The Smartest Way to Buy Auto Insurance

The Smartest Way to Buy Auto Insurance

Look at a Lot More Than Just COST, Because Comparison Between Companies is Meaningless Without Research on These Three Topics for Each Company You Are Considering:

complaints filed with your state insurance commissioner

payment practices that increase your chances of being sued

miscellaneous topics, such as use of credit scoring to set premiums, denial of medical treatment to their own insureds, insisting on the right to deny the consumer the right to arbitration in UIM claims, etc.

So you heard or saw an advertisement for low cost auto or motor vehicle insurance and you are thinking of making a switch: DON'T DO IT until you have read about and considered all aspects of such insurance coverage. Otherwise, you might have saved a few bucks, but exposed you and your family to inferior coverage-and, in the case of some hard-nosed companies, exposure to being sued, should you ever cause an accident.

We want to invite our readership to consider some of the important factors that ought to come to mind when one is selecting a company for auto or motor vehicle insurance. The airwaves are full of advertisements, and most of them feature some combination of alleged advantages in cost and fast service.

The problem is, there is a lot more to auto insurance than just those two factors, and we believe the factors we list herein are MORE important than just fast service or cost. The fact is, auto insurance will most likely come to your rescue at some point, so it's imperative to purchase a worthwhile policy.

The very first thing to consider is your knowledge of the product you are about to buy. How can you make a knowledgeable decision, comparing one company's coverage to that offered by another, unless you know what each component of the policy will do for you?

DO NOT COMPARE one company with another until you have done the necessary research. Companies and their practices just differ too much to allow one to assume certain practices are "standard throughout the industry". For example, while your company may pay for chiropractic treatments for your eighteen months, the low-cost carrier you are considering might have a hard-nosed policy of terminating chiropractic benefits after only four months. Wouldn't you agree that a person should know that type of defect before jumping in with a new company?

Glossary of Terms to Consider When Buying Insurance

Here is a brief glossary of terms you will encounter during your research:

Full Coverage: You better not rely upon this term at all, since it DOES NOT MEAN that you have full, comprehensive coverage. Instead, all this term indicates that you have all the minimum coverage for your state of residence; it does not necessarily mean you will always be fully covered, since there are a lot of insurance provisions available in addition to the minimum coverage.
Split Limits and Combined Single Limits of Liability: Have you seen your bodily injury liability limits denoted as (25/50/25), or something similar? Split limits of liability provide for separate coverage limits for bodily injury (or Underinsured Motorist coverage). In this example, the limits are $25,000 per person bodily injury, $50,000 per accident aggregate bodily injury, and $25,000 per accident property damage. A combined single limit policy has one coverage limit for the total cost of injuries and damage, but you will rarely see them because split limits of liability are much more common.
Policy Limits per Person: The maximum amount of money your insurance company will pay out for any one individual for bodily injury losses; many states have minimum required limits.
Policy Limits per Accident: The maximum amount of money your insurance company will pay out for bodily injury losses for any one accident, irrespective of the number of persons who were injured.
CLUE: (Comprehensive Loss Underwriting Exchange) is a database of consumer claims created by ChoicePoint that insurance companies can access when they are underwriting or rating an insurance policy. What information does a CLUE report provide? The report contains consumer claim information provided by the insurance companies. It includes policy information such as name, date of birth, and policy number, claim information such as date of loss, type of loss and amounts paid, and a description of the property covered. It can include a detrimental report for each time you notified any insurance carrier of even the mere possibility of making a claim. For example, reporting a wind damage claim under your home owner's policy, EVEN IF you never actually made a claim, will be counted against you and result in a higher auto insurance premium! For auto coverage, it includes specific vehicle information, including past claims involving that vehicle. For more information, visit the excellent site of the Washington State Insurance Commissioner.
Credit Scoring in Premium Pricing: Many insurance companies feel strongly that a mediocre or bad credit rating means you're a high risk driver. A credit score is a number insurance companies assign consumers based on their credit history, such as bill-paying history, the number and type of accounts they have (including "zero balance large open credit card account), late payments, collection actions, outstanding debt and the age of their accounts. For more information, visit the excellent site of the Washington State Insurance Commissioner.
Bodily Injury Liability: It's the part of liability coverage that insures you against the injury you cause to others in an auto accident. It consists of two figures. One limits the cost of injury coverage per person injured, and the second limits the total dollar amount of injury coverage (for everyone injured) in any single accident.
Property Damage Liability: It's the part of liability coverage that insures you against the cost of damage to another's property caused by you in an automobile accident. "Property" includes other cars, houses, fences, telephone poles, etc.
Uninsured Motorist: Uninsured motorist bodily injury coverage pays for medical expenses, lost wages, and general damages (e.g., pain and suffering, loss of enjoyment of life) when policyholders, authorized drivers, or passengers are injured in an accident caused by a driver who has no insurance coverage. It can cover members of the owner's family household. It usually consists of separate limits for bodily injury and property damage, so you will have to insure your own property against injury from another person. This policy is required in some states.
Underinsured Motorist: Underinsured motorist bodily injury coverage, pays for medical expenses, lost wages, and other general damages when policyholders, authorized drivers, or passengers are injured in an accident caused by a driver who has insufficient coverage. It can cover members of the owner's family household. It typically pays the difference between the at-fault driver's liability limit and the holder's policy limit. There are separate limits for property damage and bodily injury liability, so you will have to insure your own property against injury from another person. This coverage is sometimes combined with uninsured motorist coverage under one policy, and may be required in some states.
Personal Injury Protection (PIP): Covers the treatment of injuries to the driver and passengers of the policyholder's vehicle. At its most extensive, PIP can cover medical payments, a part of the lost wages of those injured in an accident, and a death benefit. It may also extend to covering the policyholder if he/she is injured while in another vehicle or is hit by a car while on foot. It can cover members of the owner's family household. It pays for medical expenses only in some states, but in most states it also covers wage loss (with significant limitations) and a limited death benefit. Note: THERE IS NO COVERAGE FOR PAIN AND SUFFERING, lost opportunities, inconvenience, or emotional distress. PIP is similar to medical payments coverage, only it usually covers a broader range of events, including medical bills, lost wages, loss of services, etc. It is required in most no-fault states.
Wage Loss PIP payment: Pays part of wages not earned due to claimant's inability to work as the result of an injury that are covered under the personal injury insurance policy. But please note the common restriction: this clause usually only kicks in after an absence from work of two consecutive weeks, and then, it pays only a percentage-usually 85%- of the actual lost wages.
Medical Pay (MED/PAY): This policy pays the medical bills of the covered driver, family members, and passengers when injured in an accident, regardless of who was at fault. This coverage is required in some states, but not in others.
Collision Coverage: This policy helps pay for repairs or fair market replacement cost if your car is damaged in an accident caused by you or an authorized driver. This policy is always optional.
Comprehensive Coverage: This policy covers the cost of repairs to or replacement of your vehicle should it be stolen, vandalized, struck in a hit-and-run, or damaged by an "act of God." Covered events vary from policy to policy but usually include fire, flood, and falling objects. This policy is always optional.
Deductible: It's the amount of money that you agree to pay before a certain auto insurance policy kicks in. Deductibles are designed to cut down on insurance costs by eliminating small or frivolous claims. The higher the deductible you're willing to pay, the lower the premium you earn. Collision and comprehensive policies almost always carry deductibles, and sometimes PIP and medical payments policies do too.
Actual Cash Value: ACV - An insurance valuation method used for automobiles which is based on the cost of repairing or replacing the damaged auto with one of like kind and quality, or its replacement cost less physical depreciation. The replacement cost is based on market value replacement cost, which varies by geographic region.
Fair Market Value: The price determined by the marketplace. It is the price a willing and qualified buyer will pay to buy, at which a willing seller will sell. Note that the asking price of ads is not necessarily the market price.
Exclusions: Situations that are not covered by a given insurance policy; specific exclusions are listed on your insurance policy.
Upside Down Financially: It is being in a position where you owe more on your car than its actual value. Consider the effect of "showroom depreciation", which means that when you drive the car off the dealer's showroom floor, the fair market value is substantially less than the purchase price. Thus, the amount you own for the loan balance often exceeds the fair market value of many newer motor vehicles.
Gap insurance: This optional policy insures the driver of a new car for the difference between the car's financed value and its fair market value. Should the car be "totaled" during the first few years after purchase, the owner will be covered for the amount still owed on the car, rather than it's market value (which is often much lower). Because it covers only the difference in value, this is a relatively inexpensive policy.
No-fault insurance: A no-fault policy usually will not require that someone be assigned the blame in order for the policyholder to receive his/her money. In no-fault states, insurance companies are required to have this type of policy. "No- fault insurance" is a general term that is used to describe any auto insurance system that both requires drivers to carry insurance for their own protection, and that places limitations on their ability to sue other drivers for damages. In an accident, under no fault laws, your auto insurance company will pay for your medical damages (up to your policy limits), regardless of who was at fault for the accident. Any other drivers involved will be covered by their auto insurance policies. Under a pure no fault system, drivers would be completely covered by their own policy, and would be barred from ever suing another driver for damages. However, no state uses a pure system. Instead, all "no fault" states actually use parts of both the no fault system and the standard liability system (under which you're financially responsible for the cost of damages you cause). States do this by permitting lawsuits in certain cases.
Rental Car Reimbursement Coverage: It's an optional policy endorsement that helps pay the cost of renting a car while your auto is being repaired for a covered event. (This means you usually need to carry collision and comprehensive to qualify.) Your premium is decided by the amount of reimbursement you want per day.
Emergency Roadside Assistance Insurance: It's an optional policy that covers the cost of towing or immediate roadside repair (like fixing a flat or jump-starting the battery). It does not cover the costs of any repair done at a garage or service station, however. Consider AAA type coverage instead.
Towing: This is an inexpensive add-on that provides towing and limited storage after an accident. No need if you have AAA-type coverage.
SR-22 filing: A document that shows proof of financial responsibility in the case of a traffic violation. The SR-22 is actually a form that high-risk drivers may be required to file with the state before they purchase car insurance. It requires the provider to notify the state should the policy be terminated or canceled. DUIs, multiple speeding tickets, and driving without insurance or valid license are all reasons a SR-22 may need to be filed. The requirement usually lasts for three years after the initial event.
Umbrella policy: It is additional liability coverage that goes "over" your auto liability limits, homeowner's liability, boat liability, etc. Carrying an umbrella policy is a good idea for drivers with considerable assets to protect. You usually have to purchase the maximum auto insurance coverage (or near to it) before you can buy an umbrella policy.

Insurance Company Advertisements Deceive

If some of the millions of dollars spent on advertising auto insurance would be devoted to fair payment of injured insured's' own claims against their own company, we probably wouldn't even have to make mention of this. However, the advertisers' portrayal of insurance responsiveness with homey images, friendly messages, beautiful music and promise of quick claims service do not equate to quality when it comes time for payment for personal injury claims following an auto accident.

We know that getting your car fixed promptly is important. Some companies may be more responsive on property damage than others, but that should not be your first priority evaluating insurance service. A day or two wait for your car is nothing compared to being literally cheated out of your legitimate payments, as is the practice of some of the more aggressive companies. See the discussion below and the links provided. If getting your car fixed in the fastest time is the most important thing for you, you can ignore everything that is written in the following paragraphs, because they focus on the bodily injury aspects of auto insurance claims service.

So, our advice is to ignore the advertising images: the insurance industry did not become one of the wealthiest in America by being everybody's best friend. Understand that these smiling people on television ads are really your adversaries. There are many thousands of reported cases where insured have been forced to sue their own companies. None of these cases has to do with getting people's cars fixed. Prompt property damage repair is the simplest and easiest part of an accident claim. Instead, these lawsuits against insurance companies all are based on claims that an insurance company did not perform according to the law and in accord with its own contractual provisions.

Research Suggestions to Check Out Auto Insurance Companies

Our suggestion is that you research two or three companies. A good place to start is with the Better Business Bureau, followed by a contact call to your state Insurance Commissioner. You can call the Better Business Bureau in your own area and learn how to inquire if any complaints have been filed. The most effective research, however, is probably through your state Insurance Commissioner. Use the link provided to contact your Insurance Commissioner and obtain information in five topics:

Ask her how you can learn about the number and types of complaints that have been filed with her against or about a company that you are considering.
Ask her how you can obtain a count of the number of times a company has been involved in reported litigation, whether brought by the insured against his own company, or by the third party as a bad faith claim.
What is the reported percentage of first and third party claims the company settles by negotiation, as opposed to arbitration or litigation? Ask her for the statistics relating to the percentage of claims settled, versus the percentage that goes to arbitration or litigation. Would it surprise you to learn that over half of the claims of one of the largest and most popular companies end up in arbitration or litigation?
Ask her what actions or enforcements she has had to take with respect to any company you are considering.
Does she know if any of the companies use credit scoring to set premiums, and are there any restrictions in your state on use of credit scoring.

Coming topics in May's Settle-It-Yourself Newsletter:

How to Buy Motor Vehicle Insurance Part 2

You Get What You Pay For
You have heard the advertisements that one auto insurance company is the least expensive, etc. Understand that truth of the old adage applies to insurance policy purchases: you get what you pay for. The best company is probably not the cheapest. How can company policies that save premium costs have adverse impacts upon your wallet?

Think Preventive-Protect Yourself, Your Family, and Your Passengers
We've seen far too many cases where the insured, in an effort to save a dollar up front, has left him or his family exposed. Insurance is a good investment; it is necessary; and, it should be purchased in anticipation of traumatic events. How can you foresee only limited consequences of an accident? You can't.

Think About it: You Need to Buy Insurance to Protect Yourself, Passengers, and Family Members by Purchasing Underinsured Motorist Coverage

Be Honest
A word of caution in dealing with your insurance company: don't try to fool them on any of the information requested, or by insuring only one driver for each of the family vehicles.

Table of Insurance Coverage Requirements, by State