Tuesday, October 14, 2014

Car Insurance Question & Answers

Question: What does liability insurance cover?

Answer:   Most states require you to buy liability insurance and mandate minimum coverage amounts, but following your state's auto liability insurance laws could still cost you a stack of cash if you get in a wreck.
Here we explain what liability insurance coverage is, how it works and how to be sure you have enough  to protect your assets.
Liability insurance has two parts:
  • Bodily injury liability insurance, which provides coverage if you're found at fault in an accident that injures or kills someone else. It can pay for the other person's medical expenses, their loss of income, their funeral expenses, and your legal fees if you're sued.
  • Property damage liability insurance, which provides coverage if you're found at fault in an accident that damages someone else's property. This includes paying for repair or replacement of the other person's vehicle and repair or replacement of homes, other buildings or stationary objects.
Every state has its own laws on the minimum amount of liability insurance coverage you're required to buy.
Often, liability insurance is expressed like this with three numbers.  For example, for New York, you'd see liability limits written as 25/50/10:
1.     The first number is the bodily injury liability maximum coverage for one individual who's injured in an auto accident. So for New York it would be $25,000.
2.     The second number is the maximum amount of bodily injury liability coverage per accident. In this example, that means $50,000.
3.     The third number represents the maximum amount of property damage liability, and it's per accident. In this case, $10,000.
Minimum state liability insurance requirements vary significantly by state. Alaska and Maine have the toughest requirements, and if you live in one of those states you'll need to have minimum bodily injury liability coverage of $50,000 for each person injured in an accident, up to a maximum of $100,000 per accident, as well as $25,000 in property damage liability coverage.
On the other extreme, states such as Nevada require only $15,000 in liability coverage per person and $30,000 per accident. Pennsylvania requires that you have just $5,000 in property damage liability coverage.
Florida requires that you carry a minimum of $10,000 in property damage liability insurance, but does not require bodily injury liability insurance. However, you must have at least $10,000 in personal injury protection (PIP), which covers you, regardless of who is at fault in an accident. It also provides coverage to members of your household, as well as passengers who don't own a vehicle and lack PIP coverage.
Personal injury protection explained
In addition to Florida, 11 other states have no-fault automobile liability insurance laws. No-fault car insurance was created to prevent drivers from suing others in the event of an accident. If your state has a no-fault auto insurance law, your policy must pay medical bills for you and your passengers regardless of who caused the accident.
No-fault states require drivers to purchase minimum levels of personal injury protection (PIP) coverage. The amount of coverage required varies by state, as does the nature of the coverage.  Depending on the state, PIP coverage may reimburse the policyholder for medical and other accident-related expenses as well as lost wages.
Why you should consider higher liability coverage limits
While the vast majority of states require you to purchase liability insurance if you want to drive legally, the minimum amount of auto insurance required by your state could fall far short of what you need to protect yourself and your assets if you cause an accident.
Opting for minimum coverage "doesn't provide enough protection if you get into an accident," says Susan Irace, claims manager for Mercury Insurance. "The damages could far exceed your coverage, which means you could be responsible for the rest. You could lose your savings, your house and all of your assets if the accident was serious enough."
Irace points out that your auto insurer will cover your costs up to the limits of your policy. If your costs exceed that limit, you'll be responsible for paying the difference out of your own pocket.
Bodily injury coverage of $15,000 could quickly be used up if you get into a moderate accident, Irace says. When it comes to coverage for property damage, "$5,000 won't even cover a bumper replacement if you happen to run into a fancy luxury car."
If you wind up in court and you're ordered to pay liability damages that exceed your insurance coverage, "the court doesn't care about your ability to pay," says Lynne McChristian, a spokeswoman for the Insurance Information Institute. "That means all the individual's savings and property might have to be liquidated to pay for the damages. Courts even have the power to garnish your wages."
The institute recommends you carry $100,000 of bodily injury protection per person and $300,000 per accident. Typically, buying additional liability coverage exceeding state minimums costs very little – generally less than $100 a year.

Q:Is the lowest quote the best option when comparing car insurance?

Question:  I'm doing what everyone says to do and comparing quotes with a few car insurance companies.  My question: Is the lowest car insurance quote always best?  What do I need to know when comparing the rate quotes?
Answer: I applaud you for shopping around and getting multiple quotes when you compare insurance companies. Comparison shopping is indeed the best way to get the best price on car insurance; however, the lowest-priced policy is not always the best pick. 
While the cheapest car insurance policy may save you right now, it may cost you in the future by not giving you all the coverage you need. When shopping and buying a car insurance policy you must make certain that the details of the policy are right for your needs and financial situation. 
Keep the following in mind when pricing out a car insurance policy.

Compare apples to apples

If you’re not shopping for the same exact coverage and limits with each car insurance company, then you’re really comparing apples to pears instead of apples to apples. 
For example, if your cheapest quoted premium is for a liability-only policy with limits of 15/30/5 ($15,000 per person and $30,000 per accident for bodily injury and $5,000 for property damage), then this would explain why it’s hundreds of dollars less than a policy with higher limits and includes collision and comprehensive.  With the higher priced policy, you’re getting much better coverage.
Minimum insurance is not recommended unless you have an older car and no assets to protect.  If your car is financed or leased, you’ll also be required to carry physical damage coverage’s of collision and comprehensive.
If you own a house or have assets that you want to protect, it's recommended you carry liability limits of at least 100/300/50.  If you’re leasing a vehicle 100/300/50 is usually required as your liability limits. Higher limits don’t cost that much extra, but you gain a lot of protection.
Once you know what coverage and limits you want – if you want the same as you currently have pull out your policy and use it as a guideline -- only shop for those specifically so that you know you’re comparing the same items with each car insurance provider and can truly see which insurer is cheaper.

Look for exclusions and restrictions

Even policies that have the same limits and coverage’s may not be equal in other ways.  Some "cheaper" policies will have exclusions or restrictions written in it that help keep the price lower than other car insurance companies by not giving you as many benefits. 
Common restrictions and exclusions to be on the lookout for include:
  • Step-down provision – Allows the insurer to drop down your liability coverage to just state minimum, even if you pay for higher limits, when someone not listed as a driver on your policy (a permissive driver) operates your vehicle.
  • Excludes drivers under 25 – The insurer won't cover an accident if the driver of your vehicle is under the age of 25.  Drivers under this age are riskier (more likely to be in accidents) so by excluding coverage for these individuals the insurer is able to reduce your rates.
  • No coverage for permissive drivers – Most policies will extend coverage to those outside your household that you give permission to use your car every now and then, but some do not and only cover listed drivers.
  • Coverage doesn't extend to a rental car – Personal auto policies normally will cover a rental car with the same liability and collision coverage you have on you insured vehicle, but some cheaper companies do not extend a rental car any coverage.
It may be that nothing on an insurer's exclusion or restriction list bothers you, and in that case the policy may be fine for you to buy at a bargain rate.  Just make sure you’re fully aware of what your policy does and doesn’t cover so there won't be surprised down the road.
For instance, if you go with the company that has the cheapest rate and don't take the time to read through the exclusions only to find out after you've crashed your rental car that coverage doesn't extend to the rental you could easily be out tens of thousands of dollars.  Your cheap insurance policy doesn’t look so good now.

Research the company

The cheapest quote could be with a car insurance company you haven't heard of before.  There is nothing wrong with that -- there are lesser known insurers that are perfectly fine to buy from -- but you should check any insurer’s financial strength and customer service ratings before purchasing a policy. 


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