The Basics
12 secrets your auto insurer won't tell you
Knowledge is power, and knowing some details about auto coverage can save you
money. Here are some dirty little secrets about what's covered, how insurance companies
tally up premiums and more.
By Liz Strillacci, for insure.com
Keeping secrets is fine when you're in grade school, but when it comes to taking care of your car, secrets
are just what you don't need, especially from your insurance company. Here are 12 things your auto insurer
won't tell you, and what you can do about it.
How they determine your car's value after it's declared a "total loss."
Auto insurance companies don't use the standard Kelley Blue Book or National Association of Automobile
Dealers book value. Instead, each company has its own proprietary list of car values, and most have
specialized software for valuing cars in each region. They take into consideration the car's mileage and pre-
accident condition. The company may also get price quotes from local dealers on replacing your damaged
car with a similar one, but the prices they get may be lower than the prices you would get if you walked
onto the lot.
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For instance, if you live in Philadelphia, the cost of replacing your car is going to • Auto • Health
be higher in the city than in the suburbs. The insurance company will consider • Home • Life
quotes from those suburban towns as reasonable estimates. That may mean you
have to drive several hours to reach the dealer offering that price, and many MSN Money Insurance
consumers don't want to have to spend a whole day traveling in order to save the
insurance company money.
What you can do: If you disagree with your insurance company's value determination, there are several
things you can do. First and foremost, if you have records of maintenance that show you've had the oil
changed every 3,000 miles and had it checked routinely by a mechanic, copy those records and present
them to the insurance company to show the car was in good condition. If you had any special parts installed
or any upgrades done after the purchase of the car and you've been paying premiums on those
improvements, make sure those are included in the insurance company's evaluation.
Get price quotes on replacement cars from at least three dealers within a reasonable driving distance and
submit these to your insurance company. Ask the insurance company to provide you with a list of dealers
within a specific distance who can sell you a car at the price it is quoting that will be equivalent to your car.
If you still aren't satisfied, you can step up the process and go to mediation or arbitration, which means
presenting your case to a neutral party for assistance in reaching a compromise or, in arbitration, a binding
decision, or you can take the issue to court.
You may be entitled to payment for sales tax and registration fees for a new car
There are 29 states that require auto insurers to pay for the sales tax when you replace your totaled vehicle
with either a new or used car.
What you can do: Count on having to make the request; don't depend on the insurer to offer to pay up
front.
Even in states that do not require sales tax reimbursement, you should request it. Many auto insurers will
not deny the request because the policy requires that they make you "whole," which means you should
recover all of the costs for returning you to where you were before the accident.
Be aware, however, that the tax will be calculated based on the pre-accident value of your car. If the
insurance company values your car at $10,000 and you purchase a new car for $20,000, the tax will be
calculated on the $10,000.
You may be entitled to a diminished-value claim in some states
Diminished value is based on the idea that any car that has been in an accident, regardless of how well the
repairs are done, is worth less than the exact same car that hasn't been in an accident.
What you can do: In 14 states, it's allowable for you to file a claim for that lost value. Thirty-six states and
Washington, D.C., do allow insurance companies to exclude payments for diminished value, so if you live
in one of those states, you won't get to claim the loss. But in Florida, Georgia, Hawaii, Kansas, Louisiana,
Maine, Maryland, Massachusetts, North Carolina, South Dakota, Texas, Virginia, Washington and West
Virginia, you have a chance of getting a diminished value payment. Successful cases are also generally
made against the at-fault driver's insurance by a third party.
You may be able to "stack" your coverage
Stacking uninsured/underinsured motorist (UM/UIM) coverages means you can collect from more than one
auto insurance policy that you hold. Most states forbid this practice, but 19 states either don't address the
issue or allow stacking.
What you can do: You'll have to check the language of your policy to see if it's allowed.
There are two scenarios for stacking: First, if you have multiple cars on your policy with UM/UIM
coverage on each, you can collect the limit of your UM/UIM coverage under as many vehicles as necessary
to cover full payment for damages. Second, if you have more than one policy with UM/UIM coverage,
even if they're from two different insurers, you can make a claim under each policy until all your damages
are recovered.
How much making a claim could increase your rates.
Many insurance companies follow an industry standard of increasing your premium by 40% of their base
rate after your first at-fault accident. So, for example, if the company's base rate is $400, your premium will
go up by $160. Not all auto insurers play by this rule, though, and some may increase your individual rate
by 40%. Regardless of what formula they use, in the majority of cases, your rates will go up.
What you can do: Some insurance companies have a "forgive the first accident" policy, but the qualifying
variables are wide-ranging. You should ask when you buy your policy if there is a first-accident
forgiveness policy and how to qualify.
Your credit history can dramatically affect your auto insurance premium.
Recent studies have shown that more than 90% of insurers use credit information to create an "insurance
risk score," which they then use as a factor to determine your auto insurance rate. The theory is that there is
a direct correlation between your insurance risk score and the likelihood that you will file a claim.
Insurance scores are intended to evaluate your stability, meaning if you pay your bills in a timely fashion
and have had the same credit accounts for long periods of time, you're considered more stable than
someone who pays late or sporadically and who opens and closes accounts frequently.
What you can do: Unfortunately, your insurance risk score is not available to you, but it may be similar to
your credit score. If you have unusual credit activity that is limited in its time frame, you will benefit from
waiting a month for activity to return to normal before buying auto insurance, so your score returns to
normal. If your credit history is shaky, be prepared to pay higher premiums since your insurance company
may deem you a higher risk.
You must officially cancel your insurance policy when you switch insurers
Most auto insurance companies state in your policy that you can cancel your coverage at any time by
notifying the company in writing of the date of termination. However, most consumers assume that if they
decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The
insurance companies don't see it that way. They will send you another bill for the next premium payment,
and when you don't pay it, the company will cancel you for nonpayment, which goes on your credit record.
What you can do: Call your insurance agent or the company and let them know you are canceling your
policy. Be sure to give them a specific date, or you may end up uninsured for a period of time. The
company will then send you a cancellation request. Most often, the form is already filled out and all it
requires is your signature. Make sure you read it to check for errors.
You may also have to prove to your former insurance company that you have new coverage, and if you've
financed a car through a dealership, the dealer will need to know your new policy information, since
purchase contracts often require proof of insurance coverage.
You can wait to add your teenager to your policy until he or she is licensed
In most cases, insurance companies don't require you to add your teenager to your policy until they have
their driver's license. The exception may be if you are in a high-risk pool; you may then have to add your
child when they receive their permit.
What you can do: If you forget to tell your insurance company that you have a licensed teen and you have
to file a claim for them after an accident, they will still be covered, but your insurance company is entitled
to then charge you back premiums from the date your teen received a license.
You are not required to add your teenager to your policy just because he or she has reached driving age.
Paying in installments will usually increase your overall bill
"Fractional premium" fees are usually charged when you divide your annual premium payment into
installments rather than pay for a year of coverage all at once. Payments are usually offered on a six-month,
quarterly, or monthly basis, but almost every insurance company charges an administrative fee for breaking
up the payments. It can be as little as $10 per payment, but the more you break it down, the more it adds up.
What you can do: Be sure to ask up front when you apply for the policy what the fees are for paying in
installments. If the fees are small enough, it may be worth it. However, remember that insurance companies
can cancel your policy for late payment if you forget one of your installments, many times with minimal
notification. If you can pay the premium up front, it may simplify the process and save you a few dollars.
How much your car model affects your premium
You won't get these numbers from your insurer; in fact, you may not be able to get them at all. But the auto
insurers do have a premium rating system for every car model, based on ratings received from the
Insurance Services Office. Cars are given a rating from 3 to 27, and the higher the number, the higher your
premium.
What you can do: You can contact your insurance company if, for example, you are buying a new car, and
ask if it will tell you what the difference in premiums is for cars you are considering.
You'll pay for your friend's bad driving
If your friend borrows your car and crashes it, you'll have to file a claim with your insurance company.
You'll have to pay any deductible that applies, and your rates will probably go up as a result of your claim.
What you can do: If the person who took your car didn't have permission to take the vehicle, in most cases
you won't be held liable for the damage. But if your friend is uninsured and causes damage that exceeds
your policy limits, the injured party can come after you for medical and property-damage expenses. Best
bet? Don't loan out your car.
Your personal property in your car isn't covered by your auto insurance
Stolen or damaged items like compact discs aren't covered by your auto insurance.
What you can do: You'll have to file a claim on your home insurance. Most home insurance policies will
cover smaller, less expensive items such as CDs. However, if you carry expensive items such as computer
equipment, you'll need to ask about a rider to your home insurance policy. You'll also be in better shape if
you have photos or video of the items.