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PRACTICAL TIPS ON BUYING AUTO INSURANCE

It has never been easier to make a mistake when buying automobile insurance.  With so many advertisements offering the lowest price after a short telephone call or Internet contact, the consumer often feels overwhelmed or skeptical.  When are you getting a good deal?  More importantly, when are you getting the right deal?

This article is written for the consumer.  It is not intended to be exhaustive and will not answer every question.  But it will provide you with a practical guide so you can start your motor vehicle insurance purchase with the right questions.

When purchasing car insurance, first consider how you want to be treated should you actually need to use it.  For instance, do you want to deal with an insurance claims adjuster face-to-face, or would you want someone over the Internet, or do you feel comfortable handling things over the telephone?  In the competitive world of motor vehicle insurance, many insurance companies no longer maintain local claims offices.  Now, it is not uncommon to service claims through an insurance adjuster who works from his home or a van.  Other insurance carriers hire independent adjusters.  Many adjusters do all their work over the telephone through an 800 number and the fax.   So, the first question to ask is how will the insurance company actually go about giving you service?

In some states, the government mandates what an insurance company must offer; however, many types of coverage are not mandatory.  So now I’m going to talk to you about the different types of coverage and what to think about.

The most common type of insurance coverage for the automobile, and the coverage that is most often required by law, is something called "liability" coverage.  Liability coverage protects you against a claim by someone else.  When a claim is made against you, your insurance company will usually put you in contact with an adjuster to work with the person making the claim against you.  This adjuster works for your insurance company to see if a satisfactory agreement can be reached.  If you get sued, the insurance company will hire and pay for an experienced lawyer to represent your interests.  When someone claims you’re faulty driving caused bodily injury or property damage, and they prove that claim, then your liability coverage pays up to the amount you purchased.  If you do not purchase enough liability coverage, then any unpaid balance comes out of your pocket.  So how much liability coverage is adequate?  Most states require some minimum amount of liability coverage.  But the minimum coverage may not be right for you.  If you have $50,000 in free and clear assets, then $50,000 in coverage might be reasonable.  If you have a lot of assets, you may want to consider a type of excess coverage, but that is beyond the scope of this article.  In general, you want to purchase an amount of coverage sufficient to protect your assets and cover the average range of claims in your area.

In my opinion, determining the amount of coverage which is adequate for you, is a service only an experienced insurance agent can provide.  In my experience, faceless Internet purchases of insurance and purchases made from television commercials are dangerous.  Discussing your insurance needs with an experienced insurance agent is not likely to cost you any more money.  It will cost your time, but purchasing insurance is a big decision, and, in my opinion, worth the time.

The next most common coverage protects the investment you made in your vehicle.  This is commonly referred to as "collision" coverage.  Collision coverage is always written with a deductible.  A deductible is the amount deducted off the top of any collision damage caused to your vehicle.  The higher your deductible, then the less this coverage costs.  For example, you will pay a lot more money for collision coverage if you opt for a $50 deductible rather than a $500 deductible.  So what is the best buy?  Compare the incremental costs of collision coverage for deductibles of $100, $250, $500 and $1000, and see how much you can save in a year.   For instance, if a $1000 deductible saves $250 in a year over a $100 deductible, then you will save $1000 in four years provided you don’t have a wreck.

When purchasing collision coverage, be aware that collision coverage usually pays the cost of your repairs or the fair market value of your vehicle.  If you have a car loan greater than the value of your automobile, and the wreck totally destroys your automobile, then the loan company gets the money and you must pay off the rest of the loan when you no longer can drive the car!  To protect you in this situation, many insurance companies offer something called “gap” insurance.

You can also purchase coverages for fire, theft and items inside your car that are not attached to your car.  Deductibles can also apply to this type of coverage.

Another common coverage provides for payment of medical expenses if you are hurt using your car.  This is "medical" coverage and is much less expensive than traditional health insurance coverage.  This coverage usually comes in increments of $5,000 to $10,000 and more.  If you do not have health insurance coverage, you may want to spend a little more to increase your medical coverage.   Medical coverage may also come with a deductible.  I don’t recommend a deductible in this instance, because accidents causing injuries that need medical attention generally result in lost time from work, and the last thing you want in that situation is another bill.

Similar to medical coverage is “wage loss” coverage.  This replaces lost income while you are recuperating from a car related injury.  When purchasing "wage loss" coverage, think about your weekly and monthly financial obligations and try to purchase enough coverage to meet those obligations.  In some states, wage loss coverage is capped, so you need to ask specific questions about this.

Lastly, I want to tell you about underinsured and uninsured coverages.  Adding these coverages to your car insurance policy is very important. Underinsured coverage protects you when the person who hurts you does not have enough liability coverage to pay your entire claim.  In the underinsured situation, the person at fault has some coverage, but is “underinsured” for the rest of your loss.  The underinsured coverage you purchased then makes up the difference.   Similarly, uninsured coverage pays when the person at fault has no insurance coverage at all.  Usually, these coverages are relatively inexpensive.  In my experience, many insurance companies will knock these coverages off your policy to try to make the total bill look smaller.  Don’t do this.  You need this type of coverage to have adequate automobile insurance.

All in all, this article will give you something to think about, but it is not intended to answer all your questions or to give you advice for every situation.  For that, ask around, and find an insurance agent who your friends trust.  Same as when you pick a lawyer, choose an insurance agent with experience you can trust.

Should you ever have a claim, I hope these practical tips serve you well.   Please call on me should you have any questions or if you have suggestions for this article.