Why
is auto insurance sometimes referred to as a packaged policy? What are the
parts of the package?
Before the 1950's, if you wanted to purchase all the coverage today's auto
insurance policy provides, you 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 parts into
one all-encompassing policy. The main advantages of combining the parts are
lower expenses, and therefore a lower cost to consumers, and the convenience
of being able to purchase property, auto liability and other types of coverage
in a single policy.
Part
A of an auto policy is liability coverage that protects you from lawsuits
arising from either negligent operation or ownership of a covered automobile.
There are two types of coverage in Part A - bodily injury liability (BIL)
and property damage liability (PDL).
- BIL covers the bodily
injury claims of people you negligently injure in an accident.
- PDL covers any third
party property damage claims the courts determine you must pay.
Part B provides
medical payments to you and any other passengers in the car in an accident.
Part C provides
uninsured motorist and underinsured motorist protection for the policy owner.
Both
B and C are designed to compensate you when the negligent driver doesn't have
enough liability insurance under his/her 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 auto liability insurance (Part A). These laws were enacted
to ensure that victims of accidents are compensated when their losses are
caused by someone else being negligent. Except for the minimum liability you
may be required to buy, many people with older cars decide not to purchase
physical damage coverage. Often, the cost of repairing 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 coverage because of the relatively low value of their
autos.
Suppose
I lend my car to a friend; is that covered under my auto insurance policy?
Whenever you knowingly loan your car to a friend or an associate, he or she
will be covered under your policy. In fact, even if you don't give explicit
permission each time a person borrows your car, someone is still covered under
your policy as long he or she had a reasonable belief that you would have
given permission to borrow the car.
What
does my auto insurance policy cover when I rent a car?
The answer to this question is not simple. In the not-too-distant past, most
auto insurance policies would extend coverage to rental cars whenever you
rented one. This is not quite true anymore. In most cases, your personal auto
insurance policy will cover only vacation car rentals. Many insurance companies
no longer extend personal auto insurance coverage for business travel. Find
out what rental car coverage you have under your policy is by calling your
insurance agent/company.
What
is the difference between collision physical damage coverage and comprehensive
physical damage coverage?
Both collision and comprehensive coverage are in Part D. Collision is defined
as losses you incur when your auto collides with another car or object. For
example, if you hit a car in a parking lot, damages to your car will be paid
under your collision coverage. Comprehensive covers most other direct physical
damage losses. For example, damage to your car from a hailstorm will be covered
under comprehensive coverage. It's important to know the differences between
collision and comprehensive coverage to make an informed buying decision.
Also keep in mind that your deductibles in these two categories are often
different.
What
should I do if I have an accident?
Your responsibilities after you have an accident are proscribed both by state
law and by your insurance contract.
- Obviously, the first
thing you should do is be sure everyone is all right and call an ambulance
if needed.
- Second, for most
accidents in most states, the police should be notified.
- Third, give the
other driver(s) involved your name, address, telephone number, and the
name of your insurance company and/or your insurance agent. Get this same
information from the other driver(s).
- Fourth, as soon as
possible, contact either your insurance agent or your insurance company
to notify them that you have been in an accident.
- Finally, there are
conditions in the insurance contract you must satisfy to receive compensation
from your insurer. For example, you must cooperate with your insurer during
any investigation during the claims settlement process. Not completing
any of these actions can result in nonpayment by your insurance company
for losses that otherwise would have been covered.
Why
does the premium for my auto insurance go up if I have an accident or get
a ticket?
Actuaries and statisticians who have studied the behavior of people involved
in accidents have shown 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, but to charge them a
premium that reflects their likelihood of having an accident. People who are
more likely to have accidents should expect to pay higher premiums.
What
factors affect the cost of my auto insurance?
The type of car you drive, what you use it for, your driving record,
where you live and even your marital status can all affect how much your policy
will cost. It's all based on numbers; for example, statistics show that married
people have fewer and less costly accidents than single people.
What
should I consider when buying auto insurance? Things you should consider
when purchasing automobile insurance include:
- Decide how much liability
coverage you want to carry. This is highly subjective. The liability levels
you have on your other policies can serve as a guideline. Consult a financial
professional if you need more advice.
- Determine which optional
coverage you will need to feel protected. For example, do you want the
optional physical damage coverage in Part D, or is the market value of
your car too low to warrant purchasing them?
- Once you have decided
what you want, you can now choose from which type of company you want
to buy a policy.
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