OWNING A VEHICLE PUTS YOU IN A POSITION OF HIGH ECONOMIC RISK. YOU MIGHT HAVE AN ACCIDENT AND INJURE YOURSELF, YOUR VEHICLE, OTHER PEOPLE, OR OTHERS’ PROPERTY. THE VEHICLE MIGHT BE STOLEN OR DAMAGED BY VANDALS. SOMEONE COULD SUE YOU AS A RESULT OF AN ACCIDENT INVOLVING YOUR VEHICLE.

THE COSTS OF TREATING INJURED PEOPLE AND REPAIRING DAMAGED PROPERTY COULD EASILY BRING FINANCIAL RUIN TO PEOPLE WHO DO NOT HAVE INSURANCE AND MUST PAY FOR DAMAGES. AWARDS TO INJURED PEOPLE AND TO OWNERS OF DAMAGED PROPERTY HAVE INCREASED DRAMATICALLY. VEHICLE INSURANCE IS DESIGNED TO PROVIDE PROTECTION FROM THE FINANCIAL RISKS INVOLVED IN OWNING AND DRIVING A CAR OR ANOTHER VEHICLE.

PROTECTION FROM THE ECONOMIC RISKS OF CAR OWNERSHIP IS AVAILABLE WITH AN AUTOMOBILE INSURANCE POLICY. YOU CAN BUY INSURANCE TO PROTECT YOURSELF FROM THE FINANCIAL LOSS CAUSED BY ALMOST ANYTHING THAT COULD HAPPEN TO YOUR CAR. YOU CAN ALSO BUY AUTOMOBILE LIABILITY INSURANCE TO PROTECT YOURSELF AGAINST FINANCIAL LOSS IF YOU INJURE SOMEONE ELSE OR DAMAGE SOMEONE ELSE’S PROPERTY IN AN AUTOMOBILE ACCIDENT.

SOMETIMES AN ACCIDENT IS UNAVOIDABLE, THAT IS, NO ONE CAN BE DIRECTLY BLAMED FOR IT. IN MOST CASES, HOWEVER, SOMEONE IS AT FAULT. THE PERSON WHO IS FOUND TO BE AT FAULT NORMALLY IS RESPONSIBLE FOR DAMAGES AND FINANCIAL LOSSES THAT RESULT FROM THE ACCIDENT. ALTHOUGH YOU MAY THINK YOU ARE COMPLETELY FAULTLESS, YOU CAN BE SUED. IF YOU ARE INSURED, YOUR INSURANCE COMPANY WILL PROVIDE LEGAL DEFENSE FOR THE SUIT. IF THE COURT DECIDES THAT YOU ARE LEGALLY LIABLE FOR INJURIES AND DAMAGE TO PROPERTY, YOUR INSURANCE COMPANY WILL PAY THE COSTS UP TO THE LIMITS STATED IN YOU INSURANCE POLICY.

SEVERAL KINDS OF PROTECTION ARE AVAILABLE THROUGH COMPANIES THAT PROVIDE AUTOMOBILE INSURANCE. THIS COVERAGE IS AVAILABLE IN DIFFERENT COMBINATIONS AND FOR DIFFERENT AMOUNTS. ALTHOUGH SOME OF THE COVERAGE CAN BE BOUGHT SEPARATELY, MOST CAR OWNERS BUY PACKAGE POLICIES THAT INCLUDE MOST OR ALL OF THE NECESSARY COVERAGE. THERE ARE TWO MAIN CATEGORIES OF AUTOMOBILE INSURANCE: PERSONAL INJURY COVERAGE AND PROPERTY DAMAGE COVERAGE.

 PERSONAL INJURY COVERAGE

PERSONAL INJURY COVERAGE INCLUDES BODILY INJURY LIABILITY, MEDICAL PAYMENTS, AND UNINSURED MOTORIST PROTECTION. THESE THREE TYPES OF PERSONAL INJURY COVERAGE ARE THE SOURCE OF MOST OF THE MONEY PAID IN CLAIMS BY AUTOMOBILE INSURANCE COMPANIES.

 BODILY INJURY LIABILITY PROTECTION

BODILY INJURY LIABILITY COVERAGE PROTECTS THE INSURED FROM CLAIMS RESULTING FROM INJURIES OR DEATHS FOR WHICH THE INSURED IS FOUND TO BE AT FAULT. THIS TYPE OF INSURANCE COVERS PEOPLE IN OTHER CARS, PASSENGERS RIDING WITH THE INSURED, AND PEDESTRIANS. IT DOES NOT COVER THE INSURED OR, IN MOST CASES, THE INSURED’S IMMEDIATE FAMILY.

DOLLAR AMOUNTS OF BODILY INJURY COVERAGE ARE GENERALLY EXPRESSED AS TWO NUMBERS DIVIDED BY A SLASH. THE FIRST NUMBER REFERS TO THE LIMIT, IN THOUSANDS OF DOLLARS, THAT THE INSURANCE COMPANY WILL PAY FOR INJURIES TO ANY ONE PERSON IN AN ACCIDENT. FOR EXAMPLE, IF THE INSURED HAD BODILY INJURY LIABILITY COVERAGE OF 100/300 AND HAD AN ACCIDENT FOR WHICH THE INSURED WAS FOUND TO BE AT FAULT, THE INSURANCE COMPANY WOULD PAY UP TO $100,000 IF JUST ONE PERSON WERE INJURED. THE SECOND NUMBER, IN THIS CASE 300, REFERS TO THE LIMIT, IN THOUSANDS OF DOLLARS, THAT THE INSURANCE COMPANY WOULD PAY IF MORE THAN ONE PERSON WERE INJURED. THIS MEANS THAT THE INSURANCE COMPANY WOULD PAY A TOTAL OF $300,000 FOR ALL THE INJURIES. LARGER AMOUNTS OF BODILY INJURY PROTECTION OFTEN ARE NEEDED AND ADD SURPRISINGLY LITTLE TO THE COST OF YOUR PREMIUM.

 MEDICAL PAYMENTS PROTECTION

THROUGH MEDICAL PAYMENTS COVERAGE, POLICYHOLDERS AND THEIR FAMILY MEMBERS ARE COVERED IF THEY ARE INJURED WHILE RIDING IN THEIR CAR OR IN SOMEONE ELSE’S CAR. IT MAY COVER THEM IF THEY ARE WALKING AND ARE HIT BY A CAR. GUESTS IN THE INSURED CAR ARE ALSO PROTECTED.

MEDICAL PAYMENTS INSURANCE COVERS THE COSTS OF MEDICAL, DENTAL, AMBULANCE, HOSPITAL, NURSING, AND FUNERAL SERVICES. PAYMENT, UP TO THE LIMIT STATED IN THE POLICY, IS MADE REGARDLESS OF WHO IS AT FAULT. NORMALLY CAR OWNERS PURCHASE MEDICAL PAYMENTS INSURANCE ALONG WITH THEIR BODILY INJURY LIABILITY COVERAGE.

UNINSURED MOTORIST PROTECTION

IN SOME CASES, INJURIES ARE CAUSED BY HIT-AND-RUN DRIVERS WHO HAVE NO INSURANCE OR MONEY TO PAY CLAIMS. THEREFORE, INSURANCE COMPANIES MAKE AVAILABLE UNINSURED MOTORIST COVERAGE TO PROTECT AGAINST THESE DRIVERS. IT IS AVAILABLE ONLY TO THOSE PEOPLE WHO CARRY BODILY INJURY LIABILITY COVERAGE. IN ADDITION TO COVERING THE POLICYHOLDER AND FAMILY MEMBERS, IT ALSO COVERS GUESTS IN THE POLICYHOLDER’S CAR. UNLIKE MEDICAL PAYMENTS COVERAGE, WHICH PAYS REGARDLESS OF WHO IS AT FAULT.

PROPERTY DAMAGE COVERAGE

THERE ARE THREE TYPES OF AUTOMOBILE INSURANCE DESIGNED TO PROTECT YOU FROM ECONOMIC LOSS DUE TO DAMAGE TO THE PROPERTY OF OTHERS AND TO YOUR CAR. THEY ARE PROPERTY DAMAGE LIABILITY, COLLISION, AND COMPREHENSIVE DAMAGE.

PROPERTY DAMAGE LIABILITY

PROPERTY DAMAGE LIABILITY COVERAGE PROTECTS THE INSURED AGAINST CLAIMS IF THE INSURED’S CAR DAMAGES SOMEONE ELSE’S PROPERTY AND THE INSURED IS AT FAULT. THE DAMAGED PROPERTY IS OFTEN ANOTHER CAR, BUT IT MAY ALSO BE PROPERTY SUCH AS TELEPHONE POLES, FIRE HYDRANTS, AND BUILDINGS. PROPERTY DAMAGE LIABILITY INSURANCE DOES NOT COVER DAMAGE TO THE INSURED’S CAR.

COLLISION INSURANCE

COLLISION COVERAGE PROTECTS A CAR OWNER AGAINST FINANCIAL LOSS ASSOCIATED WITH DAMAGE RESULTING FROM A COLLISION WITH ANOTHER CAR OR OBJECT OR FROM THE CAR TURNING OVER. COLLISION COVERAGE DOES NOT COVER INJURIES TO PEOPLE OR DAMAGE TO THE PROPERTY OF OTHERS. MOST COLLISION COVERAGE IS WRITTEN WITH A DEDUCTIBLE CLAUSE. DEDUCTIBLE AMOUNTS ARE OFTEN $200, $500, OR MORE. THIS MEANS THAT THE INSURED MAY AGREE TO PAY THE REST. LARGER DEDUCTIBLE AMOUNTS WILL REDUCE THE PREMIUM PAID BY THE POLICYHOLDER.

COLLISION COVERAGE DOES NOT PROVIDE FOR PAYMENT OF DAMAGES GREATER THAN THE CAR’S VALUE. SUPPOSE THE INSURED’S CAR INCURS $3,500 IN DAMAGES IN A COLLISION WITH ANOTHER VEHICLE. IF THE CAR HAS A VALUE OF ONLY $3.100, THE COLLISION COVERAGE WOULD PAY $3,100, NOT $3,500. COLLISION COVERAGE SHOULD NOT BE CARRIED ON A CAR THAT IS OF LITTLE VALUE BECAUSE THE COST OF REPAIRING THE CAR MAY BE MORE THAN THE CAR IS WORTH. COLLISION INSURANCE USUALLY ACCOUNTS FOR APPROXIMATELY TWO-THIRDS OF THE TOTAL COST OF AN INSURANCE POLICY.

COMPREHENSIVE COVERAGE

YOUR CAR CAN BE DAMAGED OR DESTROYED IN OTHER WAYS. THE CAR COULD BE STOLEN, OR FIRE, TORNADO, WINDSTORM, VANDALISM, OR FALLING OBJECTS COULD DAMAGE IT. COMPREHENSIVE COVERAGE PROTECTS THE INSURED AGAINST ALMOST ALL DAMAGE LOSSES EXCEPT THOSE CAUSED FROM A COLLISION OR FROM THE CAR TURNING OVER.

IF THE INSURED’S CAR IS TOTALLY DESTROYED OR STOLEN, THE AMOUNT PAID IS NOT NECESSARILY EQUAL TO THE AMOUNT PAID FOR THE CAR. RATHER, IT IS EQUAL TO THE CAR’S ESTIMATED VALUE AT THE TIME OF THE LOSS. SUPPOSE THE INSURED’S CAR COSTING $15,000 IS STOLEN SOON AFTER IT IS PURCHASED. THE INSURANCE COMPANY WILL PROBABLY PAY ALMOST AS MUCH AS THE CAR COST, PERHAPS $14,500. HOWEVER, IF THE CAR IS STOLEN TWO YEARS AFTER IT IS PURCHASED, THE INSURANCE COMPANY MAY PAY ONLY $10,500. THE CAR HAS GROWN OLDER AND ITS VALUE HAS DECREASED.

BUYING AUTOMOBILE INSURANCE

A GREAT DEAL OF MONEY IS SPENT INSURING CARS AND OTHER VEHICLES. THAT MONEY SHOULD BE SPENT WISELY AND CAREFULLY. THEREFORE, CAR OWNERS NEED TO UNDERSTAND HOW TO GET THE MOST PROTECTION FOR THEIR INSURANCE DOLLAR.

INSURANCE RATES

INSURANCE COMPANIES USE SEVERAL FACTORS TO DETERMINE THE COST OF YOUR AUTOMOBILE INSURANCE. SOME OF THOSE FACTORS INCLUDE:

YOUR AGE AND OTHER CHARACTERISTICS, SUCH AS ACCIDENT RECORD, MARITAL STATUS, OR ACADEMIC STANDING.
THE PURPOSE FOR WHICH YOU USE YOUR CAR.
THE NUMBER OF MILES YOU DRIVE YOUR CAR EACH YEAR.
THE VALUE AND TYPE OF YOUR CAR.
THE COMMUNITY IN WHICH YOU LIVE.
TYPES OF COVERAGE AND DEDUCTIBLES.

SINCE SOME DRIVERS ARE MORE LIKELY TO HAVE ACCIDENTS THAN OTHERS, THEY MUST PAY HIGHER PREMIUMS. TO DETERMINE PREMIUM RATES, DRIVERS ARE CLASSIFIED ACCORDING TO AGE, MARITAL STATUS, DRIVING RECORD, AND SCHOLASTIC ACHIEVEMENT. THE LOWEST RATES ARE RESERVED FOR THE BEST RISKS, THOSE LEAST LIKELY TO HAVE AN ACCIDENT. THE COST OF INSURANCE IS USUALLY HIGHER WHEN ONE OF THE DRIVERS IN THE INSURED’S FAMILY IS UNDER AGE 30.

THE PURPOSE FOR WHICH A CAR IS DRIVEN AND THE NUMBER OF MILES IT IS DRIVEN IN A YEAR ARE ALSO IMPORTANT IN DETERMINING INSURANCE RATES. CARS USED FOR BUSINESS PURPOSES ARE GENERALLY DRIVEN MORE MILES IN A YEAR THAN ARE CARS DRIVEN FOR PLEASURE AND ARE THEREFORE MORE LIKELY TO BE INVOLVED IN AN ACCIDENT.

THE VALUE OF YOUR CAR NATURALLY HAS AN IMPORTANT EFFECT ON THE COST OF INSURANCE. PREMIUMS FOR COLLISION COVERAGE AND COMPREHENSIVE PHYSICAL DAMAGE COVERAGE MUST BE HIGHER FOR A CAR WORTH $15,500 THAN FOR A CAR WORTH ONLY $8,000. THE INSURANCE COMPANY RUNS THE RISK OF PAYING OUT MUCH MORE TO THE INSURED IF THE $15,500 CAR IS DESTROYED OR STOLEN. THE TYPE OF CAR ALSO AFFECTS THE RATE. IF YOU HAVE A HIGH-PERFORMANCE CAR, A LUXURY CAR, OR AN EXPENSIVE SPORTS CAR, YOU WILL HAVE TO PAY HIGHER RATES.

RATES FOR AUTOMOBILE INSURANCE VARY FROM STATE TO STATE AND EVEN FROM CITY TO CITY WITHIN A STATE. AUTOMOBILE INSURANCE RATES ARE ALSO AFFECTED BY THE POPULATION IN A PARTICULAR AREA AND THE NUMBER OF ACCIDENTS THAT OCCUR OVER A PERIOD OF TIME IN THE AREA. INSURANCE COMPANIES GATHER STATISTICS ON THE DOLLAR AMOUNT OF CLAIMS PAID FOR IN AN AREA AND BASE THEIR INSURANCE RATES ON THIS INFORMATION.

THE COST OF YOUR AUTOMOBILE INSURANCE WILL ALSO VARY ACCORDING TO THE TYPES OF COVERAGE YOU HAVE AND THE AMOUNTS OF THE DEDUCTIBLES YOU CHOOSE. NATURALLY, THE MORE COVERAGE YOU CARRY, THE HIGHER THE COST.

REDUCING YOUR COST

BY PLANNING YOUR AUTOMOBILE INSURANCE PURCHASE CAREFULLY, YOU MAY SAVE A GREAT DEAL OF MONEY. FOR EXAMPLE, THE EXTRA AMOUNT CHARGED FOR YOUNG DRIVERS MAY BE DECREASED IF THEY HAVE COMPLETED AN APPROVED DRIVER EDUCATION COURSE. COMPANIES IN MOST STATES OFFER YOUNG PEOPLE A GOOD-STUDENT DISCOUNT.

SELECTING A COMPANY

JUST AS AUTOMOBILE INSURANCE PREMIUMS VARY WITH THE CONDITIONS ASSOCIATED WITH YOUR CAR AND YOUR DRIVING, THEY ALSO VARY FROM COMPANY TO COMPANY. IT PAYS TO SHOP AROUND AND COMPARE RATES.

INSURING OTHER VEHICLES

INSURANCE ON MOTORCYCLES, RECREATIONAL VEHICLES, AND SNOWMOBILES IS SIMILAR IN SOME RESPECTS TO AUTOMOBILE INSURANCE. FOR EXAMPLE, BODILY INJURY LIABILITY, PROPERTY DAMAGE LIABILITY, COLLISION, AND COMPREHENSIVE PHYSICAL DAMAGE INSURANCE ARE THE MOST IMPORTANT COVERAGES ON THESE VEHICLES. THE ENGINE SIZE AND VALUE OF THE VEHICLE ARE THE IMPORTANT FACTORS IN DETERMINING THE COST OF INSURANCE. GENERALLY, THE LARGER AND MORE EXPENSIVE THE VEHICLE, THE HIGHER THE INSURANCE COST.

VEHICLE INSURANCE LAWS

INDIVIDUAL STATES REGULATE LAWS RELATING TO VEHICLE INSURANCE. MOST OF THESE LAWS ARE ADVANTAGEOUS TO RESPONSIBLE DRIVERS. ALL OWNERS OF VEHICLES SHOULD KNOW ABOUT COMPULSORY INSURANCE LAWS, FINANCIAL RESPONSIBILITY LAWS, ASSIGNED-RISK PLANS, AND NO-FAULT INSURANCE LAWS.

COMPULSORY INSURANCE LAWS

ALL STATES HAVE ADOPTED COMPULSORY INSURANCE LAWS THAT REQUIRE YOU TO CARRY CERTAIN TYPES OF AUTOMOBILE INSURANCE BEFORE YOUR CAR CAN BE LICENSED. IT IS COMPULSORY THAT AN AUTOMOBILE OWNER CARRY INSURANCE TO PAY FOR PERSONAL INJURY AND FOR PROPERTY DAMAGE THAT HE OR SHE CAUSES DUE TO AN ACCIDENT. COMPULSORY INSURANCE LAWS STATE THAT YOU MAY NOT REGISTER A CAR OR OBTAIN A LICENSE TO DRIVE WITHOUT PRESENTING PROOF OF HAVING THE MINIMUM AMOUNTS OF INSURANCE COVERAGE REQUIRED.

FINANCIAL RESPONSIBILITY LAWS

ALL STATES HAVE SOME KIND OF FINANCIAL RESPONSIBILITY LAW. FINANCIAL RESPONSIBILITY LAWS PROVIDE THAT IF YOU CAUSE AN ACCIDENT AND CANNOT PAY FOR THE DAMAGES EITHER THROUGH INSURANCE, YOUR SAVINGS, OR THE SALE OF PROPERTY, YOUR DRIVER’S LICENSE WILL BE SUSPENDED OR TAKEN AWAY. MOST OF THESE LAWS MAKE YOU LEGALLY LIABLE (RESPONSIBLE) FOR ANY DAMAGES YOU CAUSE TO PEOPLE OR THEIR PROPERTY.

ASSIGNED-RISK PLANS

USUALLY BECAUSE OF BAD ACCIDENT RECORDS, SOME DRIVERS ARE UNABLE TO BUY AUTOMOBILE INSURANCE IN THE NORMAL FASHION. BECAUSE OF THIS, EVERY STATE ALSO HAS AN ASSIGNED-RISK PLAN. UNDER THIS PLAN, EVERY AUTOMOBILE INSURANCE COMPANY IN THE STATE THAT SELLS LIABILITY INSURANCE IS ASSIGNED A CERTAIN NUMBER OF HIGH RISK DRIVERS. THAT NUMBER IS BASED ON THE AMOUNT OF INSURANCE EACH COMPANY SELLS. USING THIS PLAN, EACH COMPANY HAS TO INSURE A FAIR PROPORTION OF HIGH RISK DRIVERS. DRIVERS IN HIGH RISK CATEGORIES MUST PAY MUCH HIGHER PREMIUMS THAN THOSE WHO ARE NOT HIGH RISKS.

NO-FAULT INSURANCE LAWS

IN AN EFFORT TO SPEED UP THE PAYMENT OF CLAIMS AND REDUCE THE HARDSHIP OF LONG DELAYS, SOME STATES HAVE ADOPTED NO-FAULT INSURANCE LAWS. UNDER THESE LAWS, PEOPLE INJURED IN AN AUTOMOBILE ACCIDENT ARE REQUIRED TO COLLECT FOR THEIR FINANCIAL LOSSES—SUCH AS THEIR MEDICAL BILLS, LOSS OF WAGES, AND OTHER RELATED EXPENSES—FROM THEIR OWN INSURANCE COMPANIES NO MATTER WHO IS AT FAULT.

NO-FAULT INSURANCE LAWS VARY IN SOME WAYS FROM STATE TO STATE. ORDINARILY THE RIGHT TO SUE IS RETAINED FOR THE MORE SERIOUS INJURY CASES AND FOR DEATH. IN SUCH CASES, IT IS NECESSARY TO DECIDE HOW MUCH EACH DRIVER WAS AT FAULT IN THE ACCIDENT.