There is no doubting the fact that having insurance is one of the most important aspects of owning a vehicle. But understanding car insurance is something that is arguably just as important. Having some basic awareness of what risks are/are not covered by a standard policy can help you make more informed decisions when buying insurance for your vehicle. Furthermore, knowledge of car insurance policies can help you avoid exposure to unnecessary risks. Here’s the lowdown on what is and isn’t covered condensed into seven key points.
Rental cars – to insure or not to insure?
People traveling to different states on vacation and wanting to hire a vehicle are faced with a perennial quandary – should they buy separate insurance for hiring a car? The answer is…it depends.
If you have a vehicle at home and it is fully insured, you will be covered in the event that you destroy or damage a rental vehicle. It gets more complicated when other expenses are factored into the equation, though. For example, the rental company may charge you for the loss of income incurred due to not being able to rent the car out to other people.
So, the decision to take out a separate policy boils down to personal risk preference. If you are comfortable taking on the risk that a rental company will sue for loss of income due to a damaged vehicle, your own policy should be sufficient. If you want to be as prudent as possible, it is a good idea to purchase separate insurance.
Personal belongings aren’t covered.
Many people who have comprehensive car insurance make the false assumption that theft of personal belongings from inside the vehicle is covered. Unfortunately, this is incorrect. Your expensive handbag loaded with money and other valuable items such as laptops are exposed to the risk of theft. And with over 2,000 cases of motor vehicle theft occurring every day in the U.S, it might be a good idea to purchase a policy add-on that covers personal belongings. It’s better to be safe than sorry.
Only drivers listed on the policy are covered.
This rule means that if you loan your car to your sister-in-law (who is not listed on your policy) for example, and she has an accident, your car insurance will cover damages and expenses only if she is not living with you. Many people house-sharing make the false assumption that they can constantly loan their car to a friend and not have to worry about insurance. Unfortunately, that is an erroneous assumption.
The idea behind this rule is that insurance companies do not want safe drivers purchasing insurance that covers risky drivers that they live with. Insurance companies like to mitigate their own risks as much as possible; a person living under the same roof as you is likely to borrow your car a lot more frequently than if they didn’t, thus increasing the risk of an accident.
You need uninsured motorist coverage.
Even though it is not a legislative requirement in more than half of U.S states, it would be folly to drive around without uninsured motorist coverage on your car. The statistics are damning – approximately 1-in-7 U.S motorists do not have auto insurance. This means that you are taking a huge risk of being in an accident with an uninsured motorist every day that you drive.
What happens when you are in an accident with an uninsured driver? If the accident is your fault, your insurance company will cover damage to your car. If it is the fault of the uninsured, there is no insurance company to cover the damage, so you could be left with a big problem on your hands. This is why it is absolutely pivotal to have uninsured motorist coverage, even if it is not a legal necessity in your particular state of residence.
Your credit rating affects premium costs.
When people contemplate factors that might influence the cost of their auto insurance premiums, they tend to think of some obvious ones such as location, age, and gender. It might surprise you to know that insurance companies also factor your credit rating into the calculation of premium rates.
Generally, better credit scores translate to lower premium rates. Two U.S states do not allow the use of credit ratings to price insurance policies – they are California and Hawaii. If you are living in one of the other 48 states, it might be a good idea to live more within your means if you want to reduce the cost of auto insurance.
Different states have different liability requirements.
There is no standardized minimum liability requirement for auto insurance across the U.S. Instead, the law varies between states. For example, not every state requires drivers to have uninsured motorist coverage. Furthermore, some states such as Virginia have no minimum liability at all. This means that drivers can pay a fee ($500) to register as an uninsured motorist and bear the risk of any accidents themselves.
It is a clever idea to study your state’s requirements in meticulous detail to ensure you are abiding by the law.