More than likely, you depend on your car to get to work, shuttle the
kids around town, or accomplish life's little tasks on a daily basis. You
might also use it to make the most of your leisure time - setting out on
weekend road trips to country inns or amusement parks.
But
automobiles can be expensive, and the freedom to hit the road comes with
certain risks. Crashes and collisions occur regularly, and cars often
sustain damage as a result of theft, vandalism or natural disaster.
Unfortunately, people are hurt and even killed in auto accidents every
day.
Auto insurance policies can protect you from financial losses
related to
driving. Most states and lenders require drivers to purchase at least a
minimum amount of insurance. You will have to weigh the costs and benefits
to decide if you need more than the required minimum. Keep in mind that if
you cause an accident, and suffer a significant judgment against you,
damages over and above your policy limits will be your responsibility. That
means your personal assets and even your future earnings could be at
risk.
A
Personal Automobile Policy is also a contract that begins with a
declarations page containing facts about the insured person and any owned
vehicles. A typical policy is broken into sections that discuss the types of
coverage, rights and obligations, and exclusions or limitations.
There
are six different types of auto insurance coverage. Bodily injury and
property damage liability coverage are required in most states. It pays for
your legal defense costs and judgments against you in cases that involve
injuries or damage to other people or property. Medical payments coverage
pays for the medical expenses of the insured driver and passengers,
regardless of fault. Uninsured/underinsured motorist covers losses caused by
a driver who is uninsured or has inadequate insurance. Collision pays for
accident damage to your own car, while comprehensive insures your vehicle
against all other physical damage - including those that result from theft,
vandalism or natural disaster.
Drivers
may also purchase endorsements that extend their coverage even
further. Rental reimbursement will pay for a rental car while your damaged
vehicle is in the shop. Optional towing and labor insurance kicks in
whenever your auto breaks down - not just for accidents covered under the
basic insurance. Loan gap insurance pays the difference between the amount
an insurance company would pay on a totaled car and the amount owed on a
lease or loan, which can be substantial.
There
are usually some exclusions attached to your policy. Of course, if you
cause damage to others or their property intentionally, the insurance
company will not pay out benefits.
Policy
limits are the maximum dollar amounts that will be paid by your
insurance company in the event of a claim. There are separate limits set for
each type of coverage, and higher limits will require higher premiums.
Consider the value of your vehicle and personal assets, your tolerance for
risk, and the amount you can afford to pay out of pocket when you choose
your coverage limits.
As
for damage to your own car, collision and comprehensive coverages may
each include a deductible, which is the amount of money you must pay before
your insurance will cover the balance. Deductibles are generally set at
\$100, \$250, \$500, or \$1,000.
Your
auto insurance rates will depend on your age, driving record, and
claims history, the value of your car, and the deductibles and policy limits
that you chose. The insurer will consider other factors as well, including
the crime rate in your neighborhood.
Riskier
drivers who have been cancelled or non-renewed by their insurance
companies may face extremely high premiums for the insurance the law
requires, or even have difficulty obtaining coverage. Those who are turned
down three times can turn to a state's assigned-risk pool, which refers them
to a company that will provide only the minimum amount of
coverage.
Parents should brace themselves for outrageous premiums
if and when they add
a teenager to their existing auto policy. Generally, the statistical risks
associated with younger drivers make them expensive to insure.
If
you and/or your car are involved in an accident, you should notify your
insurance company or agent right away. A representative will take an
accident report and start the claims process, and should also let you know
what documents you'll need to support your claim. You may have to meet with
an adjuster who will assess the damage, or be asked to take the car to a
particular repair shop for an estimate.
Insurers
may make payments for repairs directly to the auto shop, unless the
car is "totaled" or more costly to repair than it is worth. Totaled autos
are sent to the salvage yard, and you would receive a check for the actual
cash or market value of the vehicle - to replace it however you wish. Unless
the accident was caused by another driver, be prepared to pay your
deductible before the insurance company will foot the rest of the
bill.
An
addition to auto policies, specialty insurance protection is available
for nearly every moving vehicle under the sun. You may want to purchase
specific policies to protect your motorhome, motorcycle, boat or jet ski
from expensive mishaps. Other toys like golf carts, snowmobiles and ATVs can
also be insured.
Whether
you purchase regular car insurance or an aviation policy for the
family airplane, you should know what you are paying for. Read your policy
carefully, and understand the levels of coverage and all limitations, as
well as your own rights and responsibilities.
After
all, having adequate insurance protection just might take some of the
frustration out of your next fender bender.
© 2003 Emerald
Publications
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