury liability coverage, the insurance company would pay up to $100,000 for injuries to one person.
The second number, 300, is the maximum amount that the company would pay for injuries to multiple people because of the accident. If more than three people were injured, each person may not receive the full $100,000. The insurance company is only liable for $300,000 in this case. You may obtain larger amounts of bodily injury protection for a slight increase in your premium.
Medical Payments Protection
Policyholders and family members are covered if they are injured while riding in their car or another car through medical payments coverage . This protection may also cover them if they are walking and are hit by a car. In addition, the policy protects guests in the insured car.
Medical payments insurance covers the costs of medical, dental, ambulance, hospital, nursing, and funeral services. Payment, up to the limit stated in the policy, is made no matter who is at fault. Car owners usually purchase medical payments insurance along with bodily injury liability coverage.
Uninsured Motorist Protection
In some cases, injuries are caused by hit and-run drivers or by drivers without insurance or money to pay claims. To protect against these drivers, insurance companies offer uninsured motorist coverage .
This coverage is available only to those people who carry bodily injury liability insurance. Uninsured motorist protection covers the policyholder and family members. It also covers guests in the policyholder's car. Uninsured motorist protection covers the insured person only if the uninsured motorist is at fault. This is different from medical payments coverage, which pays regardless of who is at fault.
Insurance companies also offer underinsured motorist coverage. This insures you for losses caused by another driver whose coverage is insufficient.
Property Damage CoverageThree types of automobile insurance protect you from economic loss as a result of property damage. The three types of coverage are property damage liability, collision, and comprehensive damage.
Property Damage Liability
Insurance that protects a driver against claims if the insured's car damages someone else's property and the insured is at fault is property damage liability coverage. The damaged property is often another car, but it may also be property such as telephone poles, fire hydrants, or buildings. Property damage liability insurance does not cover damage to the insured's car.
Collision Insurance
Insurance that protects a car owner against financial loss resulting from a collision or rollover is collision coverage . This insurance does not cover injuries to people or damage to the property of others.
Collision coverage is usually written with a deductible clause. You must pay this amount before the insurance company pays a claim. For example, suppose your car suffers $2,500 damage in an accident and your deductible amount is $500. You would pay $500 and the insurance company would pay a $2,000 claim ($2,500 damages – $500 deductible = $2,000). Deductible amounts are often $200, $500, or more. Deductibles reduce the premium cost.
Insurance companies offer several types of auto insurance protection. The two main categories are personal injury coverage and property damage coverage. Figure 20-1 summarizes the types of automobile insurance coverage.
Personal Injury CoveragePersonal injury coverage includes bodily injury liability, medical payments, and uninsured motorist protection. These three types of coverage are the main source of money paid in claims by automobile insurance companies.
Bodily Injury Liability Protection
Insurance that protects a driver from claims resulting from injuries or deaths for which the insured is at fault is bodily injury liability coverage. This type of insurance covers people in other cars, passengers riding with the insured, and pedestrians. The insured and, in most cases, the insured's immediate family are not covered.
Dollar amounts of bodily injury coverage are generally expressed as two numbers, such as 100/300. The first number refers to the limit in thousands of dollars that the insurance company will pay for injuries to any one person in an accident.
For example, with 100/300 bodily injury liability coverage, the insurance company would pay up to $100,000 for injuries to one person.
The second number, 300, is the maximum amount that the company would pay for injuries to multiple people because of the accident. If more than three people were injured, each person may not receive the full $100,000. The insurance company is only liable for $300,000 in this case. You may obtain larger amounts of bodily injury protection for a slight increase in your premium.
Medical Payments Protection
Policyholders and family members are covered if they are injured while riding in their car or another car through medical payments coverage . This protection may also cover them if they are walking and are hit by a car. In addition, the policy protects guests in the insured car.
Medical payments insurance covers the costs of medical, dental, ambulance, hospital, nursing, and funeral services. Payment, up to the limit stated in the policy, is made no matter who is at fault. Car owners usually purchase medical payments insurance along with bodily injury liability coverage.
Uninsured Motorist Protection
In some cases, injuries are caused by hit and-run drivers or by drivers without insurance or money to pay claims. To protect against these drivers, insurance companies offer uninsured motorist coverage .
This coverage is available only to those people who carry bodily injury liability insurance. Uninsured motorist protection covers the policyholder and family members. It also covers guests in the policyholder's car. Uninsured motorist protection covers the insured person only if the uninsured motorist is at fault. This is different from medical payments coverage, which pays regardless of who is at fault.
Insurance companies also offer underinsured motorist coverage. This insures you for losses caused by another driver whose coverage is insufficient.
Property Damage CoverageThree types of automobile insurance protect you from economic loss as a result of property damage. The three types of coverage are property damage liability, collision, and comprehensive damage.
Property Damage Liability
Insurance that protects a driver against claims if the insured's car damages someone else's property and the insured is at fault is property damage liability coverage. The damaged property is often another car, but it may also be property such as telephone poles, fire hydrants, or buildings. Property damage liability insurance does not cover damage to the insured's car.
Collision Insurance
Insurance that protects a car owner against financial loss resulting from a collision or rollover is collision coverage . This insurance does not cover injuries to people or damage to the property of others.
Collision coverage is usually written with a deductible clause. You must pay this amount before the insurance company pays a claim. For example, suppose your car suffers $2,500 damage in an accident and your deductible amount is $500. You would pay $500 and the insurance company would pay a $2,000 claim ($2,500 damages – $500 deductible = $2,000). Deductible amounts are often $200, $500, or more. Deductibles reduce the premium cost.
Collision coverage does not provide for payment of damages greater than the car's value. Suppose the insured's car incurs $6,500 in damages in a collision with another vehicle. If the car has a value of only $6,100, the collision coverage would pay only $6,100, not $6,500.
Collision coverage may not be worthwhile on a car that is of little value. In some situations, the cost of repairing the car may be more than the car is worth.
Comprehensive Coverage
Your car can be damaged or destroyed in other ways. Common causes of loss include theft or damage from fire, tornado, flood, vandalism, or falling objects. Comprehensive coverage protects the insured against almost all damage losses except those caused from a collision or rollover.
If the insured's car is stolen or destroyed, the amount paid by insurance is not necessarily equal to the amount paid for the car. Rather, it is equal to the car's estimated value at the time of the loss. Suppose the insured's car cost $15,000.
It is stolen soon after it is purchased. The insurance company will probably pay almost as much as the car cost—perhaps $14,500. If the car is stolen two years after it is purchased, the insurance company may pay only $10,500. The car has grown older and has a decreased value.
No-Fault Insurance LawsIn an effort to reduce insurance costs and speed up claim settlements, no-fault insurance has been adopted by some states. Under this program, people injured in an automobile accident collect for their financial losses from their own insurance companies no matter who is at fault. These losses include their medical bills, loss of wages, and other related expenses.
Collision coverage may not be worthwhile on a car that is of little value. In some situations, the cost of repairing the car may be more than the car is worth.
Comprehensive Coverage
Your car can be damaged or destroyed in other ways. Common causes of loss include theft or damage from fire, tornado, flood, vandalism, or falling objects. Comprehensive coverage protects the insured against almost all damage losses except those caused from a collision or rollover.
If the insured's car is stolen or destroyed, the amount paid by insurance is not necessarily equal to the amount paid for the car. Rather, it is equal to the car's estimated value at the time of the loss. Suppose the insured's car cost $15,000.
It is stolen soon after it is purchased. The insurance company will probably pay almost as much as the car cost—perhaps $14,500. If the car is stolen two years after it is purchased, the insurance company may pay only $10,500. The car has grown older and has a decreased value.
No-Fault Insurance LawsIn an effort to reduce insurance costs and speed up claim settlements, no-fault insurance has been adopted by some states. Under this program, people injured in an automobile accident collect for their financial losses from their own insurance companies no matter who is at fault. These losses include their medical bills, loss of wages, and other related expenses.
AUTOMOBILE INSURANCE COSTS
Automobile insurance is expensive. You should spend this money wisely and carefully. It is important to understand how to get the most protection for your insurance dollar.
Insurance RatesInsurance companies use several factors to determine automobile insurance costs. Examples of these factors include:
The lowest rates are reserved for the best risks—those least likely to have an accident. When a driver in the family is under age 25, the cost of insurance is usually higher than if all drivers are over age 25.
The purpose for which a car is driven and the number of miles it is driven in a year also affect insurance rates. Cars used for business purposes are generally driven more miles in a year than are cars driven for pleasure. This increases the chances of an accident.
The value of your car has an important effect on the cost of insurance. Premiums for collision coverage and comprehensive physical damage coverage are higher for a car worth $18,000 than for a car worth only $11,000. The insurance company runs the risk of paying out much more to the insured if the $18,000 car is destroyed or stolen. The type of car also affects the rate. Drivers of a luxury car or a sports car will pay higher rates.
Rates for automobile insurance vary from state to state. They vary from city to city within a state. The population in a particular area and the number of accidents that occur in the area also affect insurance rates. Insurance companies gather statistics on the amount of claims paid for in an area. They base their rates on this information.
The cost of your automobile insurance will vary according to the coverage you have and the deductibles you choose. The more coverage you carry, the higher the cost.
Reducing Auto Insurance CostsBy planning your automobile insurance purchase carefully, you can save money. For example, insurance companies often decrease the extra amount charged for young drivers if they complete a driver education course. Companies in most states also offer young people a good student discount.
Selecting a CompanyAutomobile insurance premiums also vary from company to company. Be sure to compare rates. Companies may offer lower rates if the family insures more than one car or if the insured buys other types of insurance from the same company. Also, paying premiums on a monthly basis is usually more expensive than paying a premium for six months or one year.
Assigned-Risk PlansUsually as a result of a poor driving record, some drivers are unable to buy automobile insurance in the normal fashion. Because of this, every state has an assigned-risk plan. Every automobile insurance company in the state is assigned a certain number of high-risk drivers, based on the amount of insurance each company sells. Each company has to insure a fair proportion of high-risk drivers. Drivers in high-risk categories pay much higher premiums.
Insurance for Other VehiclesInsurance on motorcycles, recreational vehicles, and snowmobiles is similar to automobile insurance. Bodily injury liability, property damage liability, collision, and comprehensive physical damage insurance are the most important types of coverage. The engine size and value of the vehicle are the key factors in determining the cost. Generally, the larger and more expensive the vehicle, the higher the insurance cost.
Automobile insurance is expensive. You should spend this money wisely and carefully. It is important to understand how to get the most protection for your insurance dollar.
Insurance RatesInsurance companies use several factors to determine automobile insurance costs. Examples of these factors include:
- Your age and other characteristics such as accident record, marital status, academic standing, and credit rating
- Purpose for which you use your car
- Number of miles you drive each year
- Value and type of your car
- Community in which you live
- Amount of coverage and deductibles
The lowest rates are reserved for the best risks—those least likely to have an accident. When a driver in the family is under age 25, the cost of insurance is usually higher than if all drivers are over age 25.
The purpose for which a car is driven and the number of miles it is driven in a year also affect insurance rates. Cars used for business purposes are generally driven more miles in a year than are cars driven for pleasure. This increases the chances of an accident.
The value of your car has an important effect on the cost of insurance. Premiums for collision coverage and comprehensive physical damage coverage are higher for a car worth $18,000 than for a car worth only $11,000. The insurance company runs the risk of paying out much more to the insured if the $18,000 car is destroyed or stolen. The type of car also affects the rate. Drivers of a luxury car or a sports car will pay higher rates.
Rates for automobile insurance vary from state to state. They vary from city to city within a state. The population in a particular area and the number of accidents that occur in the area also affect insurance rates. Insurance companies gather statistics on the amount of claims paid for in an area. They base their rates on this information.
The cost of your automobile insurance will vary according to the coverage you have and the deductibles you choose. The more coverage you carry, the higher the cost.
Reducing Auto Insurance CostsBy planning your automobile insurance purchase carefully, you can save money. For example, insurance companies often decrease the extra amount charged for young drivers if they complete a driver education course. Companies in most states also offer young people a good student discount.
Selecting a CompanyAutomobile insurance premiums also vary from company to company. Be sure to compare rates. Companies may offer lower rates if the family insures more than one car or if the insured buys other types of insurance from the same company. Also, paying premiums on a monthly basis is usually more expensive than paying a premium for six months or one year.
Assigned-Risk PlansUsually as a result of a poor driving record, some drivers are unable to buy automobile insurance in the normal fashion. Because of this, every state has an assigned-risk plan. Every automobile insurance company in the state is assigned a certain number of high-risk drivers, based on the amount of insurance each company sells. Each company has to insure a fair proportion of high-risk drivers. Drivers in high-risk categories pay much higher premiums.
Insurance for Other VehiclesInsurance on motorcycles, recreational vehicles, and snowmobiles is similar to automobile insurance. Bodily injury liability, property damage liability, collision, and comprehensive physical damage insurance are the most important types of coverage. The engine size and value of the vehicle are the key factors in determining the cost. Generally, the larger and more expensive the vehicle, the higher the insurance cost.