Understanding Car or Auto Insurance.
Why is automobile insurance sometimes referred to as a "packaged policy?" What are the parts of the package? Before the 1950's, if a person wanted to purchase all the coverage that the modern day automobile insurance policy provides, he or she 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 coverages into one all encompassing policy. The main advantages of combining the various coverages are lower expenses, and therefore a lower cost to consumers, and the convenience of being able to purchase the property, automobile liability and other coverages in a single policy. The standard private passenger automobile insurance policy can have up to four different coverages. Only the first coverage is standard - the remaining three coverages are optional.
The following provides an overview of the policy sections A,B,C, and D.
Parts of the typical Auto Insurance Policy
Part A provides liability coverage that protects the insured from
lawsuits arising from either the negligent operation or ownership of a
covered automobile. There are two coverages provided in Part A - bodily
injury liability (BIL) and property damage liability (PDL).
BIL provides coverage for the bodily injury claims of people you
negligently injure in an accident.
PDL provides coverage for any third party property damage claims that
the courts determine you are responsible to pay.
Part B provides
medical payments to the policy owner and any other passengers in the car
when there is an accident.
Part C provides uninsured
motorist and underinsured motorist protection for the policy owner.
Both coverages are designed to compensate the injured policy owner when
the negligent driver has an insufficient amount of liability insurance
under his/her own 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
automobile liability insurance, Part A. These laws were enacted to
ensure that victims of automobile accidents receive compensation when
their losses are caused by the actions of another individual who was
negligent. Except for the minimum liability coverages that you may be
required to purchase, many people with older cars decide not to purchase
any of the physical damage coverages. It is often the case that the cost
of repairing the damages to 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 coverages because of the relatively low
values of their automobiles.
Car Rental Coverages from your own policy
- WHat coverages are extended to a car that I rent?
- The answer to this question is not as easy as it once was. In the not-too-distant past, most automobile insurance policies would extend coverage to rental cars whenever you rented one. This is not quite true anymore.
- I use a rental car for business purposes, does this matter?
- In most cases, your personal automobile insurance policy will provide coverage only when you are renting a car on vacation. Many insurance companies no longer extend personal automobile insurance coverage when you are traveling on business. The best way to find out what rental car coverage you have under your automobile policy is to call your insurance company customer service number.
What is the difference between collision physical damage coverage and comprehensive physical damage coverage?
Both collision and comprehensive are Part D coverages. Collision is defined as losses you incur when your automobile collides with another car or object. For example, if you hit a car in a parking lot, the damages to your car will be paid under your collision coverage. Comprehensive provides coverage for most other direct physical damage losses Comprehensive provides coverage for most other direct physical damage losses you could incur. For example, damage to your car from a hailstorm will be covered under your comprehensive coverage. It is important to know the differences between the collision and comprehensive coverages for a couple of reasons. First, in order to make an informed purchasing decision about these optional coverages, you need to know the difference between them. Second, the deductibles under the collision and comprehensive coverages are often different in amount.
You should also decide whether you would like an insurance agent to assist you in your purchasing decision or if you would like to buy the insurance directly from a company that sells insurance over the phone or through the mail. How can I lower my automobile insurance rates? There are a number of things you can do to lower the cost of your automobile insurance. The easiest thing to do is to shop around. It is not surprising to find quotes on automobile insurance that can vary by hundreds of dollars for the same coverage on the same car. When you shop, be careful to make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case. Another way to lower the cost of your automobile insurance is to look for any discounts that you may qualify for. For example, many insurers will offer you a discount if you insure multiple cars under the same policy, or if you have had a driver education class in the last five years. Be sure to ask your agent or your company about their discount plans. Another easy way to lower the cost of your automobile insurance is to increase the deductible. Simply raising your deductible from $250 to $500 can lower your premium sometimes by as much as five or ten percent. However, you should be careful to make sure that you have the financial resources necessary to handle the larger deductible.