Buying Car Insurance—A Primer

You know you have to buy Auto Insurance—you live in Massachusetts and the Commonwealth requires it if you want to legally operate a vehicle. Farquhar & Black thinks it’s a good idea because if you are involved in an accident, auto insurance can pick up the pieces and make you financially ‘whole’ again.

You probably understand the concept of auto insurance, but either the details have never been really explained to you, or you tried to read the actual policy and fell asleep well before you got to page 2. In that vein we offer you:

THE BASICS
Following are simple descriptions of the five main parts of auto insurance and how each plays a role in your protection.

1. Liability - Bodily Injury and Property Damage (BI/PD)
   This coverage provides protection if you are at-fault in an accident that causes injury to a person(s) or damage to property. Property damage includes physical damage to other vehicles as well as other property, such as a sign, mailbox, etc. Massachusetts requires you to carry bodily injury limits of at least $20,000 per person and $40,000 per accident and $5,000 of property damage coverage. Higher limits are available and always recommended. - consider the worst case scenario. If you are in an at-fault accident and cause significant bodily injury to someone or property damage to something, yet have low liability limits on your insurance, you will be responsible for their damages above your limits of liability.
2. Personal Injury Protection (PIP)
   Also required by state law, this so-called “no-fault” coverage provides coverage to you and your household members for costs associated with any injuries you incur as a result of an accident. This also includes coverage for you when you are a pedestrian. Although limited to $8000, this coverage can be used to pay for medical bills, lost wages or replacement services while you are limited by the injury. Higher limits are available under the Medical Payments portion of the policy, but only for your medical costs.
3. Collision & Comprehensive Coverage
   Collision pays for the damage to your vehicle if you are in an accident. This could be a collision with another vehicle or other property, such as a light pole or sign. Comprehensive pays for damage to your car caused by anything else. (Sorry, it does not pay for mechanical breakdowns or ordinary wear and tear.) These coverages includes a deductible and may be required by a lender for a financed vehicle. This insurance also applies to hit and runs but keep in mind you'll have to pay your deductible to repair your car. Comprehensive does cover glass breakage, on an older car it sometimes makes sense to drop collision, but keep comprehensive, just so your windshield is still covered.
4. Uninsured & Underinsured Motorist Coverage (UM & UIM)
   In a perfect world, everyone would have high limits of auto insurance and this coverage would be unnecessary. Unfortunately, this is not the case. UM coverage kicks in if you are in an accident with an uninsured driver and suffer injuries that would have been paid to you under the other driver’s bodily injury coverage. UIM provides coverage if you are in an accident with another driver who has bodily injury limits lower than yours. In that case the other drivers bodily injury limits pay for your injuries until they run out then your UIM coverage pays until they run out. Unfortunately, your UIM coverage is not in addition to the other drivers insurance, your UIM coverage is lowered by the bodily injury limits they have.
5. The Other Coverages
   These include substitute transportation and towing and labor. Often known as rental coverage, substitute transportation provides cash to pay for the cost of a rental vehicle while your car is in the shop because of a covered loss. The limit is per day for up to 30 day’s and you can purchase from $15 per day, up to $450 per month to $100 per day, up to $3000 per month. Towing works much like a motor club and will reimburse you up to $50 for any towing claim.

Following an accident these coverages work together to get you back to where you were before the accident. In Massachusetts, you are required to purchase Bodily Injury, Property Damage, Personal Injury Protection and Uninsured Motorist Coverage. The others, while not required, should be carefully considered since their contribution to your claim and financial well being may be essential.

THE 'WHO' FACTOR
There are several considerations that have an impact on your auto insurance needs. The most important consideration is: Who will need to be covered by my auto insurance policy?

The answer to this question forms the basis of the type of policy you will need. Consider:

1. Who in your household may drive your car?
2. Who in your household may drive any other car?
3. Is it possible that others not in your household will drive your car?
4. What about the other driver(s) and their passengers involved in the accident?

Our cars are important, but not as important as people. The first step is making sure your coverage applies to everyone who may need it. Higher liability limits, Uninsured Motorist and Underinsured Motorist coverages are especially important-they help people.

WHAT ABOUT YOUR CAR?
Most people would agree that the loss of an auto would cause a major burden on their daily activity. Without Collision or Comprehensive coverage you would be solely responsible for replacing the damaged vehicle.

A majority of people cannot afford to buy another car if theirs is unusable following an accident. If this majority includes you, Collision and Comprehensive coverage are essential to your auto insurance policy. Having these coverages will provide you the funds to repair or replace your damaged car. But be aware, this is based on the actual cash value of your vehicle, they will not pay more than the depreciated value of your car.

Another important coverage related to collision and comprehensive is Gap Coverage. Gap coverage provides that in the event of a total loss, your company will pay any unpaid amount due on your loan or lease. So if the value of your vehicle has depreciated below the amount you owe on the vehicle, the difference will be made up.

WHAT DRIVES COST?
No pun intended! Auto insurance premiums are derived from a number of factors. These factors include, but are not limited, to:

1. Your driving record and those of others in your household.
2. Type of vehicle(s).
3. Where the vehicle(s) is driven and garaged/parked.
4. Annual mileage driven.
5. The length of time you have been licensed
6. Coverage limits chosen and deductibles.
7. Claims history.

Some factors may be beyond your control. Others, if addressed properly, can lower your premium.

HOW CAN I SAVE MONEY?
You can save money on your auto insurance. Here are some of the common ways drivers can lower their auto insurance premium:

1. Take a defensive driving course.
2. Ask about discounts for good students or college-age students away from home.
3. Raise your deductibles to as high as you can afford out-of-pocket in the event of an accident. Higher deductibles can lower your premium, sometimes significantly.
4. Consider purchasing auto insurance from the same company that provides your homeowners insurance, if possible. Many companies offer multi-policy discounts.

Now that you have a better understanding of how your auto insurance works you can more confidently select a policy that will address yours and your family's situation and control your costs as best as possible for your situation.

Learn how easy and convenient shopping for auto insurance can be. Get your free auto insurance quotes today!