1)
Why is automobile
insurance sometimes referred to as a "packaged policy?" What are
the parts of the package?
2)
I have an older car whose current market
value is very low - do I really need to purchase automobile
insurance?
3)
Suppose I lend my car to a friend, is he/she covered under
my automobile insurance policy?
4)
What does my auto insurance policy cover when I rent a
car?
5)
What is the difference between collision physical damage
coverage and comprehensive physical damage coverage?
6)
What should I do if I have an accident?
7)
Why does the premium for my automobile
insurance go up if I have an accident or if I get a ticket?
8)
How can I get insurance for my motorcycle?
9)
What is no-fault insurance?
10)
What
do I gain and what do I lose by giving up my tort rights?
11)
What
factors affect the cost of my auto insurance?
12)
What
should I consider when purchasing automobile insurance?
13)
How
can I lower my auto insurance rates?
1) 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.
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2) 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.
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3) 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.
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4) 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.
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5) 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.
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6)
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 non-payment by your insurance company for losses that
otherwise would have been covered.
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7)
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.
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8)
How can I insure my motorcycle?
Motorcycles must be insured under a separate motorcycle policy in
New York State.
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9)
What is no-fault insurance?
It’s
a type of insurance by which the victims of an auto accident are
compensated by their own insurance company, no matter who caused
the accident. This outcome is different from what occurs under the
traditional tort system of compensating victims of an
accident.
In the tort system, the party who is at fault is required to
compensate the victims of the accident. The idea behind no-fault
insurance is to keep small claims from being settled in our
expensive legal system. To accomplish its purpose, no-fault
insurance restricts the injured person's right to sue the
negligent driver in those instances where the loss falls below a
certain threshold.
Two types of thresholds are typically used: verbal
thresholds and dollar thresholds. A
dollar threshold proscribes a dollar limit that a claim must
reach before the injured person regains his or her tort rights
(the ability to sue).
A verbal threshold
uses a written description to determine when the injured person
regains his or her right to sue. For example, someone might regain
tort rights if an accident caused a serious handicap, such as
permanent loss of a bodily function.
A verbal threshold
uses a written description to determine when the injured person
regains his or her tort rights. For example, a person might regain
his or her tort rights when the accident caused a serious
handicap, such as permanent loss of a bodily function.
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10)
What do I gain and what do I lose by giving up my tort rights?
Proponents
of no-fault insurance argue policy owners gain several things by
giving up their right to sue in minor accidents. For example,
under no-fault insurance you typically pay lower automobile
insurance premiums, collect claims payments faster, and spend less
time in court. The biggest thing you lose by giving up your right
to sue is the ability to collect payments for pain and suffering.
No-fault insurance only pays your direct economic losses, such as
hospital bills, lost wages, etc. It does not compensate you for
any pain and suffering damages you may incur from an
accident.
However, in most serious accidents, where the likelihood of
incurring these non-economic losses is greatest, you regain your
tort rights and therefore the ability to sue the negligent party
for pain and suffering.
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11)
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.
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12)
What should I consider when buying auto insurance?
Things
you should consider when purchasing automobile insurance include:
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13)
How can I lower my auto insurance rates?
One
way to lower costs is to look for discounts that may apply to you.
For example, many insurers will offer a discount if you insure
multiple cars under the same policy, or if you have had a driver
education class in the last 5 years. Be sure to ask your agent or
company about their discount plans.
Another
easy way to save is to increase your deductible. Simply bumping a
deductible from $250 to $500 can lower your premium - sometimes by
as much as 5 or 10 percent. However, make sure you have the
financial resources necessary to handle the larger out-of-pocket
costs in the event of an accident.
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Authors: Robert Klein and Bruce Palmer
Content provided by the Insurance Information Institute (I.I.I.)
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