Car Insurance

- Car insurance is an absolute necessity for anyone who drives a car. Even ignoring the fact that some types of car insurance are mandated by law, coverage is essential: the potential costs surrounding an accident -- whether they be repair/replacement costs of the cars or other property, or medical costs of the victims -- are simply too huge to run the risk of being without adequate coverage.

Car insurance policies can be divided into two distinct categories: third-party liability and first-party insurance. In car insurance terminology, the owner of the policy is the first party, who has contracted with the second party (the insurer) for the coverage. The third-party is the other person(s) in the accident, or the person(s) whose property the policy-owner damaged. Thus, in general, third-party liability insurance covers the damages to other people that are attributable to the policy-owner. First-party insurance covers damages that are done to the policy-owner or his passengers.

At least some amount of third-party liability coverage is required by law in most states; for the most part, first-party coverage is not. However, car insurance is not the place to save money by cutting corners; a single accident could easily wipe out someone's life savings, whether they're at fault or not. Also, price isn't everything... if the insurance company balks at every claim, low premiums are meaningless.

Car Insurance Policies:
Third-Party Liability There are two types of third-party liability policies: bodily injury and property damage. Bodily injury liability pays other people for damages the policy owner has done to them, such as medical expenses, lost wages, and pain and suffering; property damage pays other people for damages done to their property. If someone files suit against the policy owner as a result of a car accident, these policies will provide monetary protection (up to the limit of the policy).

Nearly all states require a set minimum amount of third-party liability coverage. Generally, states that don't require these policies are "no-fault" states, which have enacted laws that eliminate most claims of "pain and suffering" and many other standard small claims. Regardless of these "no-fault" laws, experts agree that the ideal policy should have more third-party liability coverage than is required by law. Juries sometimes award very large damages to plaintiffs with only minor injuries; the minimum required policy is highly unlikely to significantly defray liability costs in the event of a major lawsuit. And "no-fault" laws generally only protect drivers from petty claims - big injury suits are still allowable.

Bodily Injury - The common notation for bodily injury policies looks like 50/100 or 100/300, where the first number is the dollar amount (in thousands) of total coverage in the event that one person is injured or killed, and the second number is the total dollar amount (in thousands) for an entire accident. Again, this coverage will also handle legal expenses involved in settling suits brought against you. Experts suggest that a policy have at least 100/300 insurance ($100,000 coverage for one person's injuries, $300,000 per accident). Property Damage - Following the same notation as above, property damage is the third number listed on the policy, e.g., if the policy were 100/300/25, it would offer $25,000 worth of coverage to repair or replace others' property (including cars). Typically, states require property damage insurance of around $15,000, but because the cost of the average new car is well above $20,000, coverage of at least $25,000 generally makes sense.

First-Party Expense First-party coverage comes in many forms, some of which are essential, and some of which are usually not worth the premiums. First-party coverage is used to repair damages to the policy-owner and his or her passengers in the event that:
The policy owner was not at fault in the accident
No one was at fault in the accident
The driver at fault can not be found (e.g., a hit-and-run)
The driver at fault does not have adequate means to repair the policy owner's damages The most important types of first-party coverage are collision, comprehensive, uninsured/under-insured motorist, and MedPay/Personal Injury
Protection (PIP) insurance. Collision / Comprehensive - Collision coverage guarantees the policy owner's car will be repaired or replaced in the event of an accident, no matter who was at fault. Collision coverage premiums are based on a deductible, usually $250 or $500. Collision coverage is often required when purchasing a new car on a loan, to protect the lender. Comprehensive coverage will pay to repair or replace the policy owner's vehicle and personal property inside of it if it was damaged or lost due to other agents, e.g., fire, theft, flood, vandalism, etc. Comprehensive coverage is also based on a deductible, generally of the same amounts as Collision, and is also often required when purchasing a new car using a loan. Both Collision and Comprehensive coverage can be RCV (replacement cost value) or ACV (actual cash value). RCV will pay what it would cost to replace the car with a new one, ACV will pay what it would cost to repair the car to its prior condition (or replace it with one of a similar condition). Thus, RCV has a higher maximum benefit, but also a higher premium. Uninsured / Under-insured - Uninsured / Under-insured Motorist coverage (also called UM/UIM coverage) pays the policy owner and his or her passengers for pain and suffering, lost wages, etc. in the event that the driver at fault can not be found (as in a hit-and-run), has no insurance, or has too little insurance to cover the damages. Experts say that UM/UIM coverage is at least as important as bodily injury coverage: it is unlikely that the driver at fault will have enough coverage to pay the damages resulting from a serious accident. Further, while other policies can combine to offer the same kind of coverage as UM/UIM, there are several advantages to this type of coverage: o It is more broad that most health or disability plans - it can cover loss of limb, pain and suffering, funeral expenses, etc. o It has much higher coverage than other types of medical-expense car insurance, such as MedPay and PIP (described below). o It is relatively inexpensive. UM/UIM coverage is described by the same notation as bodily injury coverage (e.g., 100/300). Generally, insurance companies will only the allow purchase of UM/UIM coverage up to your current bodily injury limit; experts suggest you purchase the maximum UM/UIM. Medical Payments - MedPay covers medical and funeral expenses to the policy-owner and his or her passengers, regardless of who is at fault in the accident. Personal Injury Protection (PIP) extends basic medical coverage to include lost wages and other damages, and also pays regardless of fault. PIP is often mandated by states that have "no-fault" laws. The maximum coverage for MedPay and PIP is generally much less than that allowed by UM/UIM.
Non-Policy-Owners Most car insurance policies go with the car; that is, they will pay out appropriately regardless of who is driving the car at the time of the accident (as long as the policy owner allowed the driver to use the car). However, if a non-policy-owner is going to use the car on a frequent basis, be sure to include him or her on the insurance policy. Furthermore, if someone drives the car much more often than the policy owner, he or she should consider becoming the primary driver of the car. The primary driver in large part determines the insurance premiums, and providing false information can give the insurance company cause to void the policy.
Stolen Cars The owner of a car is not responsible for third-party damages resulting from or during the theft of his/her car. If the car owner has collision and comprehensive coverage, they will pay out to repair or replace the car (either for its theft or for damage to the car as a result of the theft).
Rental Cars The term "Rental Car Coverage" is used to refer to two different things: coverage offered by rental car agencies for cars rented from them, and an add-on to insurance policies that allows free rentals while the car is in repair. Coverage from a rental car agency is rarely necessary, assuming the renter already has third-party liability, collision, and comprehensive coverage; those policies should extend protection to the rental car (but check the policy). Rental car companies often offer other types of coverage; experts usually suggest avoiding most of these. The rental car add-on to insurance policies is very inexpensive, but may be an unnecessary expense if the policy owner has another car to rely on during an emergency.
Filing Claims: When an accident occurs, it's the policy owner's job to make sure the insurance company pays out appropriately, which is accomplished by filing a claim. Filing a claim can be a complicated process, and isn't the same for all insurance companies. One constant is that keeping the best possible records of the accident greatly facilitates the process. The more proof of damages, or lack of fault, the more accurately the policy-owner's claim will be filled. After an accident, the names, license numbers, and insurance policy numbers of all the drivers involved should be obtained, along with a copy of the police report, and phone numbers of witnesses. The insurance agent should be notified immediately. If injuries have occurred, all medical bills, lost wages, and anything else related to the injury should be recorded. When filing a claim on collision or comprehensive insurance, there are a few things to consider. First, the shops that are part of the insurer's network save time, but because they seek to keep costs low for the insurer, they often provide lower-quality repairs. Second, generic replacement parts, which will be labeled as such on the repair summary, save the repair shop money, but may not work as well or last as long as parts from the original equipment manufacturer (OEM parts). Most often, if the policy owner demands OEM parts, he or she will get them.
Lowering Premiums: Although car insurance can be expensive, there are several strategies experts recommend to lower premiums without giving up the needed level of protection. Raise Deductibles - The higher the deductible, the lower the premium. When a policy owner maintains a larger deductible, it means that he or she is willing to cover more of the cost of the damages, reducing the risk to the insurance company. Of course, if the policy owner doesn't have the cash to cover small damages to the car, it makes sense to keep the deductible low. But the basic idea of insurance is to cover high-cost, low-probability events, not the minor expenses that fall within the deductible. Ask For Discounts - Car insurers offer discounts based on a variety of different qualifications, but too often policy owners forget to ask for them. Some examples of qualifying factors include:
Having a clean record on the current policy for a certain period of time
Owning homeowner's coverage with the same insurer
Taking a defensive driving class
Installing an insurer-approved anti-theft device
If a teen is on the policy, him or her having good grades Choose the Car Wisely - Insurance premiums vary among the different makes and models of vehicles, for a variety of reasons. Some cars, such as sports cars, tend to get in more accidents, and thus cost more to insure. Others, like some makes of family sedans, represent more risk of theft. A new car will cost more to fix or replace than a used one. When buying a car, research how much it would cost to insure; if deciding among similar cars, take insurance costs into account ( Buying a Car). Drive Safely - This is obvious. The fewer accidents a policy owner causes and the fewer traffic violations he or she has, the lower his or her premiums will be. A bad driving record will take a while to clean up, but the premiums will drop as it improves. Shop Around - All insurers do not charge the same premiums for the same plans. Use online quote comparison tools to shop around, but be sure to pay attention to the other features of the policies, not just the price. Experts say the differences in prices for similar policies among different insurance companies can run into the hundreds of dollars a year, so it's worthwhile to do some research before choosing an insurer. Don't Over-Insure - Although the basic types of coverage are a necessity and should not be skimped on, there is still such as thing as too much insurance. If the car is old and not very valuable, consider reducing or skipping collision and comprehensive coverage - the premiums may cost more than the potential maximum payout. Also try to avoid add-ons, such as glass-breakage coverage (which can add up to 20% to the premium). Reduce Risk From Teenagers - Insurers have good reason to charge higher premiums when younger drivers are on the policy: statistically, drivers under 25 are at a greater risk of being in an accident. But if a teenager is regularly driving the car, make sure he or she is listed on the policy - the insurance company may pay if he or she has an accident, but will likely drop the policy immediately thereafter (making getting another policy very difficult). To reduce costs, always assign the child to the least expensive car available. It also helps to have less cars than drivers - then the child can be assigned as a part-time or occasional driver of one car, which will lowers premiums. Finally, encourage strong scholastic performance; insurance companies offer discounts for good grades (ostensibly because children who perform better in school are at less risk for an accident).
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