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FREQUENTLY ASKED QUESTIONS
Q What is auto insurance?
A 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're 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’s time to renew the
policy and to pay your premium.
Q Can I drive legally
without insurance?
A NO! Almost every state
requires you to 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
don’t 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've 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.
Q What if I lease a car?
A 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 a fire or theft or
collision with a deer.
The leasing company may also require "gap" insurance. This refers
to the fact that if 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'll get from your 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. Ask your insurance agent about gap insurance or search the
Internet. Gap insurance may not be available in some states.
Q Do I need insurance to
rent a car?
A 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 out 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's 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 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 costs between $9 and $19 a
day. If you have comprehensive and collision on your own car, you
may not need to purchase this coverage.
Liability Insurance
This provides excess liability coverage of up to $1 million for
the time you rent a car. Rental companies are required by law to
provide 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 your home/auto, you may consider
forgoing this additional insurance. It generally costs about $9 to
$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 to $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 the 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 to $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 the 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 car rental 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're 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 of coverage.
A non-owned auto insurance policy covers you for damage you may
cause to some else’s car and liability for injuries to its
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’re
driving if you crash into another car or 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.
Q Is there a difference
between cancellation and nonrenewal?
A 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 application
Your driver's license has been revoked or suspended.
Nonrenewal is a different matter. Either you or your insurance
company can decide not 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 notice and explain the reason
for not renewing before it drops your policy. If you think the
reason is unfair or want a further explanation, call the insurance
company’s consumer affairs division. If you don't get a
satisfactory explanation, 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
nonrenewal 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.
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