Car Insurance – the 101 Guide to Walk You Through the Process

Whether you are at fault for a car accident or somebody else, your auto insurance should be able to help you either way. How much it will help you, however, is a mater of a number of choices that you have made when purchasing your policy.

Since there is no car insurance package that is suitable for all cases and situations, this guide will try to help you pick the right options for your particular situation and needs.

For your convenience when going through the information we have broken it up in 3 sections:

  1. Choosing: Understand your car insurance needs and the options you have to cover them.
  2. Buying: Choose an insurance company and purchase the right coverage for your needs.
  3. Claiming: How to file a claim and how to deal with problems like claim denial.

Choosing your auto insurance coverage

There is probably no need to explain the importance of car insurance but let us outline some reasons briefly:

  • For one, you cannot legally drive a car without one. Car insurance is a requirement in most states.
  • In addition, if you happen to be the cause of an accident that resulted in the injury or death of a person, you could be facing major legal action. In many cases, this would involve huge expenses and it is common to see uninsured individuals sell their properties and assets so they can pay off the costs.
  • Even if you are leasing a vehicle, the bank financing the lease or the car dealer will still require you to purchase car insurance.

So the question is not whether to buy auto insurance or not, but how much coverage to buy.

What is covered by the basic policy?

A standard policy may contain the following coverage (take note, each may have a separate price):

  • Liability coverage in relation to bodily injuries. If someone gets injured from an automobile accident of which you are the cause, this coverage insures that you will be covered for the liabilities you will incur arising from legal actions against you in relation to such incident. Liability coverage also includes other members of your family whose names are indicated in the policy. It can also cover accidents where you are driving someone else's vehicle car and permission for the use of the car was granted to you by the owner.

  • Medical payments coverage. Also referred to as Personal Injury Protection, this covers medical expenses that are necessary to treat injuries sustained by passengers and the driver of the policyholder's vehicle. A broader coverage can also include lost wages and funeral services.

  • Liability coverage in relation to property damage. This takes care of costs arising from damages caused by the policyholder on some other person's property. Aside from another car, this coverage also includes buildings, other structures, telephone poles, lampposts, fences, etc. It also covers damages caused by someone else driving the car with the policyholder's permission.

  • Collision coverage. This covers costs to repair damages suffered by the policyholder's vehicle as a result of an accident involving another vehicle, an object or because of flipping over. I can also include damages that are a result of driving over potholes.

  • Comprehensive coverage. This indemnifies the policyholder for damages brought about by other causes not included in the other types of coverage. These causes may include falling objects, fire, explosion, hail, earthquake, riots, vandalism, windstorm, missiles and damages caused by animals. Cracked or shattered windshields are also included under comprehensive coverage.

  • Underinsured or uninsured motorist coverage. This type of coverage is invaluable in situations where the policyholder is not the cause of an automobile accident but is the one who gets hit by a driver who is underinsured or uninsured. If the offending driver does a hit-and-run, this coverage is also applicable. The policy will also cover family members or designated drivers who figure in such an incident. Even if you are a pedestrian and you get hit by an uninsured or underinsured driver, this coverage can be applicable to you.

What are your car insurance needs?

Knowing the available types of coverage is not enough. It is important to know your needs in order to cover them well with your policy. The following points will help you determine them:

  • Understand your state laws. Each state has its own set of laws governing car insurance. You will likely encounter the minimum coverage required under each state. But, most of the time you will appreciate the advantage of purchasing more than the minimum.

  • Understand what options are available to you. Each consumer has his or her own needs when it comes to car insurance. If your car gets damaged in an accident, would you like your insurance provider to provide you with a rental car? If your vehicle breaks down, would you want to have the convenience of extended warranty to cover for labor and parts? If the car you have is leased, would you want "gap" insurance coverage that will take care of the difference between what the provider will pay and what is owed by you on the lease in the event the car gets totally damaged?

  • Know your car. Knowing your own vehicle is critical in establishing your car insurance needs. Ask yourself, if it gets totally damaged in a collision would you be able to afford a replacement? If your answer is no then you might need comprehensive coverage. Take note that this type of coverage depends on the value of the vehicle. Industry experts tend to agree that if a vehicle's worth is under $2,000 then getting comprehensive coverage would not be a good idea. However, if your car's worth is $50,000, then an additional $200 for comprehensive coverage would be a good investment.

  • Review the other insurance policies you have. There are non-car insurance policies that provide coverage for car accidents. An example is a comprehensive health insurance policy. If you have this, you probably only need minimum coverage required by your state.

Having grasped the types of coverage available and your particular needs you are ready for the next step - determining the right amount of coverage.

How much coverage do you need?

In order to determine how much coverage to buy follow the following steps:

  1. How much you can afford vs. how much you want to cover. This basically sets a guide in determining how much coverage you are getting.
  2. Start with liability coverage. Use the minimum coverage required in your state as a starting point. The table below will show you the minimum liability per each state. Be aware of the possible drawbacks of having minimum coverage. For example, a policyholder who figures in a collision and happens to cause injury on someone, the injured person's lawyer can go after driver's assets. It is for this reason that experts recommend getting more than the minimum for liability coverage. Talk with an agent when buying higher liability coverage.
    State Underinsured Uninsured motorist PIP or Personal Injury Protection Minimum amount for bodily injury liability for 1 person Minimum amount for bodily injury liability for all persons Minimum amount for property damage liability
    Alabama No No $25,000 $50,000 $25,000
    Alaska No No $50,000 $100,000 $25,000
    Arizona No No $15,000 $30,000 $10,000
    Arkansas No Not a requirement, but decision not to get one must be done in writing. $25,000 $50,000 $25,000
    California No No $15,000 $30,000 $5,000
    Colorado No No $25,000 $50,000 $15,000
    Connecticut Yes No $20,000 $40,000 $10,000
    Delaware No Yes $15,000 $30,000 $10,000
    D.C. Yes No $25,000 $50,000 $10,000
    Florida No Yes $10,000 $20,000 $10,000
    Georgia No No $25,000 $50,000 $25,000
    Hawaii No Yes $20,000 $40,000 $10,000
    Idaho No No $25,000 $50,000 $15,000
    Illinois Yes No $20,000 $40,000 $15,000
    Indiana No No $25,000 $50,000 $10,000
    Iowa No No   $40,000 $15,000
    Kansas Yes Yes $25,000 $50,000 $10,000
    Kentucky No Yes $25,000 $50,000 $10,000
    Louisiana No No $15,000 $30,000 $25,000
    Maine Yes No $50,000 $100,000 $25,000
    Maryland Yes Not a requirement, but decision not to get one must be done in writing. $30,000 $60,000 $15,000
    Massachusetts Yes Yes $20,000 $40,000 $5,000
    Michigan No Yes $20,000 $40,000 $10,000
    Minnesota Yes Yes $30,000 $60,000 $10,000
    Mississippi No No $25,000 $50,000 $25,000
    Missouri Yes No $25,000 $50,000 $10,000
    Montana No No $25,000 $50,000 $10,000
    Nebraska No No $25,000 $50,000 $25,000
    Nevada No No $15,000 $30,000 $10,000
    New Hampshire (Not a requirement. However, if the driver opts for coverage, these are the minimum amounts.) Yes No $25,000 $50,000 $25,000
    New Jersey Yes Yes $15,000 $30,000 $5,000
    New Mexico No No $25,000 $50,000 $10,000
    New York Yes Yes $25,000 $50,000 $10,000
    North Carolina Yes No $30,000 $60,000 $25,000
    North Dakota Yes Yes $25,000 $50,000 $25,000
    Ohio No No $12,500 $25,000 $7,500
    Oklahoma No No $25,000 $50,000 $25,000
    Oregon Yes Yes $25,000 $50,000 $10,000
    Pennsylvania No Yes $15,000 $30,000 $5,000
    Rhode Island No No $25,000 $50,000 $25,000
    South Carolina No No $25,000 $50,000 $25,000
    South Dakota Yes No $25,000 $50,000 $25,000
    Tennessee No No $25,000 $50,000 $15,000
    Texas No No $30,000 $60,000 $25,000
    Utah No Yes $25,000 $65,000 $15,000
    Vermont Yes No $25,000 $50,000 $10,000
    Virginia Yes No $25,000 $50,000 $20,000
    Washington No No $25,000 $50,000 $10,000
    West Virginia Yes No $20,000 $40,000 $10,000
    Wisconsin Yes No $25,000 $50,000 $10,000
    Wyoming No No $25,000 $50,000 $20,000
  3. Examine possible scenarios. What if you caused the total damage on another person's car, will your insurance carrier provide ample cover? What is the cost to you in terms of money out of your own pocket? Do you have another insurance policy that will cover damages arising from car collisions? These scenarios will guide you in making a decision.
  4. Consider getting comprehensive and collision coverage. Unlike liability coverage, you do not have a choice as to how much coverage you want to purchase for these two. The insurance provider will determine coverage on the basis of your car's market value along with the estimated cost of repair.
  5. Decide on the amount of deductible. In car insurance policies, a deductible is the amount that the policyholder has to pay in relation to a claim before the insurance carrier makes a payout. Usually deductible amounts are $500 to $1,000. The general rule is that the larger is the policyholder's deductible, the lower is the premium he pays on the policy.

Purchasing car insurance

Many insurance companies and individual agents sell car insurance policies. This financial product is marketed in a number of ways: online, by mail, over the telephone, via newspapers, etc.

Before dealing with a company or an agent, be sure to check first with the governing insurance department in your state or check with relatives and friends. You can also check with the BBB for any complaints or feedback on the companies you have listed.

What information will you be required to submit to the insurance company?

You will be required to submit the following information:

  • Model and make of the vehicle or vehicles you own.
  • Vehicle Identification Numbers of each car.
  • The estimate number of miles you drive annually.
  • The liability coverage you need.
  • The number of people in your household who drive, their age and also their driving records.
  • Safety features such as ABS, anti-theft devices or seat belts found in the cars.
  • Other insurance policies you have.
  • Recent driving courses attended by you or members of the household.
  • Student drivers in the family who have good grades.

How to save money when buying a policy

  • Do comparison shopping. Start with the governing insurance department in your state for a list of companies. To find out how you can contact the department in your area, go to www.naic.org. You can also check on a company's ability in terms of claims-paying at www.standardpoor.com, www.dcrco.com, and at www.moodys.com.
  • Request for higher deductibles. An increase in deductibles can result to a reduction in insurance costs. For instance, in the case of comprehensive coverage, an increase from $200 to $500 in deductible can bring down the cost between 15 to 30 percent.
  • Do not ask for collision and or comprehensive coverage on an old vehicle. It may not make sense to do so on cars with values under $2,000.
  • Opt for a low maintenance, low profile vehicle. Cars that have record of being too costly to repair or are the usual target of thieves, command higher insurance coverage.
  • Ask for a low mileage discount. If you drive lower than the average number of miles annually, you may benefit from this discount.
  • Inquire about airbag, seat belt, anti-lock break discounts. Some companies give discounts if your vehicle has these features. In certain states, vehicles with ABS are assured of discounts by virtue of state law or regulation.
  • Inquire about other available discounts. These can include discounts for drivers who has had no record of accidents in the preceding three years, drivers who are over fifty years old, drivers who had undergone driving courses, individuals who have installed anti-theft devices on their vehicles, student drivers with good grades, policyholders with two or more cars insured with the same carrier.

Claiming

How to file a claim

  • Get in touch with your insurance company or agent immediately after you figured in a collision or accident.
  • Ask the company or agent for instructions on what your next moves should be.
  • Inquire on what documents or forms you need to prepare to back up your claim. One document you will likely need is a police report on the incident.
  • Submit the information required to the insurance company. Complete a claims form.
  • Maintain a record of all documents in relation to the incident or claim.
  • Keep all receipts as you might get a reimbursement for your expenses.
  • You should pose the following key questions to your agent or insurance carrier:
    • Is there a provision in my policy pertaining to time periods for submitting bills and filing claims?
    • Is there a limit to the time needed to resolve disputes?
    • Am I given only a limited time to submit additional documents or information?
    • When will the company contact me?
    • Do I have to get estimates for repairs?
    • Will I be provided with a rental car while my own vehicle is undergoing repair?

What to do when having problems settling a claim?

  • First of all, know your rights. States have laws that protect the rights of consumers. Consult with the state agency concerned with car insurance matters.
  • Review your policy. It may include details on how disputes are handled by the company.
  • Prepare the necessary documents to back up your case.
  • Write your insurance company and explain your side. Attach copies of documents that will support your argument. Be detailed in your explanation.
  • Provide a copy of your letter to the insurance department in your state.
  • You may want to bring the case to an arbitrator.
  • Consult with your lawyer for the next steps to take if arbitration does not work.
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