Colorado State University hurricane researchers are predicting a slightly below-average Atlantic hurricane season in
- What is auto insurance?
- What is in a basic auto policy?
- Can I drive legally without insurance?
- What if I lease a car?
- Do I need insurance to rent a car?
- What’s the difference between cancellation and non-renewal?
Auto insurance protects you against financial loss if you have an accident. It
is a contract between you and the insurance company. You agree to pay the
premium and the insurance company agrees to pay your losses as defined in your
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to others for bodily
injury or property damage.
- Medical coverage pays for the cost of treating injuries, rehabilitation and
sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most
states require you to buy some, but not all, of these coverages. If you’re
financing a car, your lender may also have requirements.
This coverage applies to injuries you, the designated driver or policyholder
cause to someone else. You and family members listed on the policy are also
covered when driving someone else’s car with their permission.
It’s very important to have enough liability insurance, because if you are
involved in a serious accident, you may be sued for a large sum of money.
Definitely consider buying more than the state-required minimum to protect
assets such as your home and savings.
This coverage pays for the treatment of injuries to the driver and passengers
of the policyholder’s car. At its broadest, PIP can cover medical payments,
lost wages and the cost of replacing services normally performed by someone
injured in an auto accident. It may also cover funeral costs.
This coverage pays for damage you (or someone driving the car with your
permission) may cause to someone else’s property. Usually, this means damage to
someone else’s car, but it also includes damage to lamp posts, telephone poles,
fences, buildings or other structures your car hit.
This coverage pays for damage to your car resulting from a collision with
another car, object or as a result of flipping over. It also covers damage
caused by potholes. Collision coverage is generally sold with a deductible of
$250 to $1,000-the higher your deductible, the lower your premium. Even if you
are at fault for the accident, your collision coverage will reimburse you for
the costs of repairing your car, minus the deductible. If you’re not at fault,
your insurance company may try to recover the amount they paid you from the
other driver’s insurance company. If they are successful, you’ll also be
reimbursed for the deductible.
This coverage reimburses you for loss due to theft or damage caused by
something other than a collision with another car or object, such as fire,
falling objects, missiles, explosion, earthquake, windstorm, hail, flood,
vandalism, riot, or contact with animals such as birds or deer.
NO! Almost every state requires you to have auto liability insurance. All
states also have financial responsibility laws. This means that even in a state
that does not require liability insurance, you need to have sufficient assets
to pay claims if you cause an accident. If you don’t have enough assets, you
must purchase at least the state minimum amount of insurance. But insurance
exists to protect your assets. Trying to see how little you can get by with can
be very shortsighted and dangerous.
If you lease a car, you still need to buy your own auto insurance policy. The
auto dealer or bank that is financing the car will require you to buy collision
and comprehensive coverage. You’ll need to buy these coverages in addition to
the others that may be mandatory in your state, such as auto liability
- Collision covers the damage to the car from an accident with another automobile
- Comprehensive covers a loss that is caused by something other than a collision
with another car or object, such as a fire or theft or collision with a deer.
The leasing company may also require “gap” insurance. This refers to the fact
that if you have an accident and your leased car is damaged beyond repair or
“totaled,” there’s likely to be a difference between the amount that you still
owe the auto dealer and the check you’ll get from your insurance company.
That’s because the insurance company’s check is based on the car’s actual cash
value which takes into account depreciation. The difference between the two
amounts is known as the “gap.”
On a leased car, the cost of gap insurance is generally rolled into the lease
payments. You don’t actually buy a gap policy. Generally, the auto dealer buys
a master policy from an insurance company to cover all the cars it leases and
charges you for a “gap waiver.” This means that if your leased car is totaled,
you won’t have to pay the dealer the gap amount. Check with the auto dealer
when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance
to protect yourself from having to come up with the gap amount if your car is
totaled before you’ve finished paying for it. Ask your insurance agent about
gap insurance or search the Internet. Gap insurance may not be available in
Find out how much coverage you have on your own car. In most cases, the
coverage and deductibles you have on your personal auto policy would apply to a
rental car, providing it’s used for pleasure and not business. If you don’t
have comprehensive and collision coverage on your own car, you will not be
covered if your rental car is stolen or if it is damaged in an accident.
Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of
financial responsibility if your rental car is damaged or stolen. The CDW may
be void, however, if you cause an accident by speeding, driving on unpaved
roads or driving while intoxicated. This coverage generally costs between $9
and $19 a day. If you have comprehensive and collision on your own car, you may
not need to purchase this coverage.
This provides excess liability coverage of up to $1 million for the time you
rent a car. Rental companies are required by law to provide the minimum level
of liability insurance required by your state. Generally, this does not offer
enough protection in a serious accident. If you have adequate liability
coverage on your car or an umbrella policy on your home/auto, you may consider
forgoing this additional insurance. It generally costs about $7 to $9 a day. If
you don’t own a car, and rent cars often, consider purchasing a non-owner
liability policy. This costs approximately $200 – $300 per year. Frequent car
renters sometimes find this more cost-effective than constantly paying for the
extra liability coverage.
This provides coverage to you and your passengers for medical/ambulance bills.
This type of insurance, usually costs about $3 per day, but may be unnecessary
if you are covered by health insurance or have adequate medical coverage under
your auto policy.
This provides coverage for the theft of personal items in your car. However, if
you have homeowners or renters insurance, you may be covered for items stolen
from the car, minus your deductible. You need to have receipts or other proof
of ownership. This type of insurance usually costs about $1.25 per day. Some
rental car companies combine personal accident and personal effects coverage
together as one type of insurance, while others sell it individually.
There is a big difference between when an insurance company cancels a policy
and when it chooses not to renew it. Insurance companies cannot cancel a policy
that has been in force for more than 60 days except:
- If you fail to pay the premium.
- You have committed fraud or made serious misrepresentations on your
- Your driver’s license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can
decide not to renew the policy when it expires. Depending on the state you live
in, your insurance company must give you a certain number of days notice and
explain the reason for non-renewal before it drops your policy. If you think
the reason is unfair or want a further explanation, call the insurance
company’s consumer affairs division. If you don’t get an explanation, call your
state insurance department.