Car Insurance Advice - Assignment Example

Buying Car Insurance Avoiding Scams The first consideration when purchasing car insurance is being conscience of the fact that there are swindlers operating in every type of business and the insurance industry is no exception. If a person is at least minimally vigilant when buying insurance, it will potentially save them a lot of headaches and expense down the road, so to speak. Thankfully, the vast majorities of insurance companies are legitimate and are interested in developing a trustworthy reputation. Usually, misunderstandings of the policy are the result of poor communication between the insurance company and consumer. Many purchasers simply sign on the bottom line without asking many questions or reading the policy. Let’s face it, insurance policies aren’t compelling reading material. They even make an attorney’s eyes glaze over. There are simple steps to take, however, to avoid being scammed. Most insurance scams begin by offering rates that seem ‘too good to be true.’ Guess what, they usually are. These low rates then suddenly jump up to higher than average sums a month or two into the policy’s duration. The insurance company blames some type of human or computer error and doesn’t honor the original quote. To lessen the chance of being scammed, confirm that the company is licensed by the state, as required by law. Ask questions about the coverage and obtain a copy of the policy. If the agent cannot sufficiently answer basic concerns, move on to the next company. Ask companies about their competitors, inquire to friends and neighbors regarding their insurance companies, never sign blank forms or pay in cash, many more people than you’d think are scammed after paying cash (“Insurance Scams” 2006). Choosing an Insurance Company Choosing the best insurance company to fit the individual’s specific needs can be difficult and confusing. From national companies such as Allstate, Farmers, Geico, etc, to locally owned insurers, the choices are many but there are guidelines that help making an educated decision. Each state has a department that oversees insurance companies. If there are questions regarding licensing or if a person has issues with their insurance carrier, this state agency should be contacted for assistance. Prices vary widely among different insurance companies. Shopping around takes little time and can save a person hundreds of dollars a year. Phoning different companies and researching prices on the internet is well worth the time spent. Experts suggest getting at least three quotes before deciding. Most state’s insurance department publishes pamphlets which compare prices for you. The financial soundness of the insurance company is an important consideration. Local, independent companies often offer lower rates than larger national firms but check an independent ratings agency online before committing. You want to know the insurer will be around for the long-term. The insurance agent should be able to answer all questions regarding the policy and then process claims quickly and fairly. Talk with other customers of the particular agent and inquire as to consumer complaints regarding the company through national databases, again, available online. In addition, the state’s insurance department has records on customer complaints. By doing some quick homework, an individual will be able to develop a level of comfort about the insurance agency. Comfort is why people buy insurance in the first place. “You should feel comfortable with your insurance purchase, whether you buy it from a local agent, directly from the company over the phone, or over the Internet” (“How do I choose”). Benefits of Local Insurers Surfing the ‘net’ is a popular and expedient way to shop for and buy car insurance. It allows for comparing coverage’s and price in the privacy of one’s home and at their convenience. However, the value of the comfort factor should not be overlooked. Many would rather trust their insurance needs to a ‘real person,’ someone they have met and therefore feel more at ease calling in a crisis situation, such as after a car accident. Speaking with the same agent each time you call when questions arise or changing the policy, one who likely lives in the same town and you know by name certainly raises the comfort factor. A local agent is aware of the special circumstances of the area. “Having someone who understands special risks and possible coverage issues specific to your area that you should consider when contemplating your policy, for example, areas highly affected by flood, theft, etc.” (“Local car insurance” 2008). Using a local agent gives one the assurance that they have a personal representative to deal with the other driver of the accident concerns, handle the paperwork and help guide you through the process of getting everything back to normal. Some do not trust paying their bills online or to an online company. Local agents provide personal attention and a feeling of security that cannot be matched by the online experience. “Many people think its great to quickly click around and buy their policy on the Internet but when they have a car accident, they are annoyed by all the 1-800 numbers, poor customer service, and the absence of a personal advocate on their side” (“Local car insurance” 2008). Buying locally also acts to support small businesses in the community. Buying Insurance Online People are becoming increasingly comfortable buying just about anything online. Convenience, the ability to compare rates quickly, instantly printing-out insurance verification, ease of changing the policy, etc. make buying car insurance online attractive especially to those who make frequent internet purchases. It is faster and easier to buy online but the comfort factor is diminished. Following an accident, in this tremendously emotional time you must trust a cyber agent for support. The convenience of buying online could be negated by a bad experience. However, there are some simple guidelines to follow to enhance the odds of a favorable experience for those who choose to buy online. Buying Internet insurance is faster but if you slow down a bit, the extra few minutes spent are well worth it. The reliability of the online insurer is the utmost importance. Standard and Poors, a respect international agency, rates insurance companies on their financial ability to pay claims. A few clicks will access this database. A tip-off to the reputability of an online insurer is the depth of its questionnaire. “You might think the fewer the questions the better, but not so. There are any number of factors that can influence the final premium and accurate information needs to be obtained” (“Online Auto Insurance” 2007) Buying the appropriate amount of the insurance for a given situation saves money both in premiums and in the case of an accident. Being underinsured or over-insured is costly. The online company should provide easy access to a real person who treats customers with respect and efficiently handles questions and claims. Before buying online, call them for a brief but reassuring conversation regarding the claims services they offer (“Online Auto Insurance” 2007). Main Types of Car Insurance There are three main categories of car insurance, liability, collision and comprehensive. All states require drivers to carry liability insurance. It covers the medical expenses incurred and damages to the other party’s car but does not cover either of yours. If a person carries only liability, they must pay for any expenses connected with themselves or their property in the event of an accident. Collision covers personal property and medical expenses. It is required by some states and all lending institutions “so that the bank can recover some of the amount loaned to you from the amount paid if the car is totaled” (Types, 2005). Collision insurance pays even if the insured is at fault, where in a multi or single car accident. Comprehensive insurance covers just about everything collision and liability doesn’t such as theft, vandalism and acts of nature. Comprehensive is certainly for those who own a new car and park it outside under a tree in a windy, hail prone region. Any type of damage is expensive to repair therefore comprehensive insurance could be a financial advantage. Drivers can select from varying levels of coverage for both collision and comprehensive insurance. “When you are deciding on a car insurance policy, it is a good idea to consider collision and comprehensive coverage. That way you will have some protection in nearly every instance of damage to your vehicle” (Types, 2005). Of course, the more coverage, the more the premium will be. Collision and comprehensive is likely not worth the price when a car is an older model and/or low valued. Another type of coverage that provides additional protection if involved in an accident with someone who is either uninsured or underinsured is also available. Others include bodily injury liability, property damage liability, personal injury protection, etc. Other Types of Insurance Asset liability coverage protects personal assets when the amount of car insurance coverage is less than damages caused by an accident. If a person carries $25,000 worth of coverage but the medical bills of the party they hit in an accident exceeds this amount, for example, that person is liable for the excess. Their car, house, boat and other assets could be seized and sold to satisfy a judgment against them. Asset liability coverage protects these assets in this event. Property damage liability insurance covers damage caused to property of an affected party by the vehicle of the insured. It also pays for legal expenses if the insured is taken to court. Bodily injury liability insurance also covers legal costs if the insured is sued and pays for judgments against the insured if they are found liable for the death or bodily injury of the affected party. Personal Injury Protection extends the amount of medical coverage in the event of an accident for those persons specified in the policy, the insurer’s family. It pays without regard to which party is found to be at fault. ‘Gap’ coverage is also known as loan payoff coverage. If the insurer’s car is not recovered after being stolen or the car is determined to be a total loss following an accident, gap insurance pays the gap that exists between what a person still owes on their car and the amount the insurance company pays. The insurer still pays the deductible amount but otherwise the full amount of their car’s value is recovered. “There are many different levels of coverage to think about when it comes to insurance. You may only wish to purchase the minimum requirement, but it is important to be aware of what you are covered for in the event of an accident” (“Car Insurance Advice” 2007). Gap Insurance Gap insurance, as described above, covers “the difference between what the car is worth and what you owe on the car. It comes into play if the car is stolen or totaled while the owner is still making payments” (Gold, 2008). Gap insurance should be a strong consideration for some car owners but not at all for others. The vast majority of persons buying a car are making monthly payments. Many of these car owners owe more than their car is worth. This circumstance is referred to as being ‘upside down’ on their car. Gap insurance is a good idea for these buyers. If the buyer made a minimal down payment, are paying a higher than normal interest rate, their car is a model that depreciates quicker than normal or they ‘rolled over’ the ‘upside down’ amount of their trade-in into this new loan, gap insurance is an option they should investigate. For those who own their car outright, made a generous down payment or are otherwise ‘right-side-up’ on their car is wasting their money if they purchase gap insurance. Many are choosing to lease instead of buying a car because the payments are lower. Drivers who lease are still responsible for damages or if the car is stolen. Leased cars are always ‘upside down.’ “Because lease payments and therefore the amount of money you have tied up in the car is significantly lower, the difference between what you have paid and the value of the car can be huge” (Gold, 2008). Gap insurance is the most critical for leased cars, so critical that it is required in some lease contracts. Gap insurance is for leasers and those who are upside down on their payments but those who own or are right-side-up on their cars do not need it. Rental Insurance Generally, a person who carries both collision and liability insurance, what is termed ‘full coverage,’ does not need to buy additional rental insurance although the clerk at the car rental counter will certainly not only offer but suggest it. “In most cases, rental car protection is duplicative of the insurance you already have” (Wiles, 2003). Nevertheless, according to a survey by Progressive Insurance, nearly one-third of that national rental car company’s customers bought supplementary rental insurance at an added cost up to $25 per day. Actually, the term ‘rental insurance,’ though commonly used, is not accurate. Rental companies do not offer insurance. They sell waivers which “excuse renters from financial harm, assuming there’s no negligence such as driving off-road” (Wiles, 2003). If the driver carries ‘full coverage’ car insurance, they would only be responsible to pay the deductible amount if involved in a rental car accident. Before deciding not to purchase a rental waiver, there are some circumstances in which it should be considered. Business travelers are not covered by their personal car insurance. The employer may carry insurance that covers business travel for its employees but it is a good idea to make sure. In addition to relying on personal insurance when renting, some credit card companies offer rental car insurance as an incentive to use their cards but this generally applies only to high-end customers. Most credit cards do not. When using a rental for please trips, extra insurance is likely not necessary. “Rental agencies must maintain minimal coverage in most states even for people who decline added protection” (Wiles, 2003). Five Ways to Keep it Cheap 1) The type of car you drive makes a difference in the cost of insurance. Newer cars are costlier to insure than older models because they cost more to fix. The safety rating of the car factors into the price as well. The more likely a car is to be stolen, the higher the rate. The rankings are easy to find by searching the internet. 2) Rates will be lower if the insured car is equipped with a theft deterrent system, a car alarm. These systems have been proven to reduce the chance of the car being stolen therefore insurance companies offer discounts for cars with alarms. Though alarms are expensive to install, it is a good investment. The savings will exceed this cost in the long-run. 3) Increasing the deductible is cost-effective. The higher the deductible, the insurer’s portion of a claim, the lower the rate. Those who seldom are involved in accidents would benefit from raising their deductible. This will result in significant savings over the life of the policy. 4) The better the credit rating of the policy holder, the lower the rate. Insurance companies base the rate on credit scores, a fairly recent phenomenon that some people may not be aware of. Though this is a controversial tactic, it is a fact of life. Raising your credit rating lowers insurance premiums. 5. The better the driving record, the lower the insurance costs. As anyone who has experienced an accident knows, insurance rates increase with each occurrence. The longer one goes without having an accident, the lower the rate. Those with a clean driving record pay the least. Speeding tickets also increase costs. If you get a ticket, most states offer driving classes which, if completed, will reduce lower rates (Coffman, 2007). How Much Auto Insurance Should You Buy? Many drivers purchase either more insurance than they need or an insufficient amount. Both are common and costly mistakes. Knowing the correct amount for a person’s specific needs should be based on two factors, the policy’s deductible amount and how much liability insurance to buy. Generally, a person can choose a deductible amount ranging from $250 to $1000 on their collision and/or comprehensive insurance. If damages resulting from an accident costs $3000 and the deductible is $500, the insurance company pays $2500, the insured $500. Choosing a higher deductible amount lowers the premium payment. Those who haven’t been in an accident in 20 years and have put aside the amount of the deductible in savings likely would choose a lower insurance payment and high deductible. If having to spend $1000 on a moments notice would cause a financial hardship, a lower deductible should be considered. It is easier to absorb a few extra dollars per month by paying a higher premium than having to ‘cough up’ a thousand bucks immediately. Liability is the costliest portion of car insurance and could be very costly in the event of an accident involving injury if an insufficient amount were purchased. If the amount of liability coverage is lower than total assets (House, bank accounts, stocks, etc.), increasing the amount is advisable. Personal liability insurance should also be considered. If you were found liable in an accident that resulted in $100,000 worth of injury costs but had just $20,000 of liability insurance, you owe the balance and your assets will be used to cover the difference (“How much” 2006). Just a little homework before buying insurance can literally make of break your financial future. Works Cited “Car Insurance Advice” Car Price.com (2007). February 5, 2008 Coffman, Chris. “How to Find Cheap Auto Insurance” Associated Content (August 14, 2007). February 5, 2008 Gold, Aaron. “Gap Insurance” About.com (2008). February 5, 2008 “How do I choose an insurance company?” Insurance Information Institute February 5, 2008 “How local car insurance companies can save you time and money” Road and Travel Magazine (2008). February 5, 2008 “How much auto insurance should I buy?” Auto Insurance Advice (October 4, 2006). February 5, 2008 “Online Auto Insurance Quotes - The Guide to Getting the Best Deal”Your Insurance Advice, Guides and Tips (October 11, 2007). February 5, 2008 “Types of Car Insurance Coverage: Collision and Comprehensive” Car Junky.com (May 20, 2005). February 5, 2008 “What are some common car insurance scams and how do I avoid them?” Auto Insurance Advice (October 4, 2006). February 5, 2008 Wiles, Russ. “Check your own insurance before buying rental car protection” Reno Gazette-Journal (August 29, 2003). February 5, 2008 Read More