Monday, May 10, 2010

More about insurance - auto coverage

So what about auto coverage?  What do you need to know when buying a policy for your cars?

More is better - Probably the most important thing I can tell you is to buy enough coverage.  Most drivers out on the road today are pitifully underinsured.  When you look at your policy, you'll see a couple of coverages called "Property damage" and "Bodily injury."  These are the basic coverages you carry.  Under Bodily Injury, there are two numbers.  It may say something like 50/100 or 250/500.  The first number tells how much the company will pay per person when you are at fault in an accident.  The second number tells the total they will pay for all persons in the event.  For instance, if you have 50/100 coverage and you are at fault in an accident, your policy will pay up to $50,000 per person for injuries sustained, and a maximum of $100,000 for all injured persons in the accident.

Now think about medical costs these days.  If the accident is serious, and people are badly hurt, how quickly will you go through $50,000 in medical costs?  A couple surgeries, a couple nights in the hospital, and they are past that $50,000 in no time at all.  If someone has to be Lifeflighted from the accident scene, the helicopter ride alone can cost many thousands of dollars, and that's before any treatment has begun.

In Tennessee, the state required a minimum of 25/50 coverage.  That amount is a joke when you have an actual loss.  Many injuries will require much more than $25,000 to be covered.  If you are driving with this type of coverage and you have an accident that costs more than the covered amount, you are responsible to come up with the costs separate from your insurance.  You will likely be sued for the difference.  I had a customer who had 35/70 coverage.  His 19-year-old son was driving down the road, dropped something on the floor of the pickup, and leaned over to pick it up.  As he leaned over, he lost control of the vehicle, crossed the center line, and collided head-on with a car.  As a result of the accident, a 4-year-old in the car was killed.  You can't put a price on the life of a child, but the parents said they would take a settlement of $100,000.  My customer didn't have that kind of money, and the insurance would only pay $35,000, so my customer was ultimately sued for $1.4 million.  When I left the business, the suit was still playing out in the courts.

I hadn't written this customer's policy.  I was given this customer when another agent went out of business.  I personally would not write policies with these low limits, for this very reason.  Having low coverage isn't much better than having no coverage.  Either way, you're in trouble if something happens.  I wouldn't write a policy for less than 50/100, and 90% of the policies I wrote were for 100/300 or higher.  If someone came in asking for state minimums, I'd give him the name of the Allstate agent a block down the street.  He'd write that stuff all day long.  But it was important to me that my customers were covered if something happened.  That's what insurance is for.  SafeAuto has made a business out of selling the low coverages.  Their motto is "We'll keep you legal for less."  But they're not doing their customers any favors by offering that.  Please check your coverages.  If you have less than 100/300, you ought to raise it.  250/500 is even better.  It'll cost a little more but not as much as you might think.  Many companies offer discounts for carrying higher coverage.

The third number is the Property Damage coverage.  So your policy might say something like 100/300/100.  That third number is the amount your company will pay for damages you cause in an accident.  You hit another car, your policy pays up to$100,000 to fix that car, or whatever that number is on your policy.  I was surprised by how many people carry $10,000 in PD coverage.  Many of the cars out on the streets are worth more than $10,000.  You hit one of these, cause it to be totaled, you're responsible for the damage over $10,000.  Even $25,000 is too low.  If you total someone's brand new Lexus or Jaguar, they're coming after you to replace it.  Even worse, what if you cause a multi-car accident?  You're responsible for every vehicle involved.  So once again, I'd recommend a minimum of $100,000 in Property Damage coverage.  250 is even better.

Comprehensive - Many people ask if they need comprehensive coverage.  This covers anything that happens to your car other than a collision.  For instance, it would take cover of hail damage, cracked windshield from a rock flying off a truck and hitting your car, hitting a deer, etc.  Whether or not you need this really depends on the value of your car.  If your car is worth $20,000, and you have 2 or 3 thousand in damages from a hail storm, you'll be glad you have this coverage.  Many people, however, will drop this coverage when the car is old and not worth more than a few thousand dollars.  If there is damage to your car that would cost $5000 to fix, but the car is only worth $2000, the company will total the car, paying you the $2000.  Many find it's not worth paying the extra premiums for this, when the payout would be so low.

Lowering the cost - How can you get better rates on your car insurance?  The first and most important thing you can do is to be a good driver.  If there's a ticket on your record, your rates will go up.  Maybe not immediately, but probably on renewal.  More tickets, more money.  So drive carefully, and keep your record clean.  Second, get older.  There's not a lot you can do about this one, except give it time.  But the older you are the better your rates (to a point).  You're going to pay a lot for your 16-year-old to be driving.  I mean a ridiculous amount of money.  Tell your teenager to drive carefully, get no tickets, be careful.  NO TEXTING WHILE DRIVING!!!  Also, tell them to keep their grades up.  Most companies will reward your teenager for having a 3.0 GPA or better.  As they get older, the rates will go down.  These are gradual decreases, that happen at certain age levels.  For your son in his 20's, his rates will go down further when he gets married.  Single, young male drivers cost the most to insure.  The exception to older being better comes when you get up into your 80's or so.  Many companies will remove the discounts at that age.

Other things you can do to lower the cost - Insure all your cars with the same company.  Most companies offer multi-car discounts.  They also typically offer multi-line discounts, meaning you pay less if they insure your cars and your house.  The shorter your commute to work or school, the lower your premium, as well.  If one of your vehicles isn't used for a commute, but is just for general running around from time to time, mention that to your agent.  It'll cost you less.

Have good credit.  This is one of those things that has changed in recent years.  Insurance companies a number of years ago didn't check credit, but today most do, and they base your rates on your credit score.  (When I left the business at the end of 2008, it was illegal to base rates on credit scores in California, but all other states would allow it.)  If a customer's score is average to good, rates shouldn't be too bad.  But those with poor scores will pay much more for insurance.  If your credit is great, it will save you hundreds on premiums. 

Choose your car wisely.  Some cars simply cost more to insure than others.  The more expensive the car, the more insurance will cost.  It's OK to enjoy your Lexus or BMW, but plan on spending more on insurance.  If the vehicle is one of the top 10 stolen cars, you will probably pay more.  Cars that are known for safety and reliability will often cost less to insure.  These may include Hondas, Volvos, etc.  Hybrid owners will get a fairly significant discount from many companies.  If buying a car for your teenager, be careful.  Though they may want that brand new Mustang, they better have a great job to cover the insurance.  You'll do much better to get them a good used Honda Civic, Toyota Corolla, or some other good used dependable car.

Accident forgiveness - This has become a big selling point for many companies.  They will advertise that the first accident will be forgiven, and your rate won't increase.  Check the details of this offer before getting it.  It's not usually included automatically on the auto policy.  It's an extra that you will pay a little more to have.  Here's what you want to know - When an accident happens, two things occur with your policy.  First, an accident surcharge is added to your rate.  Second, your driving record has now changed, so you will likely move from the companies "preferred" status to their regular status.  This comes with higher rates.  Now, some companies that offer accident forgiveness are a little misleading in what that means.  You might assume you'll see no increase at all.  But with some companies what happens is they simply waive the accident surcharge.  This does not change the fact that you will move from preferred to regular status as a driver.  So there may still be an increase, just not as much as you would get from the surcharge.  Each company handles this differently, so be sure to check with your agent before paying extra for this coverage.

Renting a car - Typically, your auto policy covers vehicles you rent.  So when you're travelling, you can probably save money on your rental by declining their coverage.  However, you need to realize that the coverage on that rental will be the same as the coverage on your own vehicle.  So if you've dropped comprehensive coverage on your car because it's value is low, you probably better buy the rental company's coverage, so you'll be covered if you hit a deer or something like that happens.  Also, you will still be liable for whatever deductible your policy has.  If you rent a vehicle that is significantly different than your personal vehicle, you may not be covered.  For instance, if your car is a family sedan, and you go out and rent a U-Haul truck, you will not be covered.  Be sure to take U-Haul's insurance in this case.

Uninsured/Underinsured Motorist - The last thing I'll mention here is the Uninsured/Underinsured Motorist coverage.  This kicks in if someone hits you and they are not properly insured.  You'd be surprised how many of your fellow drivers are driving around without any insurance, and how many more have just the minimum required.  If one of these hits you and you suffer serious damage, whether to your vehicle or personal injury, it is your Uninsured/Underinsured coverage that will cover you.  So you want to make sure you have enough.  It is common to carry the same amounts as you have for your liability coverage, such as the 100/300/100.  Remember that this would also cover people riding in your vehicle if they are injured by that other motorist without enough insurance.

So that's the basics on auto coverage.  I'll do two more of these - one on life insurance, and one on general things that apply to all the coverages.

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