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Does your vehicle have the right protection? Best practices for buying auto insurance

Does your vehicle have the right protection? Best practices for buying auto insurance

From cavemen to geckos, you have probably seen dozens of ads for auto insurance, but do you know what to consider when buying a policy? It’s important to understand what your insurance will cover and how to protect yourself.  

TOP CONSIDERATIONS 

Who needs auto insurance? Everyone who owns a car should purchase auto insurance so they are covered for property damage, medical bills, and legal costs. Most states require the owner of a vehicle to purchase insurance or provide proof of financial responsibility.  

Components of an auto policy: It’s important to understand your policy. 

  • Declarations/information page includes all information about your policy such as the policy number, effective dates, the cars covered, any loans, coverages, limits and deductibles, your premium, risks and discounts, as well as contact details for your company and agent. 

  • Personal auto policy or policy form features specifics about what is covered, the conditions of the policy and any exclusions.  

Coverage options for your car: When it comes to protecting your own vehicle and occupants, here are some basics.   

  • Collision coverage pays for physical damage to your car as a result of your auto colliding with an object, such as another car or a tree.  

  • Comprehensive coverage pays for damage to your auto from almost all other losses other than collision. These may include theft, fire, vandalism, falling objects or animal damage. 

  • Optional coverages include anything from rental car coverage to towing services. AAA or other memberships may already include some of these coverages. 

  • Medical Payment Coverage (MPC) pays for the medical and/or funeral expenses for you or others injured or killed in an accident while riding in or driving your automobile. This coverage also often extends to pedestrians.  

  • Rental reimbursement coverage or transportation expenses pays for a rental car if your vehicle is damaged by a covered loss. This coverage is usually purchased with a daily and total maximum. For example, $20 per day up to a total of $600.  

  • Towing or emergency road service coverage pays the cost of towing your car to a repair shop.  

Liability coverage: Most policies contain three major parts related to liability to other vehicles and people.  

  • Bodily injury liability insurance does not protect you or your car directly. If you cause an accident in which other people are injured due to your negligence, this insurance protects you against their claims for damages. 

  • Property damage liability insurance pays for any damage you cause to the property of others, like another vehicle, fence, or tree caused by a collision.  

  • Uninsured motorist coverage provides coverage for injury or property damage if you are injured by a hit-and-run driver or a driver who does not have auto liability insurance.  

No-fault states: If you live in a state that has no-fault laws – meaning there is no need to determine who is at fault to receive payment for injury claims – parties seek recovery from their own insurers instead of bringing a lawsuit. The two types of coverage provided under a no-fault system are: 

  • Personal Injury Protection (PIP) coverage pays you or others riding in your car for injury regardless of fault. Benefits vary among states, but typically includes medical expenses, lost wages, and funeral expenses.  

  • Residual Bodily Injury Liability Coverage protects your family and anyone else in your car in the event you are sued because of injuries caused to others. Based on certain thresholds such as clearly defined injuries or death, a suit could still be filed.  

Determine your deductible: A deductible is the amount of money you agree to pay prior to the insurance company making any payment on a loss. Typical deductible amounts are $250, $500 and $1000. Generally, the higher the deductible, the lower the policy premium. 

Shopping for auto insurance online: It can be confusing to shop for insurance online. Depending your state, it may not be easy to get online quotes. Some websites will send the information to an agent in your area to quote and write the policy. Not all websites provide immediate quotes. In some cases, a company representative will call to confirm the information before providing a rate. In this case ask to have the information emailed for your records. When shopping online, keep in mind: 

  • All quotes may not have matching coverages/limits—if so, contact the companies and ask for a revised estimate using matching coverages/limits. 

  • Some websites are authorized to make coverage available immediately, while others cannot, even if you have made a premium payment. 

  • Once you have made a payment for the policy, you should have access to a temporary identification card to keep in your car. Permanent cards and a copy of the policy should come in the mail within 60 days.  

Information to disclose to the insurer: 

  • Drivers/Operators. Include all drivers. If you fail to include household drivers and they are behind the wheel in an accident, the company could cancel, decide not to renew your coverage or charge additional premiums. If you drive commercially, such as for a ride-sharing service, you should disclose this to your insurer to make sure you are properly covered.  

  • Driving Record. Generally, insurance companies ask for three years of driving history and will use a Motor Vehicle Report (MVR) to check the driving records of all named drivers. Some companies rate your premium by measuring at-fault accidents and traffic violations (often called risk classification factors). Check all quotes for discounts or surcharges based on driving history and risk classification factors.  

  • Credit Rating. In most states it is legal for insurers to use credit-based insurance scores as a risk classification factor in pricing a policy. Review your credit reports for errors before getting a quote. 

 

HOW TO PROTECT YOURSELF  

Do your research: The lowest quote may not always be the best choice. Before making a payment, do your homework. Talk with friends and family about their auto insurance experiences. Check with your state insurance department to verify that the company and agent (if you are dealing with one) are licensed in your state. You should also inquire about complaints made against the company.  

 

Carefully review the information on the declaration page: 

  • Personal Information. Verify all information on the policy is correct. Parking your car in a garage, or even parking it off the street can mean lower premiums.  

  • Year, Make, Model, Vehicle Identification Number (VIN). How much you pay is based on the car you drive, so make sure this information is accurate. If not, it could cause problems if you file a claim.  

  • Lienholder Information. If you obtained a loan to purchase your car, the lienholder should be listed on the policy. If you have paid off the loan, call to have the lienholder removed.  

  • Collision. The higher your deductible, the lower your premium. Since this is the amount you have to pay if the car is damaged in an accident, make sure you will be comfortable paying the amount. 

  • Comprehensive. It is possible that removing the comprehensive and/or collision coverage from a policy could save some money. Before you decide to cancel comprehensive coverage weigh the value of the car and the cost to replace or repair it against what you would save.  

  • Discounts. Check the list of discounts to see what is included in your overall premium. 

THREE THINGS TO REMEMBER 

  1. Research the types of coverage offered and what is required in your state.  

  1. Regularly review your auto policy and make any updates when your circumstances change. 

  1. Weigh premium vs. deductible to make the right financial decisions for the coverage you need.    

About the NAIC

As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. For more information, visit www.naic.org.

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