Back in the late 1890's when the first U.S. automobile Insurance policy was purchased, there were barely 100 cars on the streets, nationwide. Horses and carriages traveled the roads, and the main concern then for both insurers and auto drivers was any injury those noisy new machines might do to horses.
Today a motor vehicle accident occurs every second. Auto accidents cause an injury every 14 seconds, and every 13 minutes a car accident results in a fatality. More than 31 million accidents occur per year, at an annual cost of almost $100 billion. Theft and vandalism are other major perils facing drivers, In fact, every 20 seconds another vehicle is stolen.
With more than 150 million drivers and 160 million registered vehicles on the road today, auto insurance is the most widely purchased of all property-liability insurance. Drivers buy auto insurance for economic protection against theft, vandalism, and other risks, but few are familiar with the ins and outs of their particular policy.
This guide was designed by the Independent Insurance Agents of America to make it easier for you to know your insurance needs and the many options available to you. Though this guide does not represent the provisions of any particular policy, it should serve as a starting point on your road to finding the best policy for your needs.
Why do I need car insurance?
Your car has two unique qualities. First, it is probably one of the most expensive things you own. Insurance protects your investment and guarantees you a way of coping with the expense of accidents, vandalism or theft, as well as securing your financial responsibility to the bank or other institution lending the money to buy your vehicle.
Second, when you drive, you are operating a powerful machine, weighing one ton or more and capable of moving at over 100 miles per hour. You are responsible for the safety of your passengers, your fellow drivers, other people's property, pedestrians and yourself. Insurance helps you live up to that responsibility by ensuring your ability to cover the costs of potential damages or injuries.
You are also required to be financially responsible by state laws, which are best satisfied through your insurance coverage. In fact, in most states insurance is a prerequisite to registering your car. So if you want to drive your own vehicle, you must be insured.
What are the different types of policies & what cover?
Auto insurance is divided into several different types of coverage:
Drivers are grouped according to the level of risk each one poses--i.e., the amount of loss incurred by insurers within various categories of policy holders. For various reasons, drivers are categorized by:
For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because--based on average losses--you have a greater chance of having an accident or being the victim of auto theft.
How does where I live affect my premium?
Where you live (or, more precisely, where you keep your car) has a bearing on your chances of having an accident or becoming a victim of theft or vandalism. That's why a vehicle owner in Brooklyn, New York, pays a higher rate than the owner of an identical vehicle in Dallas, Texas.
Other factors affecting regional insurance rates include time and efficiency of police response and law enforcement, local road and traffic conditions and the quality of local medical services. Insurers even factor in the litigation rates in a given area--that is, how many lawsuits are filed, go to trial, are settled out of court and for how much.
What is 'no-fault' insurance?
No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guy's fault.) No-fault simply does away with the concept of one party or the other being at fault--no lawyers, no court, no judge, no jury, no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.
If you are insured in a no-fault state and have an accident, you don't go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.
The type and range of no-fault coverage varies from state to state. What defines the limitations of no-fault policies can differ in two critical areas:
Do all states require some kind of liability insurance?
No. Some states, while not mandating auto insurance, have "financial responsibility laws" that require all drivers to be able to pay for any damage or injury they may cause. However, carrying liability insurance is still the best way for you to meet your state's financial responsibility requirements.
UM and UIM policies are offered by law in all states, including no-fault states. In fact, some states require all motorists to carry this coverage in order to gain protection from inadequate insurance coverage of other drivers.
Why would my insurer cancel my policy?
Technically, in most states your insurer can cancel your policy only if:
Today a motor vehicle accident occurs every second. Auto accidents cause an injury every 14 seconds, and every 13 minutes a car accident results in a fatality. More than 31 million accidents occur per year, at an annual cost of almost $100 billion. Theft and vandalism are other major perils facing drivers, In fact, every 20 seconds another vehicle is stolen.
With more than 150 million drivers and 160 million registered vehicles on the road today, auto insurance is the most widely purchased of all property-liability insurance. Drivers buy auto insurance for economic protection against theft, vandalism, and other risks, but few are familiar with the ins and outs of their particular policy.
This guide was designed by the Independent Insurance Agents of America to make it easier for you to know your insurance needs and the many options available to you. Though this guide does not represent the provisions of any particular policy, it should serve as a starting point on your road to finding the best policy for your needs.
Why do I need car insurance?
Your car has two unique qualities. First, it is probably one of the most expensive things you own. Insurance protects your investment and guarantees you a way of coping with the expense of accidents, vandalism or theft, as well as securing your financial responsibility to the bank or other institution lending the money to buy your vehicle.
Second, when you drive, you are operating a powerful machine, weighing one ton or more and capable of moving at over 100 miles per hour. You are responsible for the safety of your passengers, your fellow drivers, other people's property, pedestrians and yourself. Insurance helps you live up to that responsibility by ensuring your ability to cover the costs of potential damages or injuries.
You are also required to be financially responsible by state laws, which are best satisfied through your insurance coverage. In fact, in most states insurance is a prerequisite to registering your car. So if you want to drive your own vehicle, you must be insured.
What are the different types of policies & what cover?
Auto insurance is divided into several different types of coverage:
- General liability covers damage you may cause to other people's property and injuries to the people themselves.
- Collision covers damage to your own vehicle in an accident.
- Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.--unless the vehicle is overturned, then it is considered a collision).
- Medical payments insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This "good-faith" coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friend's car, etc.
- Uninsured motorist (UM) and underinsured motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.
- Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or endorsements to your policy.
Drivers are grouped according to the level of risk each one poses--i.e., the amount of loss incurred by insurers within various categories of policy holders. For various reasons, drivers are categorized by:
- Sex--Men have more accidents on the road than women.
- Age--Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident.
- Marital Status--Married drivers tend to have fewer accidents than single drivers.
- Personal Driving Record--Years of driving experience, accidents, speeding tickets and drunk-driving offenses are all factors in determining how much of a risk you pose as a motorist.
- How You Use Your Vehicle--If you commute by car during rush hours, you're at greater risk of having an accident than if you only drive for errands and recreation on the weekends. Drivers who use their own vehicles for business also are considered to be at greater risk.
- Type of Vehicle--The value, size, weight, age of your vehicle--even the cost of replacement parts--are essential to determining the price of your insurance. Larger, heavier vehicles are considered at lower risk than smaller, lighter ones. Plus, more expensive cars are costlier to have repaired than economy models.
For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because--based on average losses--you have a greater chance of having an accident or being the victim of auto theft.
How does where I live affect my premium?
Where you live (or, more precisely, where you keep your car) has a bearing on your chances of having an accident or becoming a victim of theft or vandalism. That's why a vehicle owner in Brooklyn, New York, pays a higher rate than the owner of an identical vehicle in Dallas, Texas.
Other factors affecting regional insurance rates include time and efficiency of police response and law enforcement, local road and traffic conditions and the quality of local medical services. Insurers even factor in the litigation rates in a given area--that is, how many lawsuits are filed, go to trial, are settled out of court and for how much.
What is 'no-fault' insurance?
No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guy's fault.) No-fault simply does away with the concept of one party or the other being at fault--no lawyers, no court, no judge, no jury, no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.
If you are insured in a no-fault state and have an accident, you don't go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.
The type and range of no-fault coverage varies from state to state. What defines the limitations of no-fault policies can differ in two critical areas:
- Threshold--The type of damage/injury or the cost of repair/recovery that triggers the need for legal action.
- Mandated--Benefit Level--The package of benefits (medical, wage loss, replacement services and other expenses) your state requires you to carry.
Do all states require some kind of liability insurance?
No. Some states, while not mandating auto insurance, have "financial responsibility laws" that require all drivers to be able to pay for any damage or injury they may cause. However, carrying liability insurance is still the best way for you to meet your state's financial responsibility requirements.
UM and UIM policies are offered by law in all states, including no-fault states. In fact, some states require all motorists to carry this coverage in order to gain protection from inadequate insurance coverage of other drivers.
Why would my insurer cancel my policy?
Technically, in most states your insurer can cancel your policy only if:
- you fail to pay your premium;
- you lose your driver's license;
- you are guilty of material misrepresentation during the application process--i.e., you fail to notify your insurer of a recorded violation, such as a drunk-driving offense; or
- you fail to report a substantial change of risk, such as buying a high-powered sports car to replace a family sedan.
