Auto Insurance
Insuring your vehicle can be confusing, particularly since laws vary from state to state. Later in this chapter, we provide two good online resources you can use to check your state requirements. But it's important to remember that the minimum coverage required by state law and coverage you should have to adequately protect you and your family can be different. Individuals are more likely to face a lawsuit over an auto accident than for anything else.
What are the types of coverage?
The following types of coverage can be found in an auto insurance policy:
- Bodily injury liability. This coverage pays the following if the policyholder caused an accident: medical, rehabilitation, and funeral (if necessary) of your passengers, the other driver, the other driver's passengers, and any pedestrians involved. It also covers pain and suffering awards and legal costs.
- Property damage liability. This coverage pays to repair or replace another person's vehicle or other property damaged by the policyholder's vehicle.
- Uninsured and underinsured motorist coverage. If an accident is caused by a hit-and-run driver or a driver that has little or no insurance, this coverage pays the medical, rehabilitation, and funeral bills, and pain and suffering of the policyholder and policyholder's passengers.
- Collision. This coverage pays to repair or replace the policyholder's vehicle whether the damage was caused by another vehicle, a roll-over, another object, or even potholes. This coverage usually has a deductible.
- Comprehensive. This coverage pays to repair or replace the policyholder's vehicle if it is stolen or damaged by something other than a collision, such as a storm.
- Medical payments. This coverage pays the medical bills for the policyholder and the policyholder's passengers.
- Personal Injury Protection (PIP). This coverage reimburses the policyholder for lost wages and in-home care needed resulting from an accident.
What coverage and amounts are required by law?
Coverage requirements vary from state to state. For detailed state requirements, visit your state's Insurance Department or Commissioner web site. Locate it using the National Association of Insurance Commissioners (NAIC) web site.
Which coverage and amounts do you need?
Most state requirements provide for only a minimum amount of coverage, which is usually not enough to cover accident costs. Industry and consumer experts recommend:
- Bodily injury liability—at least $100,000 per person and $300,000 per accident.
- Property damage liability—at least $100,000 per accident.
- Uninsured and underinsured motorist coverage—same as bodily injury.
- Collision and comprehensive—choose the highest deductible you can afford.
- Medical payments—you may want to carry at least $5,000 (or higher) to protect any passengers that may not have health insurance.
- PIP—not necessary unless you do not have separate health or disability insurance. If your state requires PIP and you have health insurance, you may wish to buy only the minimum required.
In general, the more assets you have to protect, the higher the liability coverage you should consider. You don't want an accident you caused to wipe out your savings for your child's education or your retirement savings. Above a certain point, umbrella liability coverage, over and above your auto insurance, is your best protection against such losses.
What should you do if you're in an accident?
Insurance companies and law enforcement officials recommend taking these basic steps if you're in an accident:
- Call the police or highway patrol
- Write down the following:
- names and addresses of all drivers and passengers involved in the accident
- license plate numbers
- make and model of each vehicle
- driver's license numbers
- insurance information
- names and addresses of witnesses
- names and badge numbers of police officers or other emergency personnel.
- Find out when and where you can get a copy of the accident report
What should you do if you have reason to suspect that the accident was staged? Staged auto accidents are popular with some types of insurance fraud rings. Perhaps the car cut in front of you and slammed on its brakes, or the driver waved you to turn then ran into you, or a number of “passengers” who you didn't see in the car seem to be there. Your first defense is always to call the police. Call even for small “fender benders” because small accidents are the fraud artists' favorite. Your second defense is not to share your insurance number or driver's license number until the police report. It's okay to get names and addresses and license plate numbers, but insist on calling the police. Select here for our chapter on insurance fraud and what you can do.
How do you file a claim?
Every insurance company typically spells out their process for filing a claim in the policy. If they provide an insurance wallet card, the claim filing instructions are also often printed on the back of this card. It's a good idea to review the claims process for your policy before you need it.
Should you not have your claim process handy, take these steps:
- Call your insurance agent as soon as possible, whether you are at fault or not.
- Ask your agent what process you need to follow and what forms or documents are needed for your claim. You can expect to provide a “proof of claim” form and a copy of the police report, if there is one.
- Ask the following questions:
- Is there a time limit for filing claims and submitting bills?
- Do I need to get repair estimates for the damage to my vehicle?
- Does my policy cover a rental car while my vehicle is being repaired? If so, how much?
- Is there a time limit for submitting additional information, if required?
- Provide the requested information making sure you carefully fill out the claim form.
- Keep good records—names and phone numbers of everyone you talk to, copies of any bills related to the accident, copies of information provided.
What should you do if you have difficulty settling your claim?
If your claim has been denied or if you aren't satisfied with the handling of the claim then you can take these steps:
- Make sure you can support your case with documentation. Be prepared to send copies with any letters. Keep the original documents, such as estimates and receipts and only send copies. Also keep copies of all letters.
- Be prepared to document each phone call. Note the date and time of each conversation and name of each person you talked to.
- Review your policy to see if it contains information on resolving disputes or appealing a claim denial.
- Talk with your agent or company representative. If they can't solve the problem then get the name and phone number of the company's claims manager.
- Send a letter explaining your problem including copies of supporting documentation to the company claims manager.
- If your problem still isn't satisfactorily resolved, then contact your state insurance department and file a complaint. Locate your state insurance web site using the National Association of Insurance Commissioners (NAIC) web site.
- As a last resort, you may want to consult an attorney. Make sure you choose an attorney that specializes in auto insurance. Be prepared to pay a consultation fee and get the fee structure in writing before pursuing the case.
How can you save on your auto insurance?
Many factors are used in determining the price of auto insurance. These factors include your driving record, the number of miles you drive per year, where you live, your age and the age of other drivers, the vehicle model, and amount of coverage you select. How many vehicles you insure with the company may also make a difference because some companies provide a discount for multiple policies.
Increasingly, your credit history, interpreted as an insurance score, helps determine the rates you pay on auto insurance or whether you are even approved for coverage. Many insurers claim a person who handles their credit responsibly is more likely to be a responsible driver and less likely to file an insurance claim.
Given these factors here are some tips on how to save on your insurance:
Comparison shop. Prices vary among companies. You probably want to get at least 3 estimates. Price isn't the only thing to look at—you want an agent/company that takes the time to answer your questions.
Check out the cost of insuring the car before buying it. The sticker price of a car, its overall safety record, repair costs, and theft rates affect the premium. Rates can vary even among similar vehicles. Call your insurance agent and ask for a quick quote. There are also reputable online “cost to own” services that you may wish to check out; the StreetWise Auto Buying Guide tells you how.
Look for multi-policy discounts. Many insurers will give you a discount if you insure your vehicle and home (or other policy) with them.
Ask about safe driver discounts. Discounts may be available if you haven't had any accidents or moving violations for a number of years. Some companies offer a discount if you have taken a certified defensive driving course recently.
Raise your deductibles. Paying higher deductibles, such as $500 instead of $200, can reduce your premium substantially. Decide how much of a one-time loss you can afford to pay on your own and see what kind of a rate break you can get.
Reduce your mileage. Some insurers give a discount if you drive less than the average number of miles. Using public transportation or carpooling to work is one way to save on mileage.
Ask about additional discounts. Discounts may be offered for anti-theft devices, airbags, anti-lock brakes, daytime running lights, student drivers with good grades, and students away from home. Your company may offer others.
What is automotive gap insurance? When might you need it?
Automotive gap insurance, also known as Guaranteed Asset Protection (GAP), pays the difference between what you owe on the vehicle (whether you are buying or leasing) and the cash value of the vehicle in the event that the vehicle is “totaled” in an accident or stolen.
Leasing. If you are leasing a vehicle, gap insurance is recommended because your lease payments essentially rent the use of the vehicle, they don’t build equity in it at all (that residual value belongs to the lessor). The residual value is typically larger than your regular auto insurance would cover.
Buying. As vehicles have gotten more and more costly, many automotive buyers have opted for longer loan periods in order to have affordable payments, so their equity in the car is not growing as quickly as it would with a shorter loan period. Other consumers have been attracted by “zero down” financing offers. Going for “zero down” or “100% financing” even from a great source like your credit union means you will owe more on your new vehicle than it's worth for a while. A small down payment can put you in the same potential problem spot — it's called being “upside down” or “in the bucket” in a loan.
In the StreetWise Auto Buying Guide we recommend that you try to avoid this precarious spot by saving up a bigger down payment before you trade. But sometimes you can't. If you will be “upside down” when you purchase a vehicle, then getting gap insurance to cover the term you are upside down may be a good idea depending on your resources.
DCU offers Auto insurance through DCU Insurance. Free quotes are available. Optional gap insurance and loan protection insurance are available from DCU at the time you obtain your auto loan.
