If each insurer’s coverage, claims response and customer services were the same, an individual could comfortably shop for auto insurance based solely on the lowest rate they can find. But there are often substantial differences among competing policies, including efforts by the companies themselves to attract the most profitable mix of insurance customers consistent with their business goals.

For example, one insurer might be comfortable seeking high-risk drivers who must pay more for their coverage and have higher claims. After all, those higher premiums can be invested until there are corresponding claims, and the company might be “betting” on its ability to make enough extra investment income to offset the likelihood of high claims expenses.

Or an insurer could accept only the safest customers and offer very low rates to attract such business. The company could still make money because the expected claims of its customers would be quite low. And, while insurers can’t discriminate based on human characteristics, they can create underwriting standards that deny coverage to higher-risk drivers based on driving characteristics.

Structure of an Automobile Insurance Policy

The following section outlines the different coverages that are found in a typical insurance policy. Some coverages can be excluded, while others are highly desirable and/or required by the state. A recommendation as to whether the coverage is needed, and how much, is also provided, based upon information from industry experts.

• Bodily Injury Liability: In an accident where the insured is found to have been at fault, this coverage pays for the medical treatments, rehabilitation or funeral costs incurred by another driver, the other driver’s passengers, passengers in the insured’s car, and pedestrians. The coverage also pays legal costs and settlements for nonmonetary losses (pain and suffering). Expert's Recommendation: At least $100,000 per person, $300,000 per accident.
• Property Damage Liability: Covers repair or replacement of other people’s vehicles or property that someone covered by the insured’s policy damages in an accident. Each state requires drivers to have property damage liability coverage up to certain specified limits, typically $15,000 per accident. Expert’s Recommendation: At least $100,000 per accident.
• Collision and Comprehensive: Collision pays for the repair of your car or replacement of its market value, regardless of who is at fault. Comprehensive pays for replacement or repairs if the insured’s car has been stolen or damaged as a result of events such as fire or windstorm. Expert’s Recommendation: $250 collision deductible; $100 comprehensive deductible. If the car is over 7 years old or worth less than $2,000, it may not be beneficial to buy Collision coverage.
• Medical Payments: Pays physicians’ and hospital bills, rehabilitation costs and some funeral expenses for the insured and the insured’s passengers. It also pays limited compensation for services needed during convalescence. Expert’s Recommendation: Do not buy if you are already covered by a health plan.
• Personal Injury Protection: A broader form of Medical Payments coverage that covers medical and funeral costs for the insured and members of their household. It also pays a portion of lost wages and the costs of in-home assistance (optional in some states). Expert’s Recommendation: Do not buy unless you do not have health, life and disability insurance, or unless the state requires the coverage.
• Uninsured and Underinsured Motorist Coverage: Pays the insured and members of their household for medical costs, rehabilitation, funeral costs and losses from pain and suffering resulting from an accident caused by a hit-and-run driver, or by a driver who lacks sufficient insurance or who has no insurance at all. Expert’s Recommendation: Essential, especially on today’s city streets and highways. Purchase at least $100,000 per person; $300,000 per accident.
• Uninsured Motorist Property Damage: Pays for damage to the insured’s property by someone without insurance or without enough insurance to reimburse the insured’s costs. Expert’s Recommendation: Buy only if collision coverage is not purchased on the policy.
• Glass Breakage: Pays for replacement of cracked glass to the insured’s car, regardless of how it occurred. Expert’s Recommendation: Buy if you live in an area prone to car break-ins or rural areas with unpaved roads.
• Rental Reimbursement and Towing: Pays for towing the wrecked vehicle and the payment for a car rental while the automobile is being fixed after an accident. Expert’s Recommendation: Buy rental only if you have one vehicle and no alternative transportation. Towing coverage is worthwhile and only costs a minimum amount (about $5 per vehicle per year).

The higher the coverage limits or lower the deductible amount, the higher the premium. However, an individual should not compromise liability and property damage coverage for a lower premium. Most insurance companies will recommend raising the comprehensive or collision deductible to lower the insurance premium.

Other little known coverages that may be available for your policy include insurance against:

• flood damage
• fire and theft of personal effects
• medical payments for you and your family when injury occurs in your own car, in any other vehicle or as pedestrians in a vehicle accident
• expenses you incur when providing first aid to others at the time of an accident in which you are involved
• the cost of hiring lawyers, getting expert testimony, court costs and all other expenses incurred in defending you from any car accident even if the charges of liability are groundless, false or fraudulent
• the cost of up to $100 per bail bond
• interest expense due to appeals which delay claim payment
• the collision deductible if the other party in a car accident is also insured by your company

Ways to Save Money

In addition to adjusting the various coverages in your auto policy, you can save on your auto insurance bill if:

• your car has an anti-theft device
• you insure your home with the same insurer
• your insurer does not surcharge you if you or your car is involved in an accident that is not your fault
• your insurer grants a nonsmoker or non-car-phone-user discount.

You may also save if:

• your children have completed an accredited driver’s education course
• you and your family have an accident- and ticket-free record
• you own more than one car and insure them with the same company
• your child driver is at least a high school junior ranked in the top 20% with grades of B or better on the honor roll or dean’s list
• your child gets married and/or is no longer covered under your policy
• you use your car for pleasure driving only—you use a company car instead of your own
• you switch to a low-cost car (hint: ask your insurance company which cars have the lowest cost)
• you choose a higher deductible for collision coverage (hint: look on www.kbb.com to get the used car price of your year, make and model, and you might decide that the value of your car does not justify any coverage for collision).

Travel in Foreign Countries

If you travel to Mexico, buy Mexican automobile insurance even if your insurer covers you while in Mexico. If you rent a car in any foreign country, purchase the rental car company’s insurance. When driving in Canada, bring proof from your insurer that you meet the Canadian minimum liability and property damage limits.

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