Auto

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.

An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverage’s. If you’re financing a car, your lender may also have requirements.

Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium.

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What is in a basic auto policy?

Your auto policy may include six coverage’s. Each coverage is 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; it may also cover funeral costs.

   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.

   4. Collision

This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over or 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.

   5. Comprehensive

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 is usually sold with a $100 to $300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium.

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.

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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.

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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 buy these coverage’s in addition to the others that may be mandatory in your state, 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.

  • Collision covers the damage to the car from an accident with another automobile or object.
  • Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire or theft or collision with a deer.

The leasing company may also require “gap” insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or “totaled,” there’s likely to be a difference between the amount that you still owe the auto dealer and the check you’ll get from your insurance company. That’s because the insurance company’s check is based on the car’s actual cash value which takes into account depreciation. The difference between the two amounts is known as the “gap.”

On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don’t actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a “gap waiver.” This means that if your leased car is totaled, you won’t have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.

If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you’ve finished paying for it. Ask your insurance agent about gap insurance or search the Internet. Gap insurance may not be available in some states.

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Do I Need To Purchase Rental Car Insurance? And Why?

The Top 10 Reasons to Purchase the Rental Car Insurance…CDW/LDW

To paraphrase Shakespeare, “To purchase the CDW or not to purchase the CDW, that is the question.” It has been debated for years whether or not a pencil renting a vehicle should purchase the Collision (or Loss) Damage Waiver from the rental com­pany. Our recommendation is that consumers, in general, SHOULD purchase the CDWILDW, at least for short-term rentals. Our reasons are given below.

  • Loss Valuation. The Personal Auto Policy (PAP) covers the lesser of the “actual cash value” of the vehicle or the amount “necessary” to repair or replace the damaged property. The rental agreement may very well contrac­tually obligate you to reimburse the rental company for the “full value” of the vehicle. The PAP also does not pay for any “betterment” (increased value of new parts replacing old ones) of the vehicle, nor any “diminution” of value (if the market value of the vehicle after repairs is Less than that before the accident).
  • Loss Settlement. As implied above, there may very well be disagreement over the value of the vehicle or the amount charged for labor and materials to repair it. Your auto policy’s Appraisal clause may be invoked with its accompanying costs. More importantly. The insurance company has the right to “…inspect and appraise the damaged property before its repair or disposal.“However, the rental company, unlike you, is not contractually obligated to the insurer…it may choose to make the repairs immediately. Potentially resulting in a leek of PAP coverage because of failure to comply with this contractual condition. In any case, purchase of the CDW usually allows the renter to “walk away” without the headaches involved in adjusting an auto claim.
  • Loss Payment. The rental agreement may require immediate reimbursement for damages, and it is custom­ary practice for the rental company to charge your credit card. This can create a significant debt. “max” out the card’s credit limit (perhaps shortening a vacation or business trip). Result in litigation. etc.
  • Loss Damage Waivers (LDW). Rental agreements often make the renter responsible for any loss in value beyond normal wear and tear, regardless of the cause and regardless of fault. In order for your PAP to respond, you must insure at least one vehicle for both collision and other-than-collision (often called “comprehen­sive”) coverage. If not, your policy will not respond to rental car damage and loss of use claims.
  • Indirect Losses. You will most likely will be responsible for the rental company’s loss of rental income on the damaged unit. Your policy has limited coverage for these charges.
  • Administrative Expenses. The rental contract may make the insured liable for various “administrative” or loss-related expenses such as towing (e.g., one insured was charged for a 230-mile tow), appraisal. claims adjustment, storage, etc. Some of these expenses may not be covered by the PAP.
  • Other Insurance. The PAP says that it is excess over: (1) any coverage provided by the owner of the auto. (2) Any other applicable physical damage insurance, and (3) any other source of recovery applicable to the loss—travel policies, credit card coverage’s, etc. The potential controversy over who pays what is obvious and can result in litigation. In addition, keep in mind that many states have statutes, proprietary policy Forms, and/or Excluded Vehicles & Territories. The PAP normally does not provide physical damage coverage for motorcycles, mopeds, motor homes, or other vehicles that are not private passenger autos, pickups, vans, or trail­ers. In addition, use of covered vehicles is limited to the U.S., its territories and possessions, Puerto Rico, and Canada (the rental agreement may also exclude operation outside a specific geographical area). If you rent a trailer (U-Haul, camper trailer, etc.), coverage is limited to $500.
  • Excluded Uses & Drivers. The PAP may have limitations on use of vehicles that are not otherwise excluded by the rental agreement CDW or LDW. Also, the PAP may include an exclusionary endorsement for certain drivers or may apply only to designated individuals—the CDW will probably also only apply to certain individuals, but operators for which no PAP coverage is available may be afforded protection under the rental agreement by adding them as designated drivers.
  • Additional and/or Future Costs. The PAP will most certainly include a deductible in the range of $100-$500 or more. In addition, payment for damage to a rental car may result in a significant premium increase (if not nonrenewable) via surcharges or loss of credits.
  • Although most CDW/LDW fees are considered outrageous, if not unconscionable, we advise you to purchase the CDW/LDW for short-term rentals. If anything, this will give you peace of mind while on vacation or business, and it could save you from a lot of inconvenience and lost time and money.

Other Tips:

When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough. It is recommended that you purchase the rental car insurance to cover the gaps in your insurance, which can be very expensive.

    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 following coverage’s are available to you at the rental car counter:

    1. Collision Damage Waiver (CDW).

Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. This coverage generally costs between $9 and $19 a day. If you have comprehensive and collision on your own car, you may not need to purchase this coverage.

    2. Liability Insurance.

This provides excess liability coverage of up to $1 million for the time you rent a car. Rental companies are required by law to provide the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy on your home/auto, you may consider forgoing this additional insurance. It generally costs about $7 to $9 a day. If you don’t own a car, and rent cars often, consider purchasing a non-owner liability policy. This costs approximately $200 – $300 per year. Frequent car renters sometimes find this more cost-effective than constantly paying for the extra liability coverage.

    3. Personal Accident Insurance.

This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance, usually costs about $3 per day, but may be unnecessary if you are covered by health insurance or have adequate medical coverage under your auto policy.

    4. Personal Effects Coverage.

This provides coverage for the theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car, minus your deductible. You need to have receipts or other proof of ownership. This type of insurance usually costs about $1.25 per day. Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.

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. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company’s consumer affairs division. If you don’t get an explanation, call your state insurance department.

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