AUTOMOTIVE INSURANCE BASICS
by Carl O'Reilly

WHY BUY AUTO INSURANCE?
Well, for one, it is the law to have at least liability coverage in almost all states and second, it is the responsible thing to do. Unfortunately, too many people come to believe insurance is a waste of money because they often see nothing in return for the countless premiums they have paid. As a result, they cancel their auto insurance and risk it all. For these people, it is important to note that insurance is not a waste of money since it buys peace of mind while driving and will protect you from potentially declaring bankruptcy in the event that you are involved in a major accident. Further, those who don't have auto insurance often cause those who do to pay higher premiums in the form of "uninsured motorist" coverage. In summary, by all means get auto insurance if you don't already have it and, if you refuse or can't afford it, please don't drive.

WHY HAS AUTO INSURANCE BECOME SO EXPENSIVE?
One reason auto insurance premiums have soared is due to fraud. Abuse of the system forces insurance companies to continuously raise premiums in order to make up for losses. The corruption can be found amongst all of those involved in the process of moving an insurance claim through the various channels. For example, consumers will often defraud the system by claiming that some existing or "older" vehicle damage was done in the claimed accident. Insurance companies often have a hard time proving exactly what vehicle damage was "there already" from the damage which actually resulted from the accident in question. To make matters worse, this unscrupulous tactic goes beyond vehicle damage to include bodily "damage"/injury. The classic example of this type of fraud is the phony whiplash which supposedly resulted from, say, a rear-end collision. Further, many accident victims are easily seduced by the various advertisements which some attorneys run to encourage lawsuits. It's not unheard of for these attorneys to be in cahoots with certain unscrupulous doctors who will intentionally falsify or at least exaggerate bodily injury reports in order to bilk the insurance companies.

Another reason auto insurance premiums are so high is the fact that so many people are driving without insurance. How is this you ask? Well, it manifests itself in two ways. First, many people opt to get "uninsured motorist" coverage which of course costs them extra. These people are protecting themselves from those who do not have insurance. So in a sense, they are paying in part for someone else's insurance in terms of coverage to themselves when the other party is at fault. The extra cost of uninsured motorist insurance would of course be unnecessary if everyone had insurance (i.e. there would be no uninsured motorist). Second, those drivers without insurance do not contribute any money to the insurance system yet they can take from the system if they are in an accident with an insured driver who is at fault. This is because the insured driver's liability coverage will pay for vehicle repairs and any medical expenses for the "victim". Insurance companies are well aware of this fact and make up for it by passing this cost onto those who have insurance policies.

TYPES OF AUTO INSURANCE COVERAGE
There are six basic types of auto insurance coverage. They are described as follows.

Property damage liability - In the event that you cause an accident, this will pay, up to the amount of your coverage, the expense to repair the damage you have done to someone's vehicle and/or any other property which may have been damaged in the accident.

Bodily injury liability - In the event that you cause an accident, this will pay, up to the amount of your coverage, the medical costs of the accident victims.

Medical payments - In the event that you are in an accident (regardless of who is at fault), this will pay, up to the amount of your coverage, your medical expenses and the medical expenses of any passengers in your vehicle.

Uninsured motorist - In the event that you are in an accident (but not at fault) either with someone uninsured or a hit-and-run driver, this will pay, up to the amount of your coverage, your medical expenses and the medical expenses of any passengers in your vehicle.

Collision - In the event that you are in an accident (regardless of who is at fault), this will pay, up to the amount of your coverage, the expense to repair your vehicle. Note that for collision coverage there is a deductible. Also note that if your vehicle is totaled, the insurance company will only pay you the blue book value of the vehicle.

Comprehensive - In the event that your vehicle is damaged by fire, vandalism, natural disaster, or it is stolen, this will pay, up to the amount of your coverage, the expense to repair/replace your vehicle. Note that for comprehensive coverage there is a deductible. Also note that in the event your vehicle is either totaled or not recovered from being stolen, insurance companies will only pay you the blue book value of the vehicle.

If some of these coverage items are confusing or seem to overlap, by all means consult with an insurance agent for a thorough explanation and discussion of various case scenarios.

WHAT DETERMINES INSURANCE PREMIUMS?
An insurance business is entirely risk-based. Each time they accept a new policy, they are taking a risk or "gamble" that the policy holder's cumulative premiums (i.e. payments) will exceed the total of any claims the policy holder may file. In other words, they want to collect more from you than they pay out to you (if you should ever file a claim). Therefore, when an insurance company determines what a certain premium will be they must offset any increased risk with a surcharge. Likewise, they will often reduce a premium with a discount if certain "positive" qualifications are met.

There are several factors an insurance company takes into account when determining how much a certain insurance premium will be. Some of these factors are as follows.

Driving record - Probably more than any other factor, one's driving record is weighed heaviest by an insurance company when determining a premium. Those with spotless records (i.e. no tickets or accidents) will be rewarded with lower premiums. On the other hand, those with poor records will pay a higher premium because they are a higher risk. If one's driving record becomes extremely poor, most insurance companies will drop the policy holder since the risk is too high.

Age of driver - Insurance companies charge younger drivers the most. Specifically, those under the age of 25 will typically pay the highest premiums. Why? Because younger drivers tend to be "wilder" in their lifestyles and thus driving. As the driver gets older, he/she tends to stabilize and consequently, their rates are lowered.

Type of vehicle - Owners of sports cars will pay much more than owners of sedans. Why? Because insurance companies are aware that those who drive sports cars are more likely to get in an accident because of the mentality that comes with owning a sports car. In other words, they tend to drive fast and often reckless.

Theft rating of vehicle - The more desirable a particular vehicle is in the eyes of a car thief, the more you will pay in the form of comprehensive coverage.

Bumper rating of vehicle - The more effective a vehicle's bumpers are, the less damage the vehicle will have in the event of a low speed collision. Some insurance companies have a slight surcharge for vehicles with poorly designed bumpers. For example, according to tests conducted by the Insurance Institute for Highway Safety, a 2004 Toyota Corolla had $2500.00 in damage after a 5 MPH rear collision whereas a 2004 Ford Explorer had no damage in a similar 5 MPH collision.

Where you drive - Those who drive mainly in the city will most likely pay more than those who drive in rural areas. Why? Because when driving in the city you are "exposed" to many more potential accidents simply because the conditions are busier. Also, there is always a higher chance of theft and vandalism in the city.

How much you drive - Those who drive more than the average annual mileage for their particular area will likely pay a higher premium. Why? Because the more you drive, the more you will be "exposed" to a potential accident simply because you are on the road more.

TIPS FOR GETTING AND KEEPING LOW INSURANCE PREMIUMS
Make sure you shop around for the best price. However, beware of small, start-up insurance companies - they may give you the run around if you need to file a claim.

Increase your deductible from $250.00 to $500.00. This can reduce your premium by 20% and if you can drive accident free for a couple years, the savings will be enough to pay the higher deductible for any future accident.

If you generally drive alone and have excellent medical insurance through your employer, consider reducing your auto medical coverage to the minimum. There is no reason to have double coverage.

If you have an older/low valued vehicle, consider skipping collision and comprehensive. In general, these coverages are not cost effective for vehicles worth say only, a couple thousand dollars.

Maintain a driving record free of accidents and moving violations.

If you're involved in a minor accident and there are no apparent injuries, try to settle the matter with the other party without police involvement and without contacting either parties insurance company. This will keep your driving record clean and will not give the insurance company an opportunity to raise your premium.

Buy a vehicle with air bags, anti-lock brakes, and automatic seat belts. Many insurance companies will offer discounts on vehicles equipped with such life saving devices.

Get an alarm system for your vehicle. Some insurance companies offer discounts for various anti-theft devices.

If you are a student, keep those grades up! Many insurance companies give discounts for students who maintain at least a "B" average. Their reasoning is that better students are typically better drivers.

If you're single but are getting married, ask your insurance company if you'll receive a discount with your new status. Many insurance companies do reward married drivers as they see them as being more stable and less likely to drive recklessly.

WHAT TO DO IF YOU'RE IN AN ACCIDENT WORTH REPORTING
After an accident, most people are so agitated that it's tough to think clearly. To help you sort things out and deal with the aftermath, follow these guidelines:

1. Get the other driver's name, license plate number, driver's license number, and name of insurance company.
2. Call the police immediately.
3. Get a copy of the police report.
4. Notify your insurance company as soon as possible.
5. Provide the insurance company with a copy of the police report.
6. If you feel the investigation or handling of your case is not fair, you may then wish to consult with an attorney. A brief initial assessment of your case should not cost you anything.

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