Auto Insurance Frequently Asked Questions

Here are some common automobile insurance frequently asked questions.Do you have another question that is not answered here? You can post it on the comment or email me directly!

I have an old car that isn’t worth much. Do I still need auto insurance?

Liability insurance is required in the state of California. However, you may decide not to purchase physical damage coverage (comprehensive or collision). Usually the cost of repairing damage to older vehicles is greater than the value of the car itself. As a result, if you purchase physical damage coverage, the insurer will usually “total” the vehicle and issue a check for the vehicle’s market value (less the deductible).

Why do I need Uninsured/Underinsured Motorist (UM) coverage if liability coverage is required in California?

Even though liability coverage is required in California, some people are still driving without coverage. In addition, California only requires minimum liability limits of $15,000 per person, $30,000 per accident. If the other party is determined to be legally liable, these limits may not be adequate to cover your damages. This coverage also is applicable in the event of a hit and run accident.

If I borrow my neighbor’s car and get into an accident, whose insurance applies, my neighbors or mine?

Insurance always follows the vehicle first. Therefore, your neighbor’s insurance would be the primary coverage. The driver’s insurance would be secondary.

Will my policy be canceled if I have an accident?

Usually not. The type of accident (fender bender vs. drunkdriving accident), number of accidents (first or third?), and state laws also affect the determination.

What is the difference between comprehensive and collision?

Comprehensive physical damage coverage pays for damage to your car from theft, vandalism, flood, fire, or other covered perils. Collision coverage pays for damage to your car when it hits or is hit by another object.

My car was totaled and my policy did not pay what I think my car was worth. Why?

Most auto insurance policies pay the actual cash value (ACV) of a vehicle totaled in an accident. The ACV is equal to the market value of an auto immediately before the accident.

Insurers must use a fair and reasonable method to determine the value of your car. If you have concerns about their decision you may be able to negotiate with your insurer by telling them why your car may have had more value that what the insurance company originally determined.

My teenager just got his license, but I do not allow him to drive my car. Does he need to be insured?

In most cases, yes. Automobile insurance policies require every licensed person in your household to be listed on your insurance policy unless they have a completely separate policy of their own. This includes a teenager who just received their licence or a college student who still uses your address as their residence and/or visits regularly on weekends, vacations, ect.

How does my driving record affect my insurance premium?

The premium you pay is a direct reflection of your driving record for the past three to five years depending on the insurance company. Insurance companies order driving records from the DMV of your residence state and from other states where you’ve been licensed. Statistics show that drivers with tickets and accidents are more likely to have accidents than drivers with clean records.

What do insurance companies consider when they decide whether to cancel or not renew policies?

Insurance companies evaluate the risks associated with each policyholder to determine if you are a “good risk” or if your policy should be canceled or not renewed. Insurance companies, among other factors, will primarily review your claims, driving, and credit history. It is most favorable that your policy will not be canceled if you don’t have a history of filing frequent claims, have maintained a clean driving record and your credit history is good with no bankruptcy’s.

What coverage does my automobile insurance policy provide me when I rent a car?

The answer to this question is not as easy as it once was. In the not-too-distant past, most automobile insurance policies would extend coverage to rental cars whenever you rented one. This is not quite true anymore.

In most cases, your personal automobile insurance policy will provide coverage only when you are renting a car on vacation. Many insurance companies no longer extend personal automobile insurance coverage when you are traveling on business. The best way to find out what rental car coverage you have under your automobile policy is to call your insurance agent/company.

What is no-fault insurance?

With no-fault insurance, the victims of an automobile accident are compensated by their own insurance company, regardless of who caused the accident. This outcome is different from what occurs under the traditional tort system of compensating victims of an accident.

In the tort system, the party who is at fault is required to compensate the victims of the accident. The idea behind no-fault insurance is to keep small claims from being settled in our expensive legal system. To accomplish its purpose, no-fault insurance restricts the injured person’s right to sue the negligent driver in those instances where the loss falls below a certain threshold.

Two types of thresholds are typically used: verbal thresholds and dollar thresholds. A dollar threshold prescribes a dollar limit that a claim must reach before the injured party regains his or her tort rights, and therefore the ability to sue.

A verbal threshold uses a written description to determine when the injured person regains his or her tort rights. For example, a person might regain his or her tort rights when the accident caused a serious handicap, such as permanent loss of a bodily function.

What do I gain and what do I lose by giving up my tort rights?

Proponents of no-fault insurance argue policyowners gain a number of things by giving up their right to sue in minor accidents. For example, under no-fault insurance you typically pay lower automobile insurance premiums, collect claims payments faster, and spend less time in court. The biggest thing you lose by giving up your right to sue is the ability to collect payments for pain and suffering. No-fault insurance only pays your direct economic losses, such as hospital bills, lost wages, etc. It does not compensate you for any pain and suffering damages that you may incur as a result of an accident.

However, in most serious accidents, where the likelihood of incurring these non-economic losses is greatest, you regain your tort rights and therefore the ability to sue the negligent party for pain and suffering.

 Mail this post