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Shopping
for Insurance?
The
value of good automobile insurance doesn't become apparent until you really
need it—when your car is stolen or you're in a crash. Then, you find out it
pays to have insurance coverage you can count on.
Savvy
shopping for insurance requires a little more effort than many people tend to
give it. Too many consumers simply grab the first price they come across or
accept routine rate increases without returning to the market to shop for a
better deal. It is important to compare not only the price but the coverage
and exclusions among carriers. You don’t want to find out after you file a
claim that the new policy you purchased with the excellent premium does not
include a type of coverage that you had with your previous carrier.
"It
really pays to shop around," Dick Luedke, spokesperson for State Farm
Insurance, told MSN Autos. "Premiums for exactly the same coverage can
vary substantially from carrier to carrier."
A
study by Progressive Insurance in 1998 and 1999 showed six-month auto
insurance rates varied an average of $481 across the country. This means the
same driver could receive a quote of $1,256 for a six-month auto insurance
policy from one company and a quote of $775 for the identical policy from
another company. Yet, another study conducted in late 1998 showed almost 60
percent of consumers surveyed had not contacted an insurance company or agent
to ask about rate information in more than two years.
"Call
around a lot," suggested Scot McCartney, spokesperson for Independent
Insurance Agents of America. "Don't always grab the first quote you get.
Make several calls, ask the same questions and be sure to get quotes on
exactly the same coverage from each carrier."
It
pays to mix it up
Call a couple of the larger carriers (State Farm, Allstate, Nationwide,
SAFECO, etc.) and then check with a couple independent agents and phone-based
carriers, such as GEICO or Amica, just to make sure you've covered your bases.
If
you prefer to shop on the Internet, a number of services offer online price
quotes. Web sites give you quick access to a number of quotes without ever
picking up the phone. However, as convenient as they are, it's still advisable
to consult other more traditional sources as well.
What
to look for
When buying auto insurance, it's important to consider not only the price, but
also the carrier and the coverage. As with any product, the value of a low
price is quickly forgotten when you find out that the service or the quality
of the product is not what you expected.
The
old saying, "It’s too good to be true" applies for insurance
premiums as well. If the premium seems too low, be sure that you are getting
all the coverage you need.
"Check
out the agent you'll be working with," advises Jeff Kenny, spokesperson
for the California Department of Insurance. "Do you know and trust them?
Also look into the insurance carrier itself. Is it a well-known and
established company? Does it have the financial strength to pay its
claims?"
You
can obtain background and financial information on an insurance carrier from your
state's department of insurance.
When
talking with insurance agents, don't hesitate to ask a lot of questions. In
addition to learning what coverage is offered and how much it costs, also ask
about how claims are processed. Too often, people don't learn about the
process until they have to make a claim. Knowing beforehand ensures you choose
a carrier whose claim process is most convenient and appealing to you.
And
don’t forget to ask friends, neighbors and family who they are insured with
and whether they like the service they receive. Often, they can provide
personal examples of what went wrong and what went well when they had to file
a claim.
Factors
influencing rates
If your current rates seem particularly high (or low), you might want to know
why. Indeed, if your rates (or quotes) are high, altering your lifestyle or
vehicle choice can have a big effect on the rates you pay.
While
criteria may vary slightly from carrier to carrier, according to State Farm's
Luedke, the major determining factors fall into four basic areas:
You. Your age, gender, marital status,
driving record, and record of prior claims play a major role in
determining your risk level and therefore the premium you will pay.
Traditionally, males under 25 years of age represent the highest risk,
while married, middle-aged, non-smoking mothers represent the lowest.
Where you live.
Living in an urban area typically triggers higher rates due to increased
incidence of theft and accident claims—both of which are statistically
higher in and around cities.
Your vehicle.
The type of vehicle you drive greatly affects the rates you pay. Vehicles
that have a high frequency of claims (sports cars) or are expensive to
repair (luxury cars, SUVs) are prone to higher premiums. However, larger
vehicles tend to be safer in collisions, which sometimes offsets costs.
How you use your vehicle.
Statistically, the more miles you drive, the greater chance you have of
being involved in a crash. High annual mileage will result in higher
premiums.
Another
way to reduce your premium is to increase the amount you self-insure by
increasing the deductible amounts on the property damage coverage for your own
vehicle. These deductible amounts on your comprehensive and collision
coverages may be limited if you have the vehicle leased or financed, so check
your financing contract before raising your deductibles too high.
Deciphering
the code
Once you've begun researching insurance coverage, it won't be long before you
come across liability limits displayed in an X/Y/Z form. These are the maximum
limits of coverage for bodily injury or property damage that you become
legally responsible for.
For
example, 100/300/50 means you're covered for a maximum of $100,000 bodily
injury per person, $300,000 bodily injury per incident, and $50,000 property
damage per incident.
You
may also see the liability limit stated as a single amount, called a combined
single limit. This limit is the total amount available for a single
occurrence, without per person or property damage sub-limits. The advantage of
a combined single limit is that if there are only minor injuries but
considerable property damage, the total liability limit, not just the
sub-limit amount, is available to satisfy a property damage claim. Conversely,
if one person is injured severely, the entire liability limit is available to
satisfy a claim by that one person, rather than just the per-person limit.
When
setting your limits, make sure to set them high enough to protect yourself
against possible lawsuits. The more assets and income you have, or the more
earning potential you have, the higher liability limits you should consider.
If you become legally responsible for bodily injuries or property damage in
excess of the liability limits of your policy, your personal assets or future
earnings may be required to satisfy your obligation.
Types
of coverage
Shopping for auto insurance involves more than simply calling an agent and
asking for a quote. To get the most out of your insurance requires that you
first fully understand what risk you want to protect against and how best to
shift that risk using the various types of insurance coverage.
Here
are some major types of insurance coverage you should be familiar with. This
section is intended as a general description of the definitions typically used
in a personal auto policy. For specific definitions and coverages, you should
always refer to your current policy or the policy that you are considering.
Collision—The
portion of the policy that pays for the damage to your car caused by a crash,
regardless of responsibility. If another party is responsible for the damage
to your car, the insurance carrier will pursue the other party on your behalf
and collect payment for the repairs from the other party’s insurance carrier
or the party directly. The maximum amount of collision protection is usually
limited by the depreciated value of your car (which is not the same as the
replacement cost). Collision insurance is usually required by a lending
institution if the vehicle is financed or leased.
Comprehensive—The
portion of the policy that pays for damage to the vehicle caused by non-crash
events such as theft, vandalism, acts of God, striking an animal, storms, etc.
Medical—This
coverage pays the initial medical bills for you, members of your family and
passengers in your car. If the cost of medical treatment exceeds the medical
coverage limit, non-family passengers in your car can obtain compensation from
your liability coverage, but you or your family members would not be covered
by your own liability coverage. You or family members could look to other
medical insurance for additional coverage. It also covers you and those in
your household if you're a passenger in a car involved in a crash, or if
you're a pedestrian struck by a car.
Liability—This
coverage pays for bodily injury or property damage that you become legally
responsible for as a result of driving your vehicle. Family members living
with you who are listed with the insurance company as drivers on your policy
and anyone driving your car with your permission will be covered by the
liability coverage for injuries or property damage that you or they become
legally responsible for while driving your vehicle. Your liability coverage
will not pay for injuries to your own family members in the car, which will be
covered by medical coverage described above.
Uninsured
Motorist—This covers your
property damage and personal injury in the event you're hit by an uninsured
motorist. It also covers hit-and-run crashes and is required by many states.
Underinsured
Motorist—This covers your
property damage and personal injury caused by another party, when the amount
of damage exceeds the other party’s liability limits. This coverage will
pick up after the other party’s liability limit is exhausted.
Umbrella—If
you also have homeowner’s liability coverage, you may want to consider a
personal liability umbrella. The umbrella will pick up bodily injury or
property damage amounts that you become legally responsible for, above the
policy limit of the underlying personal auto policy, up to the umbrella limit.
The premium for this additional coverage is typically only a fraction of the
cost of the personal auto policy and also provides additional liability
coverage above the liability limits of the underlying homeowner’s policy.
Gap
Insurance—This coverage
provides for the difference between the amount paid under collision or
comprehensive coverage to cover a total loss and the amount to pay off the
lease or finance contract balance on the vehicle. Many lease or finance
contracts include this coverage, but if yours does not you should consider
including the coverage on your auto policy. If the payoff amount on the
vehicle is more than the payout under your comprehensive or collision coverage
and you don’t have gap coverage, you will be responsible for the difference.
Other
Optional Coverage—This
can include emergency towing or repairs while on the road and rental car
reimbursement when your car is being repaired.
No-fault
insurance
A number of states have no-fault insurance provisions. In no-fault states, the
insurance company covers a client's personal injury claims regardless of who
was at fault in the crash. However, victims can still sue the other party
under certain conditions.
No-fault
programs are intended to reduce the costs of auto insurance by reducing claims
and litigation.
High-risk
insurers
Not everyone has a squeaky clean driving record. A history of too many
tickets, crashes, or insurance claims can make it difficult to obtain
coverage. In some cases, major carriers may actually refuse coverage, having
determined that such drivers represent too great an insurance risk.
However,
this does not mean coverage is not available. On the contrary, most states
require personal liability coverage, so high-risk drivers are actually guaranteed
coverage. Even if a larger carrier may refuse them coverage, select high-risk
insurers must accept them.
When obtaining your insurance through a non-standard insurer, look into factors such as customer service, time to process claims, and payment of claims. Just because you're a high-risk client doesn't mean you should accept poor service.
DebtFREEGuru.Com Tip of the Week for Monday, November 18, 2002
Copyright 2002 DebtFREEGuru.Com All Rights Reserved.
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John S. Moore has been facilitating financial planning, cash management, investment and personal growth workshops throughout the United States for more than twenty years.
In hundreds of workshops over the past 8 years, John has taught thousands of people how to live a debt-free, stress-free lifestyle. He teaches primarily at Unity, Religious Science and Science of Mind churches, as well as other churches, schools and corporations around the United States.