Vehicle insurance
Vehicle insurance (also known as auto insurance, car insurance, or motor insurance)
isinsurance purchased for cars, trucks, and other road vehicles. Its primary use is to provide protection against
physical damage and/or bodily injury resulting from traffic collisions and againstliability that could also arise
therefrom.
Public policy
In many jurisdictions it is compulsory to have vehicle insurance before using or keeping a motor vehicle on
public roads. Most jurisdictions relate insurance to both the car and the driver, however the degree of each
varies greatly.
Several jurisdictions have experimented with a "pay-as-you-drive" insurance plan which is paid through a
gasoline tax. This would address issues of uninsured motorists and also charge based on the miles driven,
which could theoretically increase the efficiency of the insurance through streamlined collection. [1]
[edit]Australia
In South Australia, Third Party Personal insurance from the Motor Accident Commission is included in the
licence registration fee for people over 17. A similar scheme applies in Western Australia.
In Victoria, Third Party Personal insurance from the Transport Accident Commission is similarly included,
through a levy, in the vehicle registration fee.
In New South Wales, Compulsory Third Party Insurance (commonly known as CTP Insurance) is a mandatory
requirement and each individual car must be insured or the vehicle will not be considered legal. Therefore, a
motorist cannot drive the vehicle until it is insured. A 'Green Slip,'[2] another name by which CTP Insurance is
commonly known due to the colour of the pages which the form is printed on, must be obtained through one of
the five licenced insurers in New South Wales. Suncorp and Allianz both hold two licences to issue CTP
Greenslips - Suncorp under the GIO and AAMI licences and Allianz under the Allianz and CIC/Allianz licences.
The remaining three licences to issue CTP Greenslips are held by QBE, Zurich and IAL - NRMA.
In Queensland, CTP is a mandatory part of registration for a vehicle. There is choice of insurer but price is
government controlled in a tight band.
These state based third party insurance schemes usually cover only personal injury liability. Comprehensive
vehicle insurance is sold separately to cover property damage and cover can be for events such as fire, theft,
collision and other property damage.
[edit]Canada
Several Canadian provinces (British Columbia, Saskatchewan, Manitoba and Quebec) provide a public auto
insurance system while in the rest of the country insurance is provided privately. Basic auto insurance is
mandatory throughout Canada with each province's government determining which benefits are included as
minimum required auto insurance coverage and which benefits are options available for those seeking
additional coverage. Accident benefits coverage is mandatory everywhere except for Newfoundland and
Labrador. All provinces in Canada have some form of no-fault insurance available to accident victims. The
difference from province to province is the extent to which tort or no-fault is emphasized.[3] Typically, coverage
against loss of or damage to the driver's own vehicle is optional - one notable exception to this is
in Saskatchewan, where SGI provides collision coverage (less than a $700 deductible, such as a collision
damage waiver) as part of its basic insurance policy. In Saskatchewan, residents have the option to have their
auto insurance through a tort system but less than 0.5% of the population have taken this option. [3]
[edit]Germany
Since 1939 it is compulsory to have third party personal insurance before keeping a motor vehicle in all federal
states of Germany. Besides, every vehicle owner is free to take out a comprehensive insurance policy. All
types of car insurances are provided by several private insurers. The amount of insurance contribution is
determined by several criteria, like the region, the type of car or the personal way of driving. [4]
The minimum coverage defined by Germany law for car liability insurance / third party personal insurance is:
7.5 Million Euro for bodily injury (damage to people), 1 Million Euro for property damage and 50,000 Euro for
financial/fortune loss which is in no direct or indirect coherence with bodily injury or property damage. Indeed
Insurance Companies usually offer all-in/combined single limit insurances of 50 Million Euro or 100 Million Euro
(about 135 Million Dollar) for bodily injury, property damage and other financial/fortune loss (usually with a
bodily injury coverage limitation of 8 to 15 Million Euro for EACH bodily injured person).
[edit]Hungary
Third-party vehicle insurance is mandatory for all vehicles in Hungary. No exemption is possible by money
deposit. The premium covers all damage up to HUF 500M (about €1.8M) per accident without deductible. The
coverage is extended to HUF 1,250M (about €4.5M) in case of personal injuries. Vehicle insurance policies
from all EU-countries and some non-EU countries are valid in Hungary based on bilateral or multilateral
agreements. Visitors with vehicle insurance not covered by such agreements are required to buy a monthly,
renewable policy at the border.[5]
[edit]Indonesia
Third-party vehicle Insurance is a mandatory requirement in Indonesia and each individual car and motorcycle
must be insured or the vehicle will not be considered legal. Therefore, a motorist cannot drive the vehicle until it
is insured. Third Party vehicle insurance is included through a levy in the vehicle registration fee which is paid
to government institution that known as "Samsat". Third-Party Vehicle Insurance is regulated under Act No. 34
Year 1964 Re: Road Traffic Accident Fund and merely covers Bodily injury, and manages by a SOE's named
PT. Jasa Raharja (Persero).[6]
[edit]India
Auto Insurance in India deals with the insurance covers for the loss or damage caused to the automobile or its
parts due to natural and man-made calamities. It provides accident cover for individual owners of the vehicle
while driving and also for passengers and third party legal liability. There are certain general insurance
companies who also offer online insurance service for the vehicle.
Auto Insurance in India is a compulsory requirement for all new vehicles used whether for commercial or
personal use. The insurance companies have tie-ups with leading automobile manufacturers. They offer their
customers instant auto quotes. Auto premium is determined by a number of factors and the amount of premium
increases with the rise in the price of the vehicle. The claims of the Auto Insurance in India can be accidental,
theft claims or third party claims. Certain documents are required for claiming Auto Insurance in India , like duly
signed claim form, RC copy of the vehicle, Driving license copy, FIR copy, Original estimate and policy copy.
There are different types of Auto Insurance in India :
Private Car Insurance - In the Auto Insurance in India, Private Car Insurance is the fastest growing sector as it
is compulsory for all the new cars. The amount of premium depends on the make and value of the car, state
where the car is registered and the year of manufacture.
Two Wheeler Insurance - The Two Wheeler Insurance under the Auto Insurance in India covers accidental
insurance for the drivers of the vehicle. The amount of premium depends on the current showroom price
multiplied by the depreciation rate fixed by the Tariff Advisory Committee at the time of the beginning of policy
period.
Commercial Vehicle Insurance - Commercial Vehicle Insurance under the Auto Insurance in India provides
cover for all the vehicles which are not used for personal purposes, like the Trucks and HMVs. The amount of
premium depends on the showroom price of the vehicle at the commencement of the insurance period, make
of the vehicle and the place of registration of the vehicle. The auto insurance generally includes:
Loss or damage by accident, fire, lightning, self ignition, external explosion, burglary, housebreaking or theft,
malicious act. Liability for third party injury/death, third party property and liability to paid driver On payment of
appropriate additional premium, loss/damage to electrical/electronic accessories The auto insurance does not
include:
1).Consequential loss, depreciation, mechanical and electrical breakdown, failure or breakage
2).When vehicle is used outside the geographical area
3).War or nuclear perils and drunken driving
[edit]Ireland
The Road Traffic Act, 1933 requires all drivers of mechanically propelled vehicles in public places to have at
least third-party insurance, or to have obtained exemption - generally by depositing a (large) sum of money with
the High Court as a guarantee against claims. In 1933 this figure was set at £15,000. The Road Traffic Act,
1961 [3] (which is currently in force) repealed the 1933 act but replaced these sections with functionally
identical sections.
From 1968, those making deposits require the consent of the Minister for Transport to do so, with the sum
specified by the Minister.
Those not exempted from obtaining insurance must obtain a certificate of insurance from their insurance
provider, and display a portion of this (an insurance disc) on their vehicles windscreen (if fitted). The certificate
in full must be presented to a police station within ten days if requested by an officer. Proof of having insurance
or an exemption must also be provided to pay for the motor tax.
Those injured or suffering property damage/loss due to uninsured drivers can claim against the Motor
Insurance Bureau of Ireland's uninsured drivers fund, as can those injured (but not those suffering damage or
loss) from hit and run offences.
[edit]Norway
In Norway you need a minimum of liability insurance to drive any kind of vehicle on the road.
[edit]Romania
Romanian law mandates Răspundere Auto Civilă, a motor-vehicle liability insurance for all vehicle owners to
cover damages to third parties.[7]
[edit]South Africa
South Africa allocates a percentage of the money from gasoline into the Road Accidents Fund, which goes
towards compensating third parties in accidents.[8][9]
[edit]United Kingdom
In 1930, the UK government introduced a law that required every person who used a vehicle on the road to
have at least third party personal injury insurance. Today UK law is defined by the Road Traffic Act 1988, which
was last modified in 1991. The Act requires that motorists either be insured, have a security, or have made a
specified deposit (£500,000 as of 1991) with the Accountant General of the Supreme Court, against their
liability for injuries to others (including passengers) and for damage to other persons' property resulting from
use of a vehicle on a public road or in other public places.
It is an offence to use a car, or allow others to use it, without the insurance that satisfies the act whilst on the
public highway (or public place Section 143(1)(a) RTA 1988 as amended 1991); however, no such legislation
applies on private land.
Road Traffic Act Only Insurance differs from Third Party Only Insurance (detailed below) and is not often sold.
It provides the very minimum cover to satisfy the requirements of the Act. For example Road Traffic Act Only
Insurance has a limit of £1,000,000 for damage to third party property - third party only insurance typically has
a greater limit for third party property damage.
The minimum level of insurance cover commonly available and which satisfies the requirement of the Act is
called third party only insurance. The level of cover provided by Third party only insurance is basic but does
exceed the requirements of the act. This insurance covers any liability to third parties but does not cover any
other risks.
More commonly purchased is third party, fire and theft. This covers all third party liabilities and also covers the
vehicle owner against the destruction of the vehicle by fire (whether malicious or due to a vehicle fault) and
theft of the vehicle itself. It may or may not cover vandalism. This kind of insurance and the two preceding
types do not cover damage to the vehicle caused by the driver or other hazards.
Comprehensive insurance covers all of the above and damage to the vehicle caused by the driver themselves,
as well as vandalism and other risks. This is usually the most expensive type of insurance. For valuable cars,
many insurers only offer comprehensive insurance.
Vehicles which are exempted by the act, from the requirement to be covered, include those owned by certain
councils and local authorities, national park authorities, education authorities, police authorities, fire authorities,
health service bodies and security services.
The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the
vehicle specified on the document is insured. The law says that an authorised person, such as the police, may
require a driver to produce an insurance certificate for inspection. If the driver cannot show the document
immediately on request, and proof of insurance cannot be found by other means such as the Police National
Computer, drivers are no longer issued a HORT/1. This was an order with seven days, as of midnight of the
date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police
station of the driver's choice. Failure to produce an insurance certificate is an offence. The HORT/1 was
commonly known - even by the issuing authorities when dealing with the public - as a "Producer".
Insurance is more expensive in Northern Ireland than in other parts of the UK.[vague][citation needed]. In 2010 the cost
of car insurance rose by an average of 33%.[10]
Most motorists in the UK are required to prominently display a vehicle licence (tax disc) on their vehicle when it
is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their
vehicles because an insurance certificate must be produced when a disc is purchased.[11]
The Motor Insurers' Bureau compensates the victims of road accidents caused by uninsured and untraced
motorists. It also operates the Motor Insurance Database, which contains details of every insured vehicle in the
country.
On 1st March 2011 the European Court of Justice in Luxembourg ruled that gender could no longer be used by
insurers to set car insurance premiums. The new ruling will come into action from December 2012.[12]
[edit]United States
In the United States, auto insurance covering liability for injuries and property damage done to others is
compulsory in most states, though different states enforce the requirement differently. The state of New
Hampshire, for example, does not require motorists to carry liability insurance (the ballpark model), while
in Virginia residents must pay the state a $500 annual fee per vehicle if they choose not to buy liability
insurance.[13] Penalties for not purchasing auto insurance vary by state, but often involve a substantial fine,
license and/or registration suspension or revocation, as well as possible jail time. Usually, the minimum
required by law is third party insurance to protect third parties against the financial consequences of loss,
damage or injury caused by a vehicle.
One common misconception in the United States is that vehicles that are financed on credit through
a bank or credit union are required to have "full" coverage in order for the financial institution to cover their
losses in the case of an accident. While most states do require additional coverage to be purchased, some
such as Pennsylvania only require Comprehensive and Collision to be purchased in addition to liability and not
"full" coverage. Vehicles bought on cash or have been paid off by the owner are generally required to only carry
liability. In some cases, vehicles financed through a "buy-here-pay-here" car dealership--in which the consumer
(generally those with poor credit) finances a car and pays the dealer directly without a bank--also only require
liability coverage.
Several states, like California and New Jersey, have enacted "Personal Responsibility Acts" which put further
pressure on all drivers to carry liability insurance by preventing uninsured drivers from recovering noneconomic
damages (e.g. compensation for "pain and suffering") if they are injured in any way while operating a motor
vehicle.
Some states, such as North Carolina, require that a driver hold liability insurance before a license can be
issued.
Some states require that insurance be carried in the car at all times, while others do not enforce this law. For
example, North Carolina does not specify that you must carry proof of insurance in the vehicle; however, NC
does state that you must have that information to trade with another driver in the event of an accident. Whether
a state specifies you must have proof of insurance in the car or not, it's always advisable to have the
information on hand in case an officer should request it.
Arizona Department of Transportation Research Project Manager John Semmens has recommended that car
insurers issue license plates, and that they be held responsible for the full cost of injuries and property
damages caused by their licensees under the Disneyland model. Plates would expire at the end of the
insurance coverage period, and licensees would need to return their plates to their insurance office to receive a
refund on their premiums. Vehicles driving without insurance would thus be easy to spot because they would
not have license plates, or the plates would be past the marked expiration date.[14]
[edit]Coverage levels
Vehicle insurance can cover some or all of the following items:
The insured party (medical payments)
The insured vehicle (physical damage)
Third parties (car and people, property damage and bodily injury)
Third party, fire and theft
In some jurisdictions coverage for injuries to persons riding in the insured vehicle is available without
regard to fault in the auto accident (No Fault Auto Insurance)
Different policies specify the circumstances under which each item is covered. For example, a vehicle can be
insured against theft, fire damage, or accident damage independently.
[edit]Excess
This section may require copy editing for grammar, style, cohesion, tone, or spelling.
You can assist by editing it. (March 2010)
An excess payment, also known as a deductible, is a fixed contribution that must be paid each time a car is
repaired using an automotive insurance policy. Normally this payment is made directly to the accident repair
"garage" (the term "garage" refers to an establishment where vehicles are serviced and repaired) when you
collect the car. If one's car is declared to be a "write off" or "totaled" the insurance company will deduct the
excess agreed on the policy from the settlement payment it makes to you.
If the accident was the other driver's fault, and this is accepted by the third party's insurer, you may be able to
reclaim your excess payment from the other person's insurance company.
[edit]Compulsory excess
A compulsory excess is the minimum excess payment the insurer will accept on the insurance policy. Minimum
excesses vary according to the personal details, driving record and insurance company.
[edit]Voluntary excess
To reduce the insurance premium, the insured may offer to pay a higher excess than the compulsory excess
demanded by the insurance company. The voluntary excess is the extra amount over and above the
compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the
financial risk carried by the insurer, the insurer is able to offer you a significantly lower premium.
[edit]Basis of premium charges
Main article: auto insurance risk selection
Depending on the jurisdiction, the insurance premium can be either mandated by the government or
determined by the insurance company in accordance to a framework of regulations set by the government.
Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory
liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of
an actuary based on statistical data. The premium can vary depending on many factors that are believed to
have an impact on the expected cost of future claims.[15] Those factors can include the car characteristics, the
coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and
the usage of the car (commute to work or not, predicted annual distance driven).[16]
[edit]Gender
Men average more miles driven per year than women do, and consequently have a proportionally higher
accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the
youth surcharge lower for young women drivers than for their male counterparts, but adult rates are generally
unisex. Reference to the lower rate for young women as "the women's discount" has caused confusion that
was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in
assessing insurance premiums.[17] On 1st March 2011 the European Court of Justice controversially decided
insurance companies who used gender as a risk factor when calculating insurance premiums were breaching
EU equality laws. They ruled car insurance companies were discriminating against men and this had to stop.
The new gender rules are set to come into play in December 2012, at which point young female drivers are set
to face car insurance premium hikes of as much as 25%.
[edit]Age
Teenage drivers who have no driving record will have higher car insurance premiums. However, young drivers
are often offered discounts if they undertake further driver training on recognized courses, such as the Pass
Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good
academic record and resident student discounts to those who live away from home. Generally insurance
premiums tend to become lower at the age of 25. Some insurance companies offer "stand alone" car insurance
policies specifically for teenagers with lower premiums. By placing restrictions on teenagers' driving (forbidding
driving after dark or giving rides to other teens, for example) these companies effectively reduce their
risk.[18] Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this
age group.
[edit]Driving history
In most states, moving violations, including running red lights and speeding, assess points on a driver's driving
record. Since more points indicate an increased risk of future violations, insurance companies periodically
review drivers' records, and may raise premiums accordingly. Laws vary from state to state, but most insurers
allow one moving violation every three to five years before increasing premiums. Accidents affect insurance
premiums similarly. Depending on the severity of the accident and the number of points assessed, rates can
increase by as much as twenty to thirty percent.[19]
[edit]Marital status
Policy owners that are married often receive lower premiums than single persons. One reason is that marriage
may be considered an indicator of stronger financial stability within the household.
[edit]Vehicle classification
Two of the most important factors that go into determining the underwriting risk on motorized vehicles are
performance capability and retail cost. The most commonly available providers of auto insurance have
underwriting restrictions against vehicles that are either designed to be capable of higher speeds and
performance levels, or vehicles that retail above a certain dollar amount. Vehicles that are commonly
considered luxury automobiles usually carry more expensive physical damage premiums because they are
more expensive to replace. Vehicles that can be classified as high performance autos will carry higher
premiums generally because there is greater opportunity for risky driving behavior. Motorcycle insurance may
carry lower property damage premiums because the risk of damage to other vehicles is minimal, yet higher
liability or personal injury premiums because motorcycle riders face different physical risks while on the road.
Risk classification on automobiles also takes into account statistical analysis of reported theft, accidents, and
mechanical malfunction on every given year, make, and model of auto.
[edit]Distance
Some car insurance plans do not differentiate in regard to how much the car is used. There are however low
mileage discounts offered by some insurance providers. Other methods of differentiation would include: over
road distance between the ordinary residence of a subject and their ordinary, daily destinations.
[edit]Reasonable estimation
Another important factor in determining car insurance premiums involves the annual mileage put on the vehicle,
and for what reason. Driving to and from work every day at a specified distance, especially in urban areas
where common traffic routes are known, presents different risks than how a retiree who does not work any
longer may use their vehicle. Common practice has been that this information was provided solely by the
insured person, but some insurance providers have started to collect regular odometer readings to verify the
risk.
[edit]Odometer-based systems
Cents Per Mile Now[20](1986) advocates classified odometer-mile rates, a type of usage-based insurance. After
the company's risk factors have been applied and the customer has accepted the per-mile rate offered,
customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline. Insurance
automatically ends when the odometer limit (recorded on the car's insurance ID card) is reached unless more
miles are bought. Customers keep track of miles on their own odometer to know when to buy more. The
company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future
annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily
verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic
odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and
reconnecting them later. However, as the Cents Per Mile Now website points out:
As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance
risky and uneconomical. For example, to steal 20,000 miles (32,000 km) of continuous protection while paying
for only the 2,000 miles (3,200 km) from 35,000 miles (56,000 km) to 37,000 miles (60,000 km) on the
odometer, the resetting would have to be done at least nine times to keep the odometer reading within the
narrow 2,000-mile (3,200 km) covered range. There are also powerful legal deterrents to this way of stealing
insurance protection. Odometers have always served as the measuring device for resale value, rental and
leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or
reimbursements for business or government travel. Odometer tampering—detected during claim processing—
voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail.
Under the cents-per-mile system, rewards for driving less are delivered automatically without need for
administratively cumbersome and costly GPS technology. Uniform per-mile exposure measurement for the first
time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace
with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and
preventing today's windfalls to insurers when decreased driving activity lowers costs but not premiums.
[edit]GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which drivers received a discount for
installing a GPS-based device that tracked their driving behavior and reported the results via cellular phone to
the company.[21] Policyholders were reportedly more upset about having to pay for the expensive device than
they were over privacy concerns.[22] The program was discontinued in 2000.
[edit]OBDII-based system
The Progressive Corporation launched Snapshot to give drivers a customized insurance rate based on how,
how much, and when their car is driven. [23] Snapshot is currently available in 32 states.[23] Driving data is
transmitted to the company using an on-board telematic device. The device connects to a car's OnBoard
Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day
and number of miles the car is driven. There is no GPS in the Snapshot device, so no location information is
collected. Cars that are driven less often, in less risky ways and at less risky times of day can receive large
discounts. Progressive has received patents on its methods and systems of implementing usage-based
insurance and has licensed these methods and systems to other companies.
[edit]Credit ratings
Insurance companies have started using credit ratings of their policyholders to determine risk. Drivers with
good credit scores get lower insurance premiums as it is believed that they are more financially stable, more
responsible and have the financial means to better maintain their vehicles. Those with lower credit scores can
have their premiums raised or insurance canceled outright.[24] It has been shown that good drivers with spotty
[25]
credit records could be charged higher premiums than bad drivers with good credit records.
[edit]Auto insurance in the United States
[edit]Coverage available
The consumer may be protected with different coverage types depending on what coverage the insured
purchases. Some states require that motorists carry liability insurance coverage to ensure that their drivers can
cover the cost of damages to people or property in the event of an automobile accident. Some states, such as
Wisconsin, have more flexible "proof of financial responsibility" requirements.[26]
In the United States, liability insurance covers claims against the policy holder and generally, any other
operator of the insured vehicles, provided they do not live at the same address as the policy holder, and are not
specifically excluded on the policy. In the case of those living at the same address, they must specifically be
covered on the policy. Thus it is necessary, for example, when a family member comes of driving age that they
be added to the policy. Liability insurance sometimes does not protect the policy holder if they operate any
vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that
party's policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This
coverage is available only to those who do not own their own vehicle and is sometimes required by the
government for drivers who have previously been found at fault in an accident. Non-owners policies are also
known as Named Operator Policies. The policies are useful for people whose drivers license has been
suspended and they have to have insurance for their license to be reinstated.
Generally, liability coverage extends when you rent a car. Comprehensive policies ("full coverage") usually also
apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on,
among other factors, the value of the insured's vehicle. This coverage, however, cannot apply to rental cars
because the insurance company does not want to assume responsibility for a claim greater than the value of
the insured's vehicle, assuming that a rental car may be worth more than the insured's vehicle. Most rental car
companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many
customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision
damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are
restrictive in terms of the types of vehicles covered.[27]
[edit]Liability
Liability coverage is offered for bodily injury (BI) or property damage (PD) for which the insured driver is
deemed responsible. The amount of coverage provided (a fixed dollar amount) will vary from jurisdiction to
jurisdiction. Whatever the minimum, the insured can usually increase the coverage (prior to a loss) for an
additional charge.
An example of property damage is where an insured driver (or 1st party) drives into a telephone pole and
damages the pole, liability coverage pays for the damage to the pole. In this example, the drivers insured may
also become liable for other expenses related to damaging the telephone pole, such as loss of service claims
(by the telephone company), depending on the jurisdiction. An example of bodily injury is where an insured
driver causes bodily harm to a third party and the insured driver is deemed responsible for the injuries.
However, in some jurisdictions, the third party would first exhaust coverage for accident benefits through their
own insurer (assuming they have one) and/or would have to meet a legal definition of severe impairment to
have the right to claim (or sue) under the insured driver's (or first party's) policy. If the third party sues the
insured driver, liability coverage also covers court costs and damages that the insured driver may be deemed
responsible for. If a state requires liability coverage, both parties are usually required to bring and/or submit
copies of insurance cards to court as proof of liability coverage.
In some jurisdictions: Liability coverage is available either as a combined single limit policy, or as a split limit
policy:
[edit]Combined single limit
A combined single limit combines property damage liability coverage and bodily injury coverage under one
single combined limit. For example, an insured driver with a combined single liability limit strikes another
vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as
payments for injury claims for the driver and passenger, would be paid out under this same coverage.
[edit]Split limits
A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury
coverage. In the example given above, payments for the other driver's vehicle would be paid out under property
damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Bodily injury liability coverage is also usually split into a maximum payment per person and a maximum
payment per accident.
The limits are often expressed separated by slashes in the following form: "bodily injury per person"/"bodily
injury per accident"/"property damage". For example, California requires this minimum coverage:[28]
$15,000 for injury/death to one person
$30,000 for injury/death to more than one person
$5,000 for damage to property
This would be expressed as "$15,000/$30,000/$5,000".
Another example, in the state of Oklahoma, drivers must carry at least state minimum liability limits of
$25,000/$50,000/$25,000.[citation needed] If an insured driver hits a car full of people and is found by the insurance
company to be liable, the insurance company will pay $25,000 of one person's medical bills but will not exceed
$50,000 for other people injured in the accident. The insurance company will not pay more than $25,000 for
property damage in repairs to the vehicle that the insured one hit.
In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000,[citation needed] so there is a greater
property damage exposure for only carrying the minimum limits.
[edit]Full coverage
"Full coverage" is term name commonly used to refer to the combination of comprehensive and collision
coverages (Liability is generally also implied.)
The term "full coverage" is actually a misnomer since there are many different types of coverage, and many
optional amounts of each. There is no such thing as getting "full coverage".[29]
[edit]Collision
Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to
a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the
cash value of the vehicle if it is not repairable or totaled. Collision coverage is optional, however if you plan on
financing a car or taking a car loan, the lender will usually insist you carry collision for the finance term or until
the insured's car is paid off. Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is the term used
by rental car companies for collision coverage.
[edit]Comprehensive
Comprehensive (a.k.a. other than collision) coverage provides coverage, subject to a deductible, for an
insured's vehicle that is damaged by incidents that are not considered collisions. For example, fire, theft (or
attempted theft), vandalism, weather, or impacts with animals are types of comprehensive losses.
[edit]Uninsured/underinsured motorist coverage
Underinsured coverage, also known as UM/UIM, provides coverage if an at-fault party either does not have
insurance, or does not have enough insurance. In effect, the insurance company pays the insured medical bills,
then would subrogate from the at fault party. This coverage is often overlooked and very important. In
Colorado, for example, it was estimated in 2007 that 24% of drivers did not carry the state minimum liability
limits required by law.[citation needed] Unfortunately, this number goes up significantly during recessions. In some
areas, it is estimated that 1 out of every 3 drivers doesn't carry insurance.[citation needed] Usually the limits match
the liability limits. Some insurance companies do offer UM/UIM in an umbrella policy.
In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are
set by state laws.
[edit]Loss of use
Loss of use coverage, also known as rental coverage, provides reimbursement for rental expenses associated
with having an insured vehicle repaired due to a covered loss.
[edit]Loan/lease payoff
Loan/lease payoff coverage, also known as GAP coverage or GAP insurance,[30][31] was established in the early
1980s to provide protection to consumers based upon buying and market trends.
Due to the sharp decline in value immediately following purchase, there is generally a period in which the
amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative
equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe
potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the
increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers
when a "gap" exists between the actual value of their vehicle and the amount of money owed to the bank or
leasing company. In many instances, this insurance will also pay the deductible on the primary insurance
policy. These policies are often offered at auto dealerships as a comparatively low cost add-on to the car loan
that provides coverage for the duration of the loan. GAP Insurance does not always pay off the full loan value
however. These cases include but are not limited to:
1. Any unpaid delinquent payments due at the time of loss
2. Payment deferrals or extensions (commonly called skips or skip a payment)
3. Refinancing of the vehicle loan after the policy was purchased
4. Late fees or other administrative fees assessed after loan commencement
Therefore, it is important for a policy holder to understand that they may still owe on the loan even though the
GAP policy was purchased. Failure to understand this can result in the lender continuing their legal remedies to
collect the balance and the potential of damaged credit.
Consumers should be aware that a few states, including New York, require lenders of leased cars to include
GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must
include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on
unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment,
without mentioning the State's requirements.
In addition, some vendors and insurance companies offer what is called "Total Loss Coverage." This is similar
to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total
loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle.
Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum
of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case
of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a
down payment on a new vehicle.
For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, is
the "gap" of $5000. If the owner has traditional GAP coverage, the "gap" will be wiped out and he or she may
purchase or lease another vehicle or choose not to. If the owner has "Total Loss Coverage," he or she will have
to personally cover the "gap" of $5000, and then receive $5000 toward the purchase or lease of a new vehicle,
thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the
case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be
informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she
will definitively purchase a replacement vehicle.
[edit]Towing
Vehicle towing coverage is also known as roadside assistance coverage. Traditionally, automobile insurance
companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the
automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical
breakdowns, flat tires and gas outages. To fill that void, insurance companies started to offer the car towing
coverage, which pays for non-accident related tows.
[edit]Personal property
Personal items in a vehicle that are damaged due to an accident would not be a covered under the auto policy.
Any type of property that is not attached to the vehicle should be claimed under a homeowners or renters
policy. However, some insurance companies will cover unattached GPS devices intended for automobile use.
[edit]Buying online
The Internet has significantly changed the process of buying auto insurance in the United States. Many
consumers now opt to get quotes and even make purchases of auto insurance online. The main benefits to
doing so are thought to be the ability to compare many different providers and policies at once to get the set of
features that matches what the consumer is looking for, and to get the lowest price. Under this model,
consumers can get insurance from more traditional insurance providers (those with physical brick and mortar
locations) as well as companies that only offer insurance online.[citation needed]
Consumers buying auto insurance online can get a quote, make a purchase, and print out cards and policy
terms from their own computer in a relatively short amount of time, making it an increasingly popular
option.[citation needed]
[edit]Behavior based insurance
The use of non-intrusive load monitoring to detect drunk driving and other risky behaviors has been
proposed.[32] A US patent application combining this technology with a usage based insurance product to
create a new type of behavior based auto insurance product is currently open for public comment on peer to
patent.[33] See Behavior-based safety