What is Auto Insurance?
What Is Covered By a Basic Auto Policy?
Can I Legally Drive Without Insurance?
What If I Lease?
Do I Need Insurance to Rent A Car?
Is there a Difference Between Cancellation and Non Renewal?
What is Auto Insurance?
Auto Insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Auto Insurance provides property, liability and medical coverage:
Property coverage pays for damage to or theft of your car.
Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you are financing a car, your lender may also have requirements.
Most auto policies are for six months to a year. Your insurance company should notify you by mail when it is time to renew the policy and to pay your premium.
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What is Covered by a Basic Auto Policy?
Your auto policy may include six coverages. Each coverage is priced separately.
- Bodily Injury: This coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.
- Medical Payments or Personal Injury Protection (PIP): This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral expenses.
- Property Damage Liability: This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone posts, fences, buildings or other structures your car hit.
- Collision: This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deductible of $250-$1000- the higher your deductible, the lower your premium. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you’re not at fault, your insurance company may try to recover the amount they paid you from the other driver’s insurance company. If they are successful, you will also be reimbursed for the deductible.
- Comprehensive: This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosions, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.
Comprehensive insurance is usually sold with a $100-$300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium.
Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.States do not require that you purchase collision or comprehensive coverage, but it you have a car loan, your lender may insist you carry it until your loan is paid off.
- Uninsured and Underinsured Motorist Coverage: This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by and uninsured or hit and run driver.
Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.
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Can I Drive Legally Without Insurance?
NO! Almost every state requires that you have auto liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance; you need to have sufficient assets to pay claims if you cause an accident. If you do not have enough assets, you must purchase at least the state minimum amount of insurance. But insurance exists to protect your assets. Trying to see how little you can get by with can be very shortsighted and dangerous.
If you have financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
Below is an example of the state minimum limits for auto liability insurance. The first number refers to liability limits for bodily injury for any one person, the second to limits for all persons injured, and the third refers to property damage liability limits. For example, 20/40/10 means coverage up to $40,000 for all persons injured in an accident, subject to a limit of $20,000 for one individual and $10,000 coverage for property damage.
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What if I Lease a Car?
If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You’ll need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.
Collision covers the damage to the car from an accident with another automobile or object.
Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as fire or theft or collision with a deer.
The leasing company may also require “ gap” insurance. This refers to the fact that is you have an accident and your leased car is damaged beyond repair or “totaled,” there’s likely to be a difference between the amount that you still owe the auto dealer and the check you will get from the insurance company. That’s because the insurance company’s check is based on the car’s actual cash value which takes into account depreciation. The difference between the two amounts is known as the “gap.”
On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don’t actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a “gap waiver.” This means that if your leased car is totaled, you won’t have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you’ve finished paying for it.Gap insurance may not be available in some states.
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Do I Need Insurance to Rent a Car?
When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough.
Before you rent a car:
Contact your insurance company.
Find our how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it is used for pleasure and not business. If you don’t have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.
Call your credit card company.
Find out what insurance your card provides. Levels of coverage vary.
If you don’t have auto insurance, you have two choices: you can buy coverage at the car rental counter; or you can purchase a non-owner auto liability insurance policy.
Rental Car Counter Insurance
Rental car counter insurance can provide the following coverage:
Collision Damage Waiver (CDW).
Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial responsibility if your rental car is damaged or stolen. The CDW may be void, however, if you cause an accident by speeding, driving on unpaved roads or driving while intoxicated. This coverage generally cost between $9 and $19 a day. If you have comprehensive and collision coverage on your car you may not need to purchase this coverage.
Liability Insurance.
This provides excess liability coverage up to $1 million for the time you rent a car. Rental companies are required by law to provided the minimum level of liability insurance required by your state. Generally, this does not offer enough protection in a serious accident. If you have adequate liability coverage on your car or an umbrella policy on you home/auto, you may consider forgoing this additional insurance. It generally costs about $9-$14 a day. If you don’t own a car, and rent cars often, consider purchasing a non-owner liability policy. This costs approximately $200-$300 per year. Frequent car renters sometimes find this more cost-effective than constantly paying for the extra liability coverage.
Personal Accident Insurance.
This provides coverage to you and your passengers for medical/ambulance bills. This type of insurance, usually costs about $1-$5 per day, but may be unnecessary if you are covered by health insurance or have adequate medical coverage under your auto policy.
Personal Effects Coverage.
This provides coverage for theft of personal items in your car. However, if you have homeowners or renters insurance, you may be covered for items stolen from the car, minus your deductible. You need to have receipts or other proof of ownership. This type of insurance usually costs about $1-$4 per day.
Some rental car companies combine personal accident and personal effects coverage together as one type of insurance, while others sell it individually.
The cost of insurance at the rental car counter will vary depending on the rental car company, state, and location of the dealer and type of car you rent.
Some rental car companies may check your credit and driving history and may deny coverage. Check with the rental car company to find out its policy.
Non-owned auto liability insurance
Instead of buying liability coverage from the renal car company each time you rent a car, you can purchase a non owner auto liability insurance policy from an insurance company for about $300 a year which might be cheaper if you rent frequently.
In addition, if you are thinking of buying an umbrella liability policy, a non-owner auto policy may meet the underlying auto insurance policy requirements. Umbrella liability insurance provides high limits of liability coverage above basic policies. Most insurers will not issue an umbrella liability policy unless the basic policies meet certain dollar limits coverage.
A non-owned auto insurance policy covers you for damage you may cause to someone else’s car and liability for injuries to it occupants, or to pedestrian, in the event of an accident. The policy will also provide medical payments coverage for you and your passengers, and under-insured and uninsured coverage. This pays for the cost of an accident involving a hit and run driver or a driver who has little or no insurance.
However, non-owned auto insurance does not provide collision coverage. Collision coverage pays for damage to the car you are driving if you crash into another car, object, or the car rolls over. You have to buy this from the car rental company. However, some credit cards provide collision coverage if the rental car is paid for with the card-so check with your credit card company first.
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Is There a Difference Between Cancellation and Non Renewal?
There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days, except when:
You fail to pay the premium
You have committed fraud or made serious misrepresentations on your applications
Your driver’s license has been revoked or suspended.
Non renewal is a different matter. Either you or your insurance company can decide no to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days to take notice and explain the reason for not renewing it before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance companies consumer affairs division. If you don’t get a satisfactory answer call your state insurance department.
The company may have decided to drop that particular line of insurance or to write fewer policies where you live, so the non renewal decision may not be because of something you did. On the other hand, if you did do something that raised the insurance company’s risk considerably, like driving drunk, the premium may rise or you may not have your policy renewed.
If your insurance company did not renew your policy, you will not necessarily be charged a higher premium at another insurance company.