| INSURANCE
Q. Does my bank have a say in the amount of insurance I buy?
A. Possibly. Many states allow lenders from whom you borrowed
to buy a car to protect
their collateral by requiring you to purchase insurance options such as
"collision," which
pays for damage to your car regardless of fault, and "comprehensive,"
which pays for
damage to your car caused by theft, fire, and vandalism.
Q. What is a deductible?
A. A deductible is the amount of each claim that you agree to
pay for by yourself. The
higher the deductible you choose, the lower your annual insurance premium,
though you
need more cash on hand to pay for damages when you select a high deductible.
Typical
deductibles are $50, $100, $250, and $500.
Q. May my insurance agent force me to pay my premium in a lump
sum?
A. Check your particular state's law. Some states limit the amount
an agent may demand
before renewing your insurance to a certain percentage of the premium.
If you have not
paid your premium payments in the recent past, however, an insurance agent
may legally
ask you to pay your entire premium before renewing your policy.
Q. May my insurance agent charge me a service fee for issuing
or renewing a policy?
A. Consult your state's law. Some states forbid agents from charging
service fees for
issuing or renewing auto insurance policies, and do not require you to
pay for services that
your agent performs without your consent.
Q. How are insurance rates determined?
A. A classification system based on objective criteria helps
actuaries to determine the risk
of an accident and thereby set the varying rates that drivers pay. Criteria
include your age,
sex, marital status, and geographic location; the age, make, and model
of the car; and the
car's primary use (cars used for recreation are statistically less likely
to be involved in an
accident than a vehicle used for commuting). In some states, the insurance
rates are set by
the state's insurance commission, which regulates insurance companies.
If you have been involved in a several accidents over a short period of
time, you are a
high risk, so insurance companies would add a surcharge to the basic premium
you pay.
On the other hand, insurance carriers might offer safety discounts if
your vehicle is
equipped with automatic safety belts, anti-lock brakes, or air bags.
Insurance companies will offer other types of discounts as well, such
as for senior
citizens, "good students," if you join a car pool, or if you
insure multiple vehicles with the
same carrier.
Q. My teenage son's insurance premium is much higher than mine.
Is it
unconstitutional to discriminate based on age?
A. No. Actuaries cite research that persons under age 21, especially
males, have the
highest rate of car accidents. This is the justification for the disparity
in rates between
adults and minors.
Q. Will my insurance premium automatically increase if I have
an accident?
A. Not necessarily. If the insurance carrier has to dole out
$300 to $500 or more in claims,
you are likely to see a premium increase. If you have been accident-free
for the previous
three years, the surcharge, if any, might still be less than your costs
to pay for the repairs
out-of-pocket. If you are on your third accident and just getting warmed
up, prepare
yourself for a 20 percent to 50 percent premium hike.
Q. Do I have to buy uninsured motorist coverage?
A. It depends where you live. Some states now require drivers
to purchase such coverage,
which enables you to collect from your insurer if you are injured in an
accident caused by
an uninsured driver. The insurance carrier, in turn, receives subrogation
rights against the
uninsured wrongdoer; that is, the carrier takes your place (and your rights)
as the legal
claimant against the uninsured driver. Skyrocketing hospital costs, combined
with a tight
economy that has forced people not to adequately insure their vehicles,
if at all (where not
required by the state), make this coverage desirable, even if not mandated
by your state.
Q. How do I collect on my uninsured motorist coverage?
A. Generally, you must prove both that the other driver was at
fault and without liability
insurance to compensate you. An uninsured motorist actually may have no
coverage, or
may be "uninsured" if underage, unlicensed, or otherwise ineligible
for protection under
the policy covering the vehicle that caused the accident, as, for example,
when the driver
at fault used the vehicle without the owner's permission. Practically
speaking, if the
insurance carrier of the driver at fault denies coverage, you are dealing
with an uninsured
motorist.
Q. How much can I recover on an uninsured motorist claim?
A. Check your state's law. Some states, for example, prohibit
adding together the liability
limits for two policies to determine how much coverage is available to
injured persons.
Q. How does underinsured motorist coverage work?
A. Underinsured motorist coverage, which exists in a majority
of states, provides
indemnification from the injured person's insurer in a sum equal to or
greater than what
the injured insured person could have realized had the driver at fault
carried the statutorily
prescribed liability insurance minimum. If, for example, you have underinsurance
coverage with a "trigger" provision in the amount of $100,000,
and the other driver who
injured you has only $50,000 in bodily injury coverage, but you have $70,000
in damages,
once you recover from the other driver's carrier, you can look to your
own insurer, up to a
maximum $50,000, to cover the excess damages.
Q. Do underinsured motorist policies differ?
A. Yes. A minority of those states that recognize this insurance
option weigh the insured
accident victim's damages against the driver at fault's liability coverage,
compensating the
injured person only if the driver at fault's liability coverage is less
than the damages the
victim suffered or was entitled to receive. Other states examine the injured
person's
uninsured motorist coverage and the driver at fault's liability insurance,
with the insurance
carrier paying out only when the driver at fault's liability insurance
limit is less than the
victim's underinsured motorist coverage. Most policies enable the insurer
to deduct ("setoff")
the amount the victim receives from the driver at fault from the sum it
pays to the
victim carrying the underinsured motorist protection.
The Auto Insurance Jungle
”No-fault," "choice,"
"financial responsibility"—most drivers would rather
drive crosscountry,
nonstop, in a Yugo, than attempt to decipher the mysteries of automobile
insurance. Virtually each state has its own insurance regulations,
yet not every state has
mandatory insurance. A detailed analysis of the issues and options
associated with
automobile insurance is beyond the scope of this chapter, but here's
a quick guide to some
of the major issues. |
Q. What is no-fault insurance?
A. Under this type of insurance, which is usually compulsory,
insurance carriers
compensate their own policyholders for medical and other costs associated
with
automobile accidents. This type of insurance is designed to protect you,
any passengers in
your car, and any pedestrian you may injure, without having to enter a
court of law to
determine who is at fault for the accident. Most no-fault statutes apply
only to bodily
injury claims, and do not encompass property damage claims.
Q. What are the pros and cons of no-fault?
A. The purported advantage of no-fault is that the injured party
is reimbursed relatively
promptly by his or her insurance company, saving the party from a protracted
court case.
On the debit side, no-fault laws restrict the injured person's right to
sue the other driver for
general damages. For example, often a dollar "threshold" in
medical expenses and
damages must be satisfied before an injured party can bring suit against
a negligent driver.
Some states have a so-called "verbal threshold," which uses
words not figures to
determine when a suit may be filed. A typical statute precludes an individual
injured in a
car accident from initiating a tort action unless his or her injuries
resulted in death,
permanent serious disfigurement, or serious impairment of a body function.
Under this
verbal threshold, sprains, strains, and other so-called "soft tissue"
injuries, which are most
common in automobile accidents, would not be compensable. Critics also
lambaste nofault
for: 1) not providing an incentive to drive safely, because both the careless
driver and
the innocent victim are entitled to the same compensation, and, 2) for
not resulting in
reduced insurance premiums, as promised by insurance companies.
Q. What are choice statutes?
A. These laws enables drivers to choose between a no-fault policy
that limits the driver's
rights to sue the other party to an accident but allegedly carries with
it a lower premium,
and a straight tort-based negligence plan, at a supposedly higher premium,
that gives
drivers a broader right to sue.
Q. What are "financial responsibility" laws?
A. These laws require drivers either to have insurance or post
a bond or have a sum of
money in cash. "Security-type" financial responsibility laws
require, following an
accident, that each driver demonstrate an ability to pay damages that
might be assessed
against the driver in subsequent litigation. Another type of financial
responsibility law
involves a minimum requirement of financial responsibility covering death
or injury of a
person, death or injury of more than one person, and property damage.
Q. What are "compulsory insurance" statutes?
A. These laws mandate that drivers file proof of financial responsibility
as a condition of
receiving their vehicle registration. Many states require drivers to purchase
certain
insurance options, such as "collision," which pays you for damage
to your car irrespective
of who was at fault, and "comprehensive," which pays you for
damage done to your car
caused by theft, fire, and vandalism.
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