8 Things You Should Know About Auto Insurance

How Knowing More Can Help You

Trying to understand auto insurance can be as tricky and confusing as trying to untie the Gordian knot. (We hear the knotty Gordian problem can be solved with a sword.) However, some "insider" knowledge can help you understand your options and what you can do to save money and get the most out of your auto insurance.

1) Some of the most helpful coverages are the cheapest.
Auto insurance may be expensive, but if you're already spending a lot, shouldn't you get a lot? Optional coverages such as gap coverage, roadside assistance, rental reimbursement, uninsured/underinsured motorist coverage, and comprehensive coverage can provide a lot of protection for a little price increase. Comprehensive coverage is usually the most expensive of these coverages, but is still usually about half the price of collision coverage and a third the price of liability coverage.

Uninsured/underinsured motorist coverage is especially important, considering the benefits it offers and the number of uninsured drivers on the road, particularly during this period of economic hardship. Take a look at your coverage options. Paying a little more now may save you a lot in the future.

2) Many factors can affect your car insurance rate.
Auto insurance companies use many different criteria when evaluating an insurance application during a process called underwriting. Each car insurance company has many guidelines regarding which groups of drivers they want to accept and how much they will charge those groups they consider a greater risk. The guidelines are different for each company, meaning that two companies comparing the same driver can arrive at vastly different conclusions.

During the underwriting process, car insurance applicants are placed in a group based on how much money and how many claims the insurance company believes it may have to pay. Underwriting is done automatically by software behind the scenes. At this time, the insurance company will look at motor vehicle records to see how many accidents or tickets a driver has received. Many insurance companies also use an insurance history report to see if the driver has made any car insurance claims, and how much money was paid. Although accidents and violations can only affect the rates you receive for three years, many companies will look back five or more years when deciding if they want to offer you insurance. In addition, many auto insurance companies look at the credit history of the applicant. Although they use credit history to determine which group an applicant belongs to, they don't actually look at a credit report.

3) Insurance prices vary (a lot) by company.
You've probably seen commercials saying you can save money by switching to a certain car insurance company. How can so many companies make this claim? The reason is that "auto insurance is a highly competitive business and one of the most effective ways to reduce insurance costs is simply to shop around," according to Jeanne Salvatore, senior vice president of the Insurance Information Institute. "Drivers should look for an insurance company that will provide a good price along with excellent service."

Prices for the same policy from the same company, however, are set by law. They are approved by the state and can't be changed by an agent, so you can't get a better price for the same policy simply by going to a different agent or trying to negotiate the price. The best plan is to decide what coverages and options you need and comparison shop to get the best price.

4) If you let your policy lapse, you'll pay more in the long run.
Most insurance companies view drivers who are licensed but don't have insurance as risky or irresponsible. Because of this, if you let your policy lapse, you'll probably pay more when you go to buy car insurance. To avoid this, if you don't want to pay for insurance or are planning to let your policy expire because you want to switch companies, make sure to purchase car insurance before your current policy is cancelled.

5) Higher deductibles can lower your premium.
Insurance prices are based on how much money the insurance company believes it could have to pay. If you agree to pay for a larger portion of your own damages by raising your deductibles, your car insurance company automatically knows they won't have to pay as much for your claims. Because of this, they will usually give you a lower premium. If you decide to raise your deductibles to save money, be sure you can afford to pay the deductible if you have to make a claim.

6) Insurance discounts can make a difference.
Most insurance companies offer auto insurance discounts for things like a safe driving record, car safety features, anti-theft devices, electronic payments, payment in full, and more. Make sure you're getting rewarded for being a safe driver and for having a safe car by shopping around for car insurance that appreciates your record.

7) Coverage affects what you pay.
The majority of your car insurance premium generally goes toward the legally-required liability portion of your policy. It's typically not a good idea to reduce this portion in an attempt to save money, because you'll be responsible for any amount of damages above your policy limits. However, other coverages, although generally helpful, could be reduced or eliminated to lower your premium. If you have an older car that's not worth very much, or if you won't have a problem paying for a new car, collision and comprehensive coverages may not make economic sense. Talk to your car insurance company or agent about the best options for you.

8) The car you drive can affect your auto insurance rates.
The Highway Loss Data Institute compiles insurance accident statistics for most types of cars. Many insurance companies use data like this when setting prices on your insurance. For example, if the car you drive is very expensive to repair, the company is going to have to pay more if you get in an accident. Conversely, if the car you drive is extremely safe and protects occupants well, your insurance company will not have to pay as much if you're involved in a crash. If your model of car is generally less likely to be stolen, your car insurance company is less likely to have to pay to replace it. All of these car related factors can raise or lower the auto insurance quotes you receive, so it makes sense to keep insurance in mind when purchasing a car. Of course, since rates are based on much more than just the car you drive, your overall rate may be more or less than someone driving the same car.

Auto Insurance for Pimped Out Rides

With the popularity of custom car TV shows such as "Pimp My Ride," personalized cars are hotter than ever. Accessories have come a long way from simple paint jobs and fuzzy dice. Today, drivers want their cars to stand out from the crowd, and to express their personality and style. As a result, car owners are adding chrome rims and grills, customized murals, spinners, pipes, LCD monitors, DVD players, expensive stereo systems, ground effects, and hydraulics.

But what is the cost to insure these hot new accessories? And do you know if your auto insurance company will cover these often-expensive enhancements?

If you're thinking of improving your car, these are some very important questions to ask! Modifying your car can be a huge investment, and you don't want to find out after the fact that your vehicle is not covered.

Ask first, change your car later
The best course of action is to consult your insurance company before you start modifying your car. This will help you find out what your auto insurance company does and doesn't cover, if they are willing to insure your new car, and the total cost of keeping your customized auto covered.

Most insurance companies will ask if your car has "substantial customization" that you would like to insure at an additional cost. If so, you can add an endorsement to your comprehensive and collision coverage for custom parts and equipment. An endorsement is a change to your auto insurance policy, and it can extend coverage to include your modifications.

Check the amount covered under your endorsement, because it can vary for different companies. If your new parts cost more than the covered cost, you may want to consider shopping around to explore your coverage options. Keep in mind that standard insurance companies insure the actual value of the parts, meaning that they will pay you what the parts are worth, not what it costs to replace them.

Safety is key
Always make sure that your parts are installed safely by a knowledgeable professional. Many drivers attempt to do the work themselves. As a result, parts could be installed improperly.

Your best bet is to have a professional do the work for you. It will save you a lot of money in the long run, in addition to keeping you safe.

Even if you don't have a custom car, you can still get free car insurance rate quotes from multiple companies by filling out a single application. If you do have a custom car, most companies will cover you. Just make sure to select "Yes" for the question about substantial customization in the vehicle information section of the application.

Save on Auto Insurance With a Hybrid

Between gas prices and the economy, American drivers are having trouble deciding what autos to buy. Many people are exploring alternatives, from bikes, to buses, to biofuels. One auto alternative is hybrid cars. But what exactly is a hybrid and why would you want one?

Gas Mileage. The reason most people want a hybrid is because of the great gas mileage they can get. How is this possible? Technology for hybrid autos varies, but higher fuel efficiency is usually accomplished with an electric motor. Batteries store energy recovered during braking and supply that energy back to the electric motor, cutting down on the amount of gas used. A 2008 Toyota Prius, for example, gets an EPA estimated 46 MPG for combined use, while a 2008 Honda Civic Hybrid gets an EPA combined rating of 42 MPG.

Hybrid Types. However, make sure you understand what type of hybrid you’re buying. Some hybrids are designed not to save gas, but to increase performance. For example, there are sports autos that take the gas engine from another model and add an electric motor to increase power. This design uses less gas than an auto with a bigger gas engine, but could actually use more gas overall than the same auto without the electric motor. A 2008 Lexus GS 450h gets an EPA estimated 23 MPG combined, while the 2008 Ford Escape Hybrid gets an EPA rated 32 MPG. Buying a hybrid doesn’t automatically mean you’ll get better mileage than a big SUV does.

Discounts. You could be eligible for discounts if you buy a hybrid. Although their numbers are dropping quickly, some hybrid models may qualify for a federal tax incentive. In addition, many states offer tax incentives, parking incentives, and other toll or driving incentives. When you add these savings into the amount you can save in gas, suddenly a hybrid auto doesn’t seem as expensive.

Auto Insurance. Another great savings opportunity could be a discount on your auto insurance rate. Some companies have started to feature discounts of up to 10% for hybrid auto insurance rates, although it depends on the type of hybrid. You’ll need to shop around and compare auto insurance rates from different companies to see who has the best rate.

Look Before You Peep: A Leafer's Guide

Leaf-peeping season is poised to start in most of the United States in the coming weeks. Even though leaf-peeping sounds rather naughty, it actually involves looking at trees. Alternate names include leafing, fall foliage viewing, and probably others as well. For the Japanese, it's called momijigari ("leaf hunting") and is considered a noble activity. You may not think leaf-peeping (or whatever you choose to call it) is noble, but the following tips can help make it an enjoyable way to spend fall days, whether you're driving or walking.

How to Leaf
Generally, the simplest way to go leafing is to pick an area where the leaves are changing colors, and drive or walk around. Residents of areas where the leaves change colors may already know of good spots for leafing. Even if you don't know where to find the best colors, you can probably drive out to the country and find an area with lots of trees and not much traffic. Environmentally-minded people may prefer to hike instead of driving, especially since this gives everyone a chance to focus on the leaves instead of the road. National or regional parks are particularly good places for leaf-peeping, since they don't restrict you to the area directly around your home but do allow you to walk and enjoy the fresh air.

Those who take children along on a fall foliage tour may want to consider bringing a book in which to store especially interesting leaves encountered on the way. Remembering a special leafing experience is easier if you can preserve a physical reminder, because pictures only tell part of the story. Efficient leaf-peeping also depends on the right supplies, so make sure you bring items like food, drinks, a cell phone, and proper clothing. Especially in cold or rainy areas, extra gear like jackets and umbrellas can be important if the weather doesn't cooperate. Sometimes a short walk turns into a daylong hike, and it's always better to have supplies and not need them than to need supplies and not have them.

Motorcycle and Bike Leafing Tours
A motorcycle ride through the countryside can be an ideal way to enjoy the changing colors, but despite the extra visuals offered by not wearing a helmet, please follow all state laws and regulations regarding helmets, and put safety first no matter what.

Likewise, bicycling is also a wonderful and healthy alternative to driving, and with the right safety equipment (always wear a helmet!) and preparation, leaf-peeping and biking can be a great mix.

Plan Ahead
If you're leaf peeping around your hometown, newspapers and the local news often have updates on the best spots to view fall foliage. If you're planning a special leafing tour, many websites have reports on the state of the foliage. The USDA Forest Service provides extensive planning information for leaf-peepers, including links to national and regional forest spots perfect for leafing. The Weather Channel provides a map of the U.S. that shows foliage conditions for different regions, and The Foliage Network has regional foliage reports, as well as resources for planning your leafing trip. When planning your trip, remember to check the local sunset time—you might be surprised by the sun going down, so plan accordingly. Make sure you have plenty of time to enjoy the scenery in the daylight.

Leaf From Home
If you don't live in an area where the leaves change colors, or simply don't have time to get out for a trip, you can still experience the grand vistas of nature-right from your own home. It's not quite the same as being there, but several organizations maintain web cameras to monitor air quality that double as foliage cameras. Two of these organizations are the USDA Forest Service and CAMNET. In addition, many cities and states maintain traffic and weather web cameras that can be used to view fall foliage as it changes color. These cameras are also a great way to see if the area you want to visit is currently in season or not.

Don't Leave Safety Behind
Even though it may seem like you're alone when you're leaf-peeping, remember that many others may be enjoying the leaves as well. If you're driving, make sure to pay attention to the road first and the leaves second. If it's possible, pull over to the side and park so you're not distracted. If you're riding a motorcycle, bear in mind these safety tips as well—and we encourage you to wear a helmet, regardless of the laws in your state. To get more tips on leafing and safety, listen to our Fall Foliage Tours podcast.

Insurance and the Banking Crisis - What's the Risk to Me?

With the current financial crisis in banking, are you starting to worry about your insurance company, too? After all, taking risks is what insurance is all about, so how do you know if your company has taken on too much risk—and if they will be ready to pay for a claim when it happens?

The good news is that insurance companies have strict requirements for setting aside money today (called loss reserves) that will be used to pay claims in the future. Every insurance company is monitored by a state department of insurance and each company must report its financial status annually. States look carefully at the loss reserves each company establishes to ensure its consumers are protected.

Strict Financial Regulations
"While some insurers are owned by companies that operate a wide range of businesses, it's important to remember that the financial condition of an insurance company is closely regulated and is often not subject to the same types of risks as those in unregulated industries. With recent events, many insurance commissioners have assured consumers that they are looking closely at insurance company financials, in order to protect consumers in their state," comments Sam Belden, Insurance.com VP–Strategic Alliances.

To determine the financial stability of an insurer, check the ratings from A.M. Best Company. It's an independent rating company that assesses a company's ability to meet its future financial obligations—to make claims payments. Companies that maintain an "A" rating or better are determined to have Excellent or Superior financial stability. To check for your company, go to www.ambest.com.

“It’s important to remember that the financial condition of an insurance company is closely regulated and is often not subject to the same types of risks as those in unregulated industries.” —Sam Belden, Insurance.com VP–Strategic Alliances.

If an insurance company is in poor financial condition, state insurance regulators can take various actions to try to save the company. If they are not successful and a company becomes insolvent (which means they are basically declaring bankruptcy), the state insurance department is responsible for making sure that current and future claims are still paid on behalf of the insolvent company.

State Insurance Guaranty
There's one further safeguard for policyholders. Most states have insurance guaranty associations (known as guaranty funds) for the purpose of paying the claims of an insolvent company. Insurers are required to be members of guaranty associations as a cost of doing business in that state. When there is insolvency, the other companies are assessed based on business they do in that state, so that claims can be paid. Other states, like New York, have a pre-assessment system, which requires insurers to contribute money each year to a permanent insolvency fund. This money is then available to pay claims when a company is not able to do so. Either way, consumers are protected first.

So, is there a reason to switch insurance companies? Consider your actual experience with your company. Are you happy with them? Do they respond to service requests and claims promptly? Does their website provide access to your policy and information about the company? Do they have a solid rating with A.M. Best Company? If you've had no problems with them over the years, have seen your rates stay consistent with no major premium increases, and if you've had good experiences during the claims process, then you should seriously consider staying put.

Good Reasons to Switch
One time to consider changing companies is if you're unhappy with your current insurance company or you simply haven't checked rates for a year or so. Increasing premiums or a change in your personal circumstances might present an opportunity to check for savings (moving, getting married, or other major life events).

If you are shopping around, be certain that you keep your current policy in place until your new coverage starts. Even a lapse of a day or two can be troublesome when you look for coverage from a new company. Insurers offer their best rates to drivers who maintain "continuous insurance coverage" because drivers who keep their coverage in force have fewer losses than those who do not. While a few days may not seem like much, it can be costly in terms of the rates on your next policy. And in today's economy, saving on car insurance is a big deal.

Racing to Find Car Insurance

What are your options in the world of drag racing?

Are race car drivers the best drivers in the world—or the worst? How about weekend racers or those who just want to experience the open road—on a track—at 100 miles per hour.

An Unexpected Use
According to most car insurance companies, they're the worst drivers. Or at least, the crashes are the worst and that's the reason your personal car insurance policy will not provide coverage at high-performance driving schools or race tracks. Participating in "track days" with your own car is simply too risky a practice, according to most auto insurance companies, because it's rare that the accidents are minor. In fact, a high-speed crash will usually result in a total loss of the car. Driving well above the street-legal speed limit was simply not what your insurance company expected when you said you drive your car "primarily for pleasure"—and your rates are based on expected driving—not racing. Any technology installed in your vehicle to track mileage-based insurance may also take into account not only your speed but any sharp acceleration and braking, which would very quickly uncover any secret street racing you might be enjoying in your spare time!

To Race or not to Race
In the past, most car insurance policies would not cover damage that resulted from drag-racing, organized racing or a timed event. But high-performance driving schools often do not time the runs and they marketed their events as driver's training—not racing. So, those events would technically have been covered by your car insurance policy. However, in the last few years, most auto insurance companies started to exclude coverage for driving at any site that's designed for racing, whether or not the events are timed, which leaves even these safety-oriented driving school opportunities at the side of the road. Drivers who had been racing for years using their own cars are now facing a dilemma—leave their car at home or take a chance that nothing will happen. To minimize their potential losses, some drivers have even stepped down from racing an expensive sports cars to a driving a "beater."

Coverage Options
Since car insurance policies vary by state, there may be states where coverage is still available on your own policy, but it's wise to check with your company first. Many tracks offer single event coverage or a policy that will cover multiple events during a year. An agent or company that specializes in auto insurance for race events can provide you with quotes before you schedule a track day or enroll in a driving school.

Insurance.com's Tips for Hurricane Homeowners and Car Insurance Claims

If you read our articles on hurricane season and car insurance and what to do just before and during a storm, hopefully you, your house, and your car are safe. If you followed the tips but still sustained damages, here are some ways to make the claims process easier.

Preparing for Your Claim
As Dostoyevsky said, "You are wise to provide yourself with what you need, for it will all come in handy in the future." With the knowledge that a hurricane is on the way, you can actually get a few things ready in advance. Knowing your deductible and what's covered by your insurance policies will let you anticipate your expenses and what to ask your insurance company to pay for.

If you were able to collect your car and insurance documents before the storm, having these things will really help when your insurance company asks about them. If you weren't able to gather documents in advance, try to collect as much of this information as possible before you call to make your claim. You can expect that your car insurance company will want your policy number, car registration and VIN to start your claim.

If your home was damaged, your homeowners insurance company will want to know the details of the damage. If you have a home inventory, you can use this as documentation of the age, price, brand, and other details of the items or parts of your home that were damaged. Otherwise, your homeowners insurance company will need this information. Visit the website of the Insurance Information Institute (I.I.I.) to get free home inventory software that helps you create and maintain a list of your belongings. In addition, take pictures of any damage for future reference, and save any receipts or documents related to home or car repair, or towing.

Contacting Your Insurance Company
After you've gathered your details and completed your initial documentation of the damage, it's time to contact your car or homeowners insurance company. If you need your insurance company's contact information and you have Internet access, check the company's website for special hotlines for claims or assistance in your area. If your company provides a dedicated phone number for your situation, try to use it instead of a general claims number. Many insurance companies also include lists of helpful links on their sites, for car rental, or checking on the status of your claim.

Make sure to notify your insurance company about car or home damage as soon as you safely can after a hurricane. Be aware that many people will be making claims at this time, and the insurance company has its hands full. For this reason, insure that you verify your deductibles and what's covered with the insurance company so that you're reimbursed for as much as possible. Ask if you have any other options or if anything else is covered.

Your company may first want to know if your house is too damaged to live in, or if your vehicle is too damaged to drive. This may help them prioritize their response.

If you've temporarily relocated because of the storm, make sure you give the insurance company your new address and/or phone number. Otherwise, they won't be able to contact you about your claim.

Repairs to Your Car or Home
Your safety is paramount. Make whatever emergency repairs you need to keep you and your family safe and sheltered as soon as possible, even if you can't contact your insurance company. It's very likely that they'll reimburse your expenses if they're reasonable and necessary.

If it's safe to do so, remove water from your house or car and temporarily repair any holes so that more water can't enter.

If your car was flooded, try not to drive it. Instead, have it towed to a reputable mechanic with experience in examining and repairing flooded cars. If the flooding was minimal, it's often possible to have the car repaired. Most insurance companies will guarantee your satisfaction with the repairs if you use a recommended repair shop, and many will help you arrange towing and repair.

Your car insurance company will arrange for a claims representative, or adjuster, to review the damage to your car and provide an estimate of how much it will cost to repair or how much the car was worth if it can't be repaired. You may want to work with the adjuster and repair shop to match the repair estimate with the insurance payment, if your car insurance company does not handle the repair process.

The process is similar for homeowners insurance claims (although hopefully no towing is involved). Your insurance company may be able to recommend a contractor in your area who is experienced in home repairs. The company will usually send an adjuster out to determine the amount of damage done, and then authorize repairs up to a certain price. If your house is severely damaged and can't be lived in, you may be able to get money for temporary lodging, if your policy provides it, so be sure to ask about it. Although no one wants to have to use their insurance, hopefully these tips will make it easier if the time comes.