The Circle of Safety: How to Protect yourself and your family with automobile Insurance

By Steven Conrad

What you’ll discover in this report:

§  Insider secrets about how insurance companies price your insurance

§  How not to get ripped off when you do buy protection

§  How much to buy…and how much not to buy

§  Little known facts about the six different kinds of insurance in a standard auto policy

§  Who’s really covered…and who’s not!

§  How do you get the most for your money?  11 ways to SAVE MONEY on your car insurance…

§  Straight answers to the nagging questions about Rental Car Insurance

here are several ways you can purchase insurance for your car(s). You can buy it over the Internet at literally hundreds of different web sites. You can call an 800 number and buy it over the phone directly from an auto insurance company. You can call an insurance agent. In some cases, you can buy it at your bank or credit union.

            It’s not surprising you can buy it so many ways. After all, there are hundreds of insurance companies that sell auto coverage in your area. How do these companies differentiate themselves? Some brag about their superior service when you have a claim. Some tout how easy it is to buy from them. But often, auto insurance companies try to compete on price. Just as if you were buying a plane ticket, a radio or soda pop.

* Tip: Some people believe auto insurance is just a commodity. It’s not. 

You’re not buying a soda.  You’re protecting your financial well being…and the choices you make could affect you for the rest of your life.

But before explaining how complex auto insurance products are, let’s talk about price. It’s pretty complex, too.

Be a Smart Consumer

* Note: No auto insurance company – no matter what it says in its ads – offers the lowest price for every driver in every location. There are companies that are often among the lowest. And there are companies that are usually among the highest. But no company is the lowest for everybody.

* Tip: Also, be aware that prices fluctuate. Sometimes companies “buy the market” with low prices to gain new consumers…then their prices gradually – or not so gradually – sneak up.

They also have to change prices based on their profitability, losses and other factors.

Every company has a slightly different appetite for the risks it wants to take on. Some insurers want only very good drivers who have no tickets and no accidents. Some companies, believe it or not, actually want bad drivers. In fact, these companies specialize in insuring people with lousy driving records.

Some companies target drivers who live in certain areas. There are insurers that really like to do business in big cities, and there are others that would prefer to stay away from highly populated areas.

* Tip: Remember that sometimes “you get what you pay for.”  The cheapest option may not provide you or your family with the best protection. As the saying goes, “you don’t need insurance until you have a claim.” When you do have a claim – something that goes wrong – that’s a terrible time to discover you don’t have adequate protection! 

If you think auto insurance is a commodity, consider this:

A person with a good driving record will pay three, five, even 10 times less than a driver with a couple of tickets or an accident, or who has been cited for and convicted of driving under the influence.

A person who lives in a major city – say Los Angeles, Chicago, Houston or Denver – will pay three, four, even five times more than someone who lives in a rural area or small town, even though the two have the same driving records.

* Example: The last two paragraphs are average differences. Auto insurers are all over the map on prices in a given area. Say you live in Everywhere, U.S.A. (don’t we all). Say you have a good driving record. One insurance company might charge you $500 a year for a policy that provides almost every coverage available. Another insurer might charge you $1,500.

As you can see, it can pay to shop around. But be careful. In order to really compare companies, you need to understand the coverage in your policy. It helps to have an agent you really trust who can explain coverage and make sure you are taking advantage of all the savings available to you.  Sometimes, you can save money – and the hassle of shopping around – by making a few simple revisions to your current policy. It’s always a good idea to call your agent first to make sure you are getting the best possible rate from your current company.

Auto Insurance: How Much Should You Buy?

So far, we’ve been talking about “auto insurance” as if it were, well, a commodity. The fact is, you can buy a lot of auto insurance, or a little. Most states – more than 40 – require you to have auto insurance.

But they don’t require you to have much. In states that have so-called mandatory auto insurance laws, all you are required to buy is a little bit of liability coverage. This is so you can pay for some of the damage your car does to other cars and other people not in your car.

How much are you required to buy? In most states with mandatory auto insurance laws, the minimum needed is liability that provides 1) $15,000 for any person involved in an accident with you, 2) a maximum of $30,000 for all persons in the accident, and 3) $5,000 for damage to the other vehicle(s) involved. That’s not much! In fact, with today’s medical care and auto repair costs, it’s next to nothing.

* Tip: The minimum amount of insurance required by most states is not much.  Seriously consider getting more protection in order to protect your financial health. You might be surprised at how little it can cost.

* Note: Notice that mandatory auto insurance laws do not require you to buy coverage for your own car. Or, in many cases, coverage for your injuries. Or coverage if you are hit by someone who doesn’t have insurance.

If you buy just the minimum coverage required by law, you are leaving your assets at considerable risk. Your car, obviously. And your home, if you are at fault in an accident that causes serious injuries to the other parties.

And how far do you think $5,000 will go if you total somebody’s Lexus? Not far enough!

Little Known Fact: There Are Six Types of Coverage in an Auto Policy

The auto insurance “commodity” is actually a product with six distinct types of coverage:

Let’s look at them here.

1.     Bodily Injury Liability – It pays the medical and other expenses of those people injured or even killed in accidents you cause. This is required by most states, usually with a minimum coverage of $15,000 for any person involved in an accident with you and no more than $30,000 for all the persons in the accident.

2.     Property Damage Liability – It covers the damage your car causes to property. Usually, that’s the other car or cars involved in the accident, but it also covers damage you do to any object you hit. Garages, buildings, lampposts, fences, whatever. This is also required in most states, usually with a minimum coverage of $5,000.

3.     Collision – This is for damage done to your car when it collides with other vehicles (your fault) or other objects (again, your fault). If another driver is at fault but doesn’t have insurance or leaves the scene without providing their information, your collision coverage will kick in.

4.     Comprehensive – This covers accidental damage to your car that results from something other than a collision with another vehicle. For example, damage caused by vandals or a wind-blown tree hitting your car. It also includes coverage for theft.

5.     Medical Payments/Personal Injury Protection – It pays medical, and even funeral, expenses for you as well as members of your household who are passengers in your car if it is involved in a collision, regardless of who caused the accident. It also covers you as a pedestrian if a vehicle hits you.

6.     Uninsured/Underinsured Motorist – This pays for injuries to you and your passengers if you are hit by a driver who doesn’t have insurance – or by someone who doesn’t have enough insurance to cover your losses. In most states, more than 10% of motorists don’t have any insurance. In some states, as many as three out of ten drivers have no coverage.

Many of those who do have insurance don’t have enough to cover the damages and injuries that would result in a major collision. If you don’t have this coverage, which is often referred to as UM/UIM, you are taking a risk. UM/UIM also provides coverage for any injuries you suffer if you are hit while walking or riding a bicycle by a driver with inadequate or no insurance.

There are Even More Types of Coverage Available…

There are additional types of coverage you can buy. You can purchase towing coverage, which will pay the costs if your car needs to be transported after an accident. Some towing packages even cover towing for mechanical breakdown, and may include coverage for roadside assistance such as mechanical labor, lockout service, tire change, and gasoline delivery.

You can also buy rental reimbursement or loss of use coverage, which will pay for a rental car if you have a claim and can’t use your vehicle while it’s being repaired. (If the accident was not your fault, the cost of the rental car is automatically picked up by the other person’s insurance company.)

What are the Various Options for These Different Types of Coverage?

While there are six main types of coverage in an auto insurance policy, there are numerous options to consider for each coverage.

How much insurance do you need?

Bodily Injury Liability – You can buy the minimum required by law, say $15,000 per person, $30,000 per accident. Or you can buy limits as high as $500,000, even $1 million. Remember that someone you hit can sue you for everything you have.

* Tip: If you have a home, own stock and have a decent income, you should probably buy, at minimum, limits of $100,000 per person, $300,000 per accident. If you have more than $300,000 in assets, you should buy higher limits or an umbrella policy.  Consult with your professional agent about this!

Property Damage Liability – Several years ago, $25,000 was considered the maximum most people needed for this coverage. Not anymore. There’s a lot of $50,000, $60,000, even $70,000 cars, trucks and SUVs on the road these days. And what if you cause a multi-car accident?

* Tip: Because of all the super-expensive cars on the road today, you should seriously consider at least $50,000 of coverage, and preferably $100,000. The cost difference is often minimal.

Collision – Consider how much you can afford to pay to have your car fixed if you have an accident. Auto policies have several deductible options.

* Note: Deductible? That’s the part you pay before the insurance kicks in. You can buy deductibles anywhere from $0 all the way up to $5000. Obviously, the lower the deductible, the more this coverage will cost.

Unless you’re planning to have a lot of accidents, it’s probably a good idea to have a deductible of at least $500. (By the way, the deductible does not apply if someone else hits you and that person’s insurance is used to pay for your car’s damages.)

Comprehensive – Like collision, there’s a deductible with comprehensive, although it is often lower. For example, if you have a $500 deductible for collision, your comprehensive deductible might be, say, $200.

* Note: While collision and comprehensive will pay for the damage or loss to your car, neither coverage will pay for everything on or in your vehicle. Most policies exclude things like CB radios, two-way radios, car phones, cassettes and CDs.

Further, if you add special features to pickups, vans or SUVS, these things probably will be excluded as well. In fact, it’s a good idea for you to talk to your insurance agent about any high-tech equipment or special features you have added to your vehicle.

Many, perhaps even most, of these features aren’t covered in the standard policy. It is possible, however, to obtain special coverage for the high-tech equipment or special features in your vehicle. Your agent can advise you of the options.

Personal Injury Protection (PIP) – Some states have so-called “no-fault” auto insurance systems. Basically, regardless of who’s at fault, your insurance company pays for injuries you incur. In these states, personal injury protection may be a mandatory coverage. Some people do not want to buy this coverage because they believe their health insurance is enough. That’s true – to an extent.

* Note: Personal injury protection is not nearly as comprehensive as most health insurance plans because it only covers injury-related losses resulting from a car accident. However, unlike your health insurance, personal injury protection can reimburse you or your family for things like lost income, housekeeping services, and funeral expenses.

Uninsured/Underinsured Motorist – For most people, it’s a good idea to have the same limits for UM/UIM as they have for bodily injury liability. But remember, UM/UIM coverage is for you and your passengers. It pays for your injuries if the person at fault in an accident with you cannot. Since you based your liability limit on what you have to lose, you should do the same with UM/UIM.

Who is Covered When You Buy Auto Insurance?

All the coverage in your auto policy applies when you are driving, but they also apply when other people are driving your vehicle. With the exception of personal injury protection, the coverage is actually for the car, not the person.

* Note: However, if someone is going to be a regular user of your car, that person’s name needs to be added to the policy. All licensed drivers residing in your household – or using your address as their legal residence – should be reported to your insurance company. Unless they have their own auto insurance, they must be rated on one of your policies.

Your insurance company wants to know who’s going to be using the car. That stands to reason. After all, you could be a great driver, with no tickets or accidents. But your spouse, your teenage child, your reckless cousin could be a lousy driver.

If you let these people drive your car without telling your insurer and these people keep getting in accidents, your insurance company isn’t going to be very happy. In fact, the company will probably cancel your policy.

* Tip: It’s not wise to risk losing your policy by failing to disclose who’s driving the insured vehicle. Keep in mind, however, that if you add drivers with lousy records or who haven’t had much driving experience, your premiums will definitely go up.

Any parent of a driving teenager can tell you this. Teenagers are notorious for getting tickets and having accidents. They are also very inexperienced drivers. As such, when your child gets his or her license, your insurance premiums will go up when you add your child to the policy. However, many companies offer special discounts when your child first becomes licensed that can help offset the premium increase. If you wait to add your new driver, they may not be eligible for these discounts and you may pay more in the long run.

If you buy all six of the major types of auto insurance coverage, your policy will cover you in most every instance in which you cause damage or injury to your car, yourself, your passengers, or drivers and passengers in other vehicles.

But not all.

* Note: The standard auto insurance policy has some “exclusions,” which is insurance-ese for, “We won’t cover that.” Here are some examples where your auto policy won’t provide coverage:

§  If you intentionally try to cause damage to your car or another vehicle. This includes liability coverage.

§  If you are using the vehicle to transport other people for a fee. (This does not apply to carpools where the expenses are shared.)

§  If you are using the vehicle for certain business activities, such as transporting goods. (Your auto policy can be amended to cover some types of business use, such as driving to sales appointments or job sites.)

§  For damage caused by normal wear and tear, freezing, mechanical or electrical breakdown, or road damage to tires.

§  If your car is damaged because of radioactive contamination, intentional or accidental discharge of nuclear weapons, war, insurrection, rebellion or revolution.

Important Question: How are You Using Your Vehicle?

You can get sideways with your insurance company because you haven’t been upfront about how you are using your vehicle. For example, do you drive your car to work? If so, you will pay more for auto insurance than if you take mass transit. In fact, the further you have to drive to work, the more you will pay.

* Tip: If you drive to work and tell your insurance company you don’t, you have basically committed fraud. Resist this common temptation, even if it will save you a few dollars.

* Example: Say you have an accident on the way to work. Say, also, that you have told your insurance company you don’t drive to work. Your insurer could technically argue that it is not obligated to provide coverage. It is unlikely that this will happen, because the insurer would have a difficult time proving that you drove to work every day. Perhaps this was a one-time thing, or a fairly rare event.

However, by lying about driving to work, you’ve given your insurance company a good reason to cancel your policy.

Honesty is the best policy when it comes to insurance. Insurance fraud is a huge problem in this country. Claims are frequently padded with nonexistent damages. Accidents are staged. Injuries are faked.

* Fact: It is estimated that fraud accounts for as much as 25 cents to 30 cents of every auto insurance premium dollar. Think about that. If even half the auto insurance fraud in this country were wiped out in the next year, you would pay 12% to 15% less for your next policy.

While underreporting the use of your vehicle is certainly not among the most flagrant forms of insurance fraud, think about the way insurance premiums are determined. The statistical data used to calculate auto premiums are skewed when many drivers misrepresent the use of their vehicle. This causes a ripple effect that drives up the rates for drivers who do not drive to work. If the majority of people are honest, everyone can look forward to lower premiums when they retire.

Personal Car for Business, Company Car for Personal Use

Do you use your personal car for business? Do you have access to a company car? If the answer to either question is yes, you could have potential coverage gaps.

* Example: Let’s say you use your personal car for business. It’s possible your employer is providing some coverage for you through a commercial auto policy. Some coverage. For the most part, the coverage is for liability only, and often this commercial auto policy doesn’t even apply until the limits on your personal auto policy are exhausted. (This is what insurance people call “excess” coverage.)

* Tip: You should talk to your employer about what, if any, coverage is available to you through the company’s commercial auto policy. That way, if you have an accident while on company business, you know who (or which insurance company) to call.

If you use your personal car for regular business purposes – trips, visiting clients, etc. – your personal auto policy probably provides enough coverage for these activities. (Assuming you have “enough” coverage to begin with.) Check with your agent, though. Even if you do not need additional coverage, the business use may impact your rating classification.

But what if your car is actually a source of revenue? You make deliveries, for example. In that case, you likely need a commercial auto policy as well.

* Note: In fact, if you have an accident while delivering a product or using your car as a taxi, your personal auto insurer may well deny your claim. Talk to your agent to make sure you have coverage for all the business activities for which you use your car.

What about company cars? Well, they can be an insurance problem, if you use the company car for business and pleasure, and particularly if you don’t have a car of your own. If you don’t have a car, you probably don’t have a personal auto policy. If you don’t have a car (or personal auto coverage), but use a company vehicle for pleasure, you are inviting disaster if you have an accident during a pleasure trip.

* Tip: If you are in this situation, you should have what is called a non-owned personal auto policy.

Such a policy can also come in handy if you don’t have a car and you rent a vehicle on a trip. Your non-owned auto policy will cover you and your rental car if you have an accident. Otherwise, you would probably need to buy coverage from the rental car company, coverage that is very, very expensive.

* Tip: You can have coverage gaps even if you have a personal auto policy and use a company car for pleasure. Or if your spouse and/or children use the company car for pleasure. Find out from your employer the extent of coverage that is available for your corporate car. Once you know the extent, talk to your insurance agent about what additional coverage you might need.

How Do You Get the Most for Your Money?  11 Ways to Save Money on Your Car Insurance…

You’ve taken the first step to becoming an insurance-savvy consumer by understanding how auto insurance works. What else do you need to know? Well, there are lots of ways – at least 11 – to save money. Many of these money-saving ideas may apply to you.

1.     One Insurer, Multiple Policies – Do you have a homeowners or renters insurance policy? If so, is it with the same insurance company that provides your auto insurance? If the answer is no, you’re paying too much – for both policies. Almost every insurance company that sells auto insurance wants its policyholders to also buy homeowners or renters insurance from that company.

These insurers offer so-called multi-policy discounts. Usually, these discounts are at least 10% and some insurers apply the discounts to both the auto and the homeowners/renters policy.  Companies may also offer multi-policy discounts for having other types of policies, such as life insurance.

* Tip: Talk to your agent about multi-policy discounts.

2.     Good Driver, Good Price? – It’s no secret that the better your driving record, the less you will pay for auto insurance. But did you know that most people qualify as “good drivers” and are eligible for discounted premiums? Some good drivers pay a lot more than others, however.

Many auto insurers are actually a collection of several insurance companies in which each caters to a certain type of driver. The worst drivers go in one company, the best in another, and a lot of people wind up in one of the middle companies.

These middle people pay less than the worst drivers, but more than the best. The thing is, many of these middle people have driving records that are just as good as those who are insured by the companies that offer the lowest rates. Yet these middle people are paying more. Why?

The usual reason is that they don’t know any better. No one told them which insurance company in the group had the best prices. And, probably, no one told them there was even a group of insurance companies. If you have a spotless driving record, there’s no reason you shouldn’t be paying the lowest price a group of insurance companies has to offer.

* Tip: Make sure you’re getting the best discount for your driving record. Talk to your agent. And remember, be a safe driver. It will save you money.

3.     The Beauty of the Bus (or Other Mass Transit) – Do you drive to and from work? If you do, you are literally paying a premium to do so. Insurance companies charge you significantly higher premiums if you drive to work. And, the longer your commute (in miles, not minutes), the higher the premium.

* Tip: Some drivers should consider mass transit. Yes, there’s a price there, too. But you will reap the savings of gas and lower insurance costs.

4.     Low Mileage, Low Price – On average, people drive 1,000 to 1,250 miles a month. That is what insurance companies consider average use.

* Tip: If you drive less than the average, you could be eligible for low-mileage discounts, which some insurers offer.

5.     High Profile, High Cost – The type of car you drive is a major factor in what you pay for insurance. Is your vehicle a magnet for thieves? Is it more expensive to repair than most cars? If the answer to either of the last two questions is yes, you’re paying more than the average car owner for insurance.

* Note: For a list of vehicles that offer a better-than-average insurance value, visit http://www.farmers.com/FarmComm/content/PA010031.jsp.

6.     Raise Your Deductible – The deductible is the amount you pay before insurance kicks in if you have a claim. For example, if you have a $250 deductible and you have an accident in which your car sustains $1,000 in damage, you pay the first $250 and your insurer pays the balance, $750. The lower the deductible you choose, the more you pay. If you have assets, you can probably afford to absorb at least $250 and probably $500 or more if you have a claim.

* Tip: If it’s been years since you’ve had an accident, you may be better off raising your deductible and paying less each year for insurance.

7.     Drop Unnecessary Coverages – Let’s say you have an older car, one not worth very much. There’s really little point in having collision and comprehensive coverage. You don’t have much to protect. Remember, too, that you have to subtract your deductible from any potential payout you might get.

* Tip: As a general rule, any car worth less than $1,000 shouldn’t have collision and comprehensive coverage. Between the deductible and the extra expense of this coverage, the cost is probably greater than the benefit. How much is your car worth? An auto dealer can tell you, or there are plenty of books that have values of vehicles going back many, many years. Visit nada.com for a quick estimate.

8.     Discounts, Discounts, Discounts – Auto insurance companies offer several discounts for a variety of reasons. The car has automatic seat beats, air bags, anti-lock brakes, anti-theft devices, etc. The driver is a good student, which is especially valuable if you have teenage children who will be on your policy.

* Tip: Make sure you are taking advantage of all the discounts available to you!

9.     Taking the Defensive – Many insurance companies also offer discounts to those who have taken defensive driving courses recently.

* Tip: Check community bulletins for course offerings in your area.

10.  Low-Cost and High-Cost Areas – Are you planning to move? If you are, you should take into account the cost of insurance. Generally, the more urban the area, the higher the premium. The costs can vary even within a community.

* Fact: Rates can really vary from state to state. If you’re living in New Jersey, Massachusetts or Hawaii, you’re paying several times more, on average, than you would in North Dakota, South Dakota or Idaho.

11.  Credit Where It Is (Or Is Not) Due – Is your credit record better than your driving record? If you have a good credit record, you could be eligible for discounted premiums from several auto insurance companies.

* Fact: Many insurers now use your credit history as a major factor in determining what to charge you for auto insurance. In some cases, with some companies, you could save money by shifting your business to an insurer that uses credit as a rating factor – even if you have a so-so or poor driving record.

* Tip: Regardless of your credit status, you should talk to your agent to make sure you have the best situation given your credit record, good or bad.

Whatever your driving record or coverage needs, your agent can help ensure you are getting the best deal you can. In addition to saving money, though, you also want to make sure you and your family are protected. An experienced agent can tailor your coverage to meet your insurance needs and budget.

By insuring your auto, home, and other assets with a personal agent, you can enjoy the convenience of working with a single company for all your insurance needs and the security of knowing your agent can coordinate your policies to prevent perilous gaps in coverage. Using a personal insurance agent is usually your best bet to get the most value for your auto insurance dollar.

straight Answers to The nagging questions about Rental Car Insurance

* Example.  You’ve just started your vacation. You’ve arrived at your destination, collected your luggage, and are in the process of renting a car. You’ve given the person behind the counter your driver’s license and credit card, and now you are being asked if you want to buy “coverage” from the rental car company.

Do you need it?

Probably not, but how can you be sure? The best way is to be prepared and know the answer to this question before you leave on your vacation.

So why shouldn’t you buy insurance from a rental car company? The person behind the counter is (usually) not a licensed insurance professional. He or she is not conversant with insurance laws and whether your own personal auto policy covers you when you rent a vehicle. (In most circumstances, it does).

Some rental car company personnel may say you are required to buy the coverage (not true) or you will be personally liable for any damage to the car while you’re renting it (most likely, not true).

This Coverage Is Incredibly Expensive

* Fact: While it’s true you could be making a costly mistake if you need the rental car coverage and don’t buy it, you’re also making a costly mistake if you buy it when you don’t need it.

Rental car insurance is incredibly expensive. On a daily basis, which is how it is sold, the rental car coverage can cost 10 to 20 times more than your personal auto policy. If you buy all the coverage options offered by the rental car companies, you could easily double the daily cost of your rental vehicle.           

So who needs to buy the rental car coverage? Well, here’s who doesn’t. If you have your own auto insurance, your property damage liability coverage will cover the rental car – provided you are not renting the vehicle for business purposes.

If you’re on vacation, no problem. Just say no. If you’re on vacation but planning to do some business, you’re probably okay. But you should talk to your auto insurance agent if you mix business and pleasure on the trips where you rent cars.