Buyer’s Guide to Auto Insurance State of California Department of Insurance California law requires that all drivers be able to pay damages resulting from the ownership or operation of a motor vehicle. Drivers must show their ability to pay damages (called "financial responsibility") of at least 5,000 for each person injured or killed in an accident, of at least $30,000 for injury/death to two or more persons in one accident, and of at least $5,000 for property damage from any one accident. As of July 1, l985, if you are stopped by a police officer for any traffic violation, you must provide him/her with proof of financial responsibility. If you are convicted of not having such proof at the time of the citation, you will be subject to a fine. You must also, within 60 days of the conviction, file and maintain proof of financial responsibility for three years with the Department of Motor Vehicles. If you fail to do so, your license may be suspended. Additionally, if you provide false proof of financial responsibility (for example: an expired or cancelled policy, etc.), this can result in fines up to $500 and/or 30 days in jail. (The validity of this law is to be considered by the California State Supreme Court in 1987). The most common way of meeting this requirement is by purchasing a car insurance policy. This guide will help answer your questions about car insurance. Q. WHY DO I NEED CAR INSURANCE? A. State law requires that all drivers be able to pay for (to be financially responsible for) damages resulting from the ownership or operation of a car. The simplest method of meeting this requirement is by purchasing a car insurance policy. The insurance policy is a contract which promises that if you pay money now (the "premium"), the insurance company will pay for certain bills if an accident or loss occurs in the future. Q. WHAT TYPE OF INSURANCE DO I NEED? A. To meet the minimum requirements of California's financial responsibility law, you need auto liability insurance in the following limits: bodily injury (BI): 5,000 per person/$30,000 per accident property damage (PD): $5,000 per accident. Q. WHAT DOES LIABILITY INSURANCE COVER? A. Bodily injury liability covers you for injuries to someone else and property damage liability covers you for damage to someone else's property, when your car is in an accident in which you are found legally liable. Coverage can be purchased in either "split limits" of 15/30/5 or in a "combined single limit" policy of $35,000. Q. WHAT IS THE DIFFERENCE BETWEEN A "SPLIT-LIMITS" AND A "COMBINED SINGLE LIMIT" POLICY OF %35,000. A. Split-limits policy with BI of %15,000/$30,000 and PD of $5,000 (shown as 15/30/5) will pay out as follows: The maximum paid for one person's injuries, expenses, etc. is 5,000 under the bodily injury portion. If two or more people are involved, the maximum paid out for everyone will be $30,000. The maximum paid out for damage to other people's property (their car, fence, etc.) is $5,000. A combined single limit policy of $35,000 will pay out as follows: The maximum damage paid for one person's injuries and damaged vehicle is $35,000. The maximum paid for all people involved is $35,000. In each case, the limits apply to each accident and do not apply to legal defense, which is furnished in addition to your regular limits. For example: If you were involved in an accident which incurred the following costs; bodily injury (1 person) $25,000 ;property damage 0,000 How much would a policy with the above limits pay? Under a single limit policy of $35,000, the full policy limits of $35,000 will be paid. The single limit policy does not specify a limit on any particular loss (i.e. $5,000 r 5,000 for bodily injury, or 5,000 per person, etc.), but rather a total limit of $35,000. Under a split limit policy of 5,000/$30,000 bodily injury and $5,000 property damage, the policy would only pay a total of $20,000. 5,000 for bodily injury (one person) and $5,000 for property damage. Q. DO I NEED HIGHER LIMITS? A. You should consider purchasing liability insurance with higher limits than the minimum required. Considering the amount of recent jury awards, the extra cost for the additional coverage may be well worth it. Jury awards can easily be more than $3,000,000 in view of increasing hospital, medical care and car repair costs. Q. WHAT OTHER COVERAGES ARE AVAILABLE? A. Most insurance companies will offer the following coverages: Medical payments Uninsured motorist coverage (BI and PD) Underinsured motorist coverage Physical damage (collision and comprehensive) Q. WHAT IS MEDICAL PAYMENT INSURANCE? A. Medical payment insurance covers (up to the specified limit you choose) the medical costs resulting from an auto accident for you, your family, and others in your car. It pays no matter who is at fault. You should keep in mind that if you and your family already have medical insurance, you may not need to purchase this optional coverage. However, you may want to get this coverage for your passengers who do not have their own medical coverage. Q. WHAT IS UNINSURED MOTORIST COVERAGE? A. Uninsured motorist coverage actually consists of two coverages, uninsured motorist bodily injury (UMBI) and uninsured motorist property damage (UMPD). Uninsured motorist bodily injury (UMBI) coverage pays for injuries to you or to persons in you car in accidents caused by uninsured or unidentified drivers. The law says that this coverage must be offered with liability insurance. If you reject it, you must do so in writing. Be aware that some companies may offer uninsured motorist coverage as part of the package. In such situations, the companies must also agree to delete the coverage or else they may refuse to insure you at all unless you accept the total package coverage. Uninsured motorist property damage (UMPD) coverage pays for damage to your automobile caused by an uninsured motorist; however, either the owner/operator or the uninsured vehicle must be identified. As of July 1, l984, companies are required to offer UMPD coverage with the liability insurance policy. If you don't carry collision coverage on you car, UMPD will pay up to $3,500 (not to exceed the value of the vehicle). If you do carry collision coverage on your car, you can purchase a "collision deductible waiver". If you are involved in an accident with an uninsured vehicle, your insurer will pay the collision deductible for you. Q. WHAT IS UNDERINSURED MOTORIST COVERAGE? A. Underinsured motorist coverage pays for bodily injury or wrongful death caused by an underinsured motor vehicle (that is, a vehicle which is insured, but at an amount that is less than your UMBI limits). As of July 1, l985, companies are required to offer this coverage as a part of uninsured motorist coverage, with limits equal to your UMBI limits. They may also offer the coverage at limits higher than the UMBI limits. Q. WHAT IS PHYSICAL DAMAGE INSURANCE? A. Physical damage insurance consists of collision and comprehensive coverage. Collision pays for damage to your car caused by a collision with another vehicle or with any other object (i.e. a pole, a wall, etc.), regardless of who was at fault. It also covers damage caused by the upset (overturning) of your car. Comprehensive pays for damage to your car caused by reasons other than collision, such as fire, theft, windstorm, flood, etc. These coverages are usually offered with various types of deductibles. Q. WHAT IS A DEDUCTIBLE? A. The deductible is the amount of the loss which you must pay. Anything over the deductible amount, up to the value of your car, is paid by the insurance company. For instance, if you carried collision coverage with a 00 deductible and you had a $500 collision loss, you would have to pay 00 and the insurance company would pay the remaining $400. Q. WHY SHOULD I PAY A DEDUCTIBLE? A. Basically, deductibles reduce your premiums and cut costs for the insurance companies. You pay less premium because you agree that the insurer will "deduct" a set amount from the amount of your loss. Insurance companies offer deductibles because they reduce the number of small claims which are costly for them to handle. The higher the deductible, the lower the premium you pay. But, you should set aside a separate savings to pay this deductible, in the event a loss occurs. Q. DO I NEED PHYSICAL DAMAGE INSURANCE? A. Physical damage coverage is not required by law. However, if you are financing your vehicle, your lender will require it. Your loan contract will usually that proof of insurance must be given to the lender or else they would add their own policy is usually higher than a policy you can purchase on your own and is added onto your loan payments. Also, the lender's policy does not provide you with liability coverage. If your vehicle is over 10 years old, the cost of the insurance may be more than the car's actual value. Find out what your car is actually worth and then decide if you want to insure for comprehensive and collision. Q. HOW DO I FIND AN INSURANCE COMPANY? A. You shop around. Find out from friends and relatives which companies, agents and/or brokers they are insured with. You could also look through the yellow pages for the names of insurance companies and the agents/brokers in your area. Pick out 5 to 10 names and call them for a quote. Compare the coverages and prices offered, and pick the best one for you. Q. WHAT IS THE DIFFERENCE BETWEEN CALLING A DIRECT WRITER, AND AGENT OR A BROKER? A. A direct writer is an insurance company which sells its policies through their own employees or agents who only represent that company. You can call the company or its agent directly for a quote. An independent agent will represent several insurance companies and would be able to give a comparison quote for all the companies he/she represents. A broker basically works as your representative. For an agreed upon fee, the broker will look for insurance for you. The broker must tell you how much he/she charges for his/her services, before you accept any quote. The broker does not represent any specific company, but will call other agents or companies for you to find the coverage you want. Q. WHY SHOULD I SHOP AROUND FOR INSURANCE? A. Under California's rating law, each insurance company is allowed to calculate its own rates based on its past loss experience and its estimate of future costs. Since each company's experience will differ, even within the same area, the rates will also differ. By calling several companies or agents for a rate comparison, you'll be saving money. You will be able to choose the company with the best price and coverage available for you. Q. WHAT INFORMATION DO I NEED TO HAVE READY WHEN I GET A QUOTE? A. Before you contact the company or an agent for a quote, be prepared. Know what coverages you want, what limits of liability and deductibles you desire. Also have ready the following information: your driving record (accidents and moving violation convictions); your daily and annual mileage; the basic information on all drivers in your household (i.e. name, age, sex, marital status, driving record, driver's license number, etc.) and information on your car(s) (i.e. age, type, value, etc.). Q. WHAT ARE SOME THINGS THAT I SHOULD ASK THE COMPANY/AGENT? A. When you're getting the quote, ask them what discounts and/or surcharges the company applies. Many companies offer discounts like: the multi-car discount for insuring two or more cars with the same company; the good student discount for a student with a good driving record, who maintains at least a 3.0 grade point average; the senior-citizen discount; a non-smoker discount; etc. In addition, most companies follow some type of "safe driver plan" whereby either a discount or surcharge is applied to the rates based on your driving record. Companies will usually consider the driving record for the past 3 to 5 years. Some companies will also add a surcharge based on the type of vehicle you own, such as a sports car, a high performance vehicle, a 4 x 4 truck, etc. Finally, keep in mind that all companies will not offer the same type of plans or have the same underwriting rules (eligibility/acceptability guidelines). Therefore, ask around. Q. WHAT ELSE SHOULD I KNOW ABOUT INSURANCE COVERAGE? A. Remember the following: Be aware that the length of a policy term can be one month, three months (quarterly), six months (semi-annual) or one year (annual), depending on the insurance company. When you get a quote, make sure you know the length of the policy term. Many companies have their own payment (installation) plans which allow you to pay the premium over a period of time for a small service fee. If you decide to buy a policy on an installation plan, whether with semi-annual, quarterly, or monthly payments, find out what those finance or service charges are. If you use a premium finance company to pay for your insurance, the monthly payments may be easier but the total payment will be larger. Some companies charge a set "policy fee" in order to issue the policy. The fee usually runs from $25 to $30 and should be shown on your application and policy. Once the policy is issued, this policy fee is fully earned by the company. If the policy is cancelled later, the policy fee will not be returned. Q. WHAT IF I CAN'T FIND A COMPANY THAT WILL INSURE ME? A. If you can't find a company that will insure you through their regular programs, you can get the required liability coverage through the California Automobile Assigned Risk Plan. The Plan's rates are usually higher than in the normal insurance marketplace. Any licensed agent can help you submit an application to the Plan. If you have questions about the Assigned Risk Plan, they can be answered by the Plan at Shop around for your insurance needs. When you call in for a quote or fill out an application, give the complete and correct information requested. After the application or any finance agreement is filled out, re-read it to see if everything is correct. Get a copy of it for your records. Also, get the application filled out before you sign it. Don't sign a blank form. When you get your policy, read it. Don't file it away without checking to see that the coverages, limits, premium and other information is correct. Also, read through the policy to know your rights and the company's rights under the terms of the policy. When you have a claim, be aware that you do have rights regarding auto repairs. The California Department of Consumer Affairs requires a written estimate of repair before claims work begins. Although you may be allowed to use any shop you choose under your policy terms, you must first check with your insurer before repair work starts. The insurer will want to find out if the cost is reasonable and that all work is covered under the policy. If you don't think that you have been treated fairly in shopping for insurance or in getting a claim paid, or if you have any problems or questions about your insurance, contact the office of the California Department of Insurance nearest you or call toll-free 1-800 233-9045.The Department of Insurance has consumer service offices at: Discuss the problem with your agent/broker first or with the customer service representative at your insurance company. You'll need to have ready your policy number (or account number), a description of the problem and other needed information. If you do not get a prompt answer, or are still dissatisfied, contact us. If you talk with someone, keep notes of the conversation for your records. Note the person's name, what was discussed, and the date and time of your conversation. If you write to the company or to us, keep a copy of your letter for your records. When you write to your company or us, briefly the problem and what you want done to correct it. Be sure to include your name, address, phone number, insurance company's name, the policy number, and the agent/broker's name. AGENT --- A person authorized, by and on behalf of an insurer, to sell insurance. BINDER --- A temporary or preliminary agreement which provides coverage until policy can be written or delivered. BROKER --- A person who, for payment of a fee by you, looks for insurance on your behalf. DEDUCTIBLE --- The amount of the loss which the insured has to pay under the collision and comprehensive coverages. INSURED --- The policyholder-the person(s) protected in case of an accident or loss. INSURER --- The insurance company. POLICY --- Written contract of insurance. PREMIUM --- The amount of money which the policyholder agrees to pay for the policy of insurance. QUOTE --- An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant. SURCHARGE --- An extra charge applied by the insurer, usually for accidents or moving violation convictions, etc.
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