• What is auto insurance?
• What is in a basic auto policy?
• Can I drive legally without insurance?
• What if I lease a car?
• Do I need insurance to rent a car?
• What's the difference between cancellation and non-renewal?
What is auto insurance?
Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical coverage:
• Property coverage pays for damage to or theft of your car.
• Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
• Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
Most auto policies are for six months to a year.
What is in a basic auto policy?
Your auto policy may include multiple coverages. Each coverage may be priced separately.
1. Bodily Injury Liability
This coverage applies to injuries you, the designated driver or policyholder cause to someone else. You and family members listed on the policy are also covered when driving someone else's car with their permission.
It's very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money. Definitely consider buying more than the state-required minimum to protect assets such as your home and savings.
2. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident.
3. Property Damage Liability
This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.
This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deductible of $250 to $1,000-the higher your deductible, the lower your premium. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you're not at fault, your insurance company may try to recover the amount they paid you from the other driver's insurance company. If they are successful, you'll also be reimbursed for the deductible.
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.
Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage, but if you have a car loan, your lender may insist you carry it until your loan is paid off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.
Can I drive legally without insurance?
NO! Almost every state requires you to have auto liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance, you need to have sufficient assets to pay claims if you cause an accident. If you don't have enough assets, you must purchase at least the state minimum amount of insurance. But insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.
If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
What if I lease a car?
If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to purchase these coverages in addition to the others that may be mandatory, such as auto liability insurance.
If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
Do I need insurance to rent a car?
When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough.
Before you rent a car:
1. Contact your insurance company.
Find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it's used for pleasure and not business. If you don't have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.
2. Call your credit card company.
Find out what insurance your card provides. Levels of coverage vary. If you don't have auto insurance, you will need to buy coverage at the car rental counter. The cost of insurance at the rental car counter will vary depending on the rental car company, state, and location of the dealer and the type of car you rent.
Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
What's the difference between cancellation and non-renewal?
There is a big difference between when an insurance company cancels a policy and when it chooses not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except:
• If you fail to pay the premium.
• You have committed fraud or made serious misrepresentations on your application.
• Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. The insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy.
How Much Insurance Do You Need?
Evaluating Your Home and Personal Property
The first step in determining how much insurance you will need is to make an analysis of the value of your home (excluding the value of your land) and your personal property within it. In determining the value of your home, you must calculate how much it will cost to replace it if your home were totally destroyed. You can enlist the help of your insurance agent in determining this figure. In fact, most insurance companies make a physical inspection of your home when they first insure it. Using formulas that take into account whether your home is of brick or wood frame construction, total area, number of floors, number of rooms, etc., the company will be able to give you an accurate replacement cost value.
Determining the value of your personal property will require an analysis on your part. You should go through each room of your house and list every piece of furniture and fixture within it. Some insurance companies provide Household Inventory Schedules which can be quite helpful with this task. Items such as sofas, tables, beds, TVs, refrigerators, and lawn mowers would be included in such a schedule.
As you compile your inventory you should supplement it with receipts indicating the purchase price and date of purchase and photographs of major items. Your inventory should be updated on an annual basis, or at the very least, whenever you purchase a large appliance or piece of furniture.
Some people periodically make a video of all their possessions. If you do, make sure all the drawers and/or doors of your furniture are open so you have a record of what is stored. It would also be helpful if you are able to verbally describe major items on the video.
Once you have determined the approximate worth of your home and its contents, in most cases, your homeowners insurance coverage will be on the home’s replacement cost. Generally, if you purchase coverage on a replacement cost basis and insure your home for at least 80% of its replacement cost, your insurance will automatically be issued on a replacement cost basis. Then, when you suffer a loss, your insurer would pay you the amount it would cost to replace or repair your home without deducting anything for depreciation. Of course, this type of coverage is more expensive than actual cash value coverage.
The replacement cost of your home must be estimated at the time you take out a homeowners policy. In most cases, insurance companies will inspect your home and use formulas that take into account a house’s construction, size, quality, location, nationally recognized construction indices and other factors to approximate its current replacement cost. As a result of the increase in the value of homes, insurance companies have become more active in evaluating the replacement cost of homes that they insure and often require periodic updates of that cost.
Coverage for contents is usually issued on an actual cash basis in homeowners and tenants policies. Your insurance company will determine any amount payable to you as a result of a covered loss by taking the current replacement cost of the contents and subtracting an amount for wear and tear and/or depreciation
Maintaining Adequate Insurance
As previously discussed, if you do not insure your home for at least 80% of its replacement value, your claim will not be settled on a replacement cost basis. Therefore, it is important to review your homeowners policy periodically to determine whether you are carrying enough insurance to be fully covered.
The addition of a room, or other substantial home improvements, will also increase the replacement cost of your home, and you should adjust your coverage accordingly.
Due to inflation, the replacement cost of your home generally increases each year. To anticipate inflationary increase, most insurance companies offer policies that automatically increase the amount of insurance periodically. If you do not have such protections, you should be reviewing you policy each year to make sure your coverage is keeping pace with inflation.
Basic Amounts of Coverage and How to Add to the Basics
The amount of coverage available for personal property losses and other losses is generally related, by percentage, to the amount for which the dwelling is insured. In addition to these limits on general categories of property, there are further limitations for specific types of property.
Increased Limits of Liability
The limits for personal liability and medical payments are not offered as a percentage of the residence limit and the medical payments limit is included within the personal liability limit. Generally, personal liability limits of $100,000 per occurrence and medical payments limits of $1,000 per person are sold to the public. Higher limits of liability for these two coverages can also be purchased.
Home Computer Coverage
Normally, home computers used for personal use are subject to the limit available for personal property. Some companies may have a separate limit for the home computer. However, if they are used for business, the company will only pay up to $2,500, as shown above. If you feel that you need higher limits for your business computer, you should contact your company, agent or broker to see if higher limits are available through the purchase of an additional endorsement or a separate policy.
If you do not purchase higher limits and use a laptop computer for business purposes, you should be aware that if it is lost or stolen, the location of the loss determines the coverage available. If the loss occurs at home, the coverage limit is $2,500, while if the loss occurs away from home it is only covered for $500.
Workers’ Compensation Insurance
The Insurance Law requires that any policy that provides personal injury liability and is issued for a one-to-four family, owner occupied dwelling or condominium apartment also provide workers’ compensation insurance. Anytime you hire someone to work for you, you should check with your insurance agent, broker or company to determine whether those employees would be covered under your policy.
Home Day Care Coverage
There is limited liability coverage under your homeowner’s policy for day care activities. Ordinarily coverage is provided if you take care of one or two children for a mutual exchange of services. This means that if you take care of a friend’s children in exchange for their day care services for your children, with no exchange of money, liability coverage will be provided under your policy.
If you are paid for day care services you provide, it is considered a business enterprise and you must purchase additional coverage.