Feature Articles: Insurance
Auto insurance basics
Brenda Procter, M.S., state specialist and instructor, Personal Financial Planning, University of Missouri Extension
Automobile insurance protects you against having to pay large sums of money if you injure someone or cause damage to their property because of a car accident that is your fault. If an uninsured motorist causes an accident involving your car, insurance can cover costs of your injuries and injuries of passengers. Insurance can also protect against theft or physical damage to your car that is caused by collision, fire, windstorm or hail.
There are few types of insurance that are required by law — auto liability coverage is one of them. Other types of auto coverage are optional, but in Missouri, if you own or operate a motor vehicle, it must have at least the following liability coverage:
- $25,000 per person for injuries you cause to another person or vehicle
- $50,000 per accident for injuries you cause to one or more persons
- $10,000 per accident for property damage you cause to someone else’s property
The law also requires uninsured motorist coverage of $25,000 for bodily injury per person and $50,000 for bodily injury per accident. It may also be a good idea to get underinsured motorists insurance. This will cover you if the person who causes an accident doesn’t have enough coverage to pay all costs from injury to you or damage to your property.
The Missouri Department of Revenue tracks drivers to make sure their liability policies stay in force. If you let your coverage lapse or expire, your vehicle registration can be suspended and you can lose your driver license.
Before you decide how much automobile insurance to buy, think about what would happen if you caused an accident. How much property damage or loss can you afford out of your own pocket? What do you own that could be damaged or stolen? How much would it cost to replace it?
If someone sues you because an accident is your fault, how can you pay legal costs and possible awards for damages? Depending on how you answer these questions, you may want more insurance than the minimum the law requires.
In addition to basic liability coverage and uninsured motorists insurance, you can get protection through:
- Medical payment insurance (covers medical costs up to the limit stated in your policy; covers you and your family whether you are a rider, pedestrian or passenger in someone else’s car; covers your passengers).
- Comprehensive insurance (covers damages to your car from fire, theft, explosion, windstorm, hail, vandalism, glass breakage, birds and animals).
- Collision insurance (pays for damages to your car during collision, no matter who is responsible).
If you have an expensive car, consider purchasing both comprehensive and collision insurance to protect the cost of repair or replacement. If you have a loan on the car, your lender will probably require both comprehensive and collision coverage — but they can’t tell you who to buy it from. It pays to shop around.
Your auto policy may provide protection for you when you are driving a rental car. If so, you do not need to purchase rental car insurance from the rental agency, so be sure to ask your own agent. If you do not own a car but sometimes rent one, you will need to purchase the coverage. It is possible to purchase a separate car renters policy, which might be a cheaper option if you rent often.
Finding the best agent
Selecting the insurance agent or broker who’s best for you takes a little homework and time. You want an agent to help you select the coverage you need, but you also want one who assists you in filing claims and making sure your claims are settled efficiently and fairly. A good agent or broker will:
- Spend time with you to explain your coverage and answer questions about your policy.
- Review your situation once a year and recommend any changes you need in coverage.
- Explain how your insurance premium rates are calculated.
- Suggest ways to save money on your auto insurance.
Before you make a final decision about which broker or agent to use, interview at least three of them. Ask your friends and relatives about agents or brokers they have worked with and get their advice. Compare services from different agents.
Insurance policy sections
Auto insurance policies have some standard sections, including:
- Declarations (information about the buyer of the policy, the dollar amount of the policy, type of coverage, extent of coverage, cost of coverage, date and time coverage begins, and the date the policy expires).
- Insuring agreement (states what losses will be covered and provides for legal defense up to policy limits).
- Exclusions (the fine print says what the policy will not cover). Typical exclusions are intentional damage to your own car, damages caused while you used the car as a public or delivery vehicle and damages caused by a garage or parking lot attendant. Read this section closely and ask questions until you fully understand it.
- Conditions (rules and duties if there is a loss). Includes reporting the loss to the company as soon as possible, using care to prevent additional damage to the car, cooperating with the company, required paperwork to document loss, and providing the insurer with any documents related to lawsuits under your policy.
- Endorsements (form listing changes in coverage that are added to the policy, signed by a company official and attached to the policy).
How insurance rates are set
Insurance rates vary from company to company and from individual to individual. Try to check rates with at least three different companies. Rates depend on:
- The amount of coverage purchased and how many premium payments you make per year.
- The amount of the deductible (the higher the deductible, the lower the rate).
- Where you live and where the car is garaged.
- Whether the car is used in the city or on a farm.
- How the car is used and the number of miles put on it each year.
- The type and age of the car.
- The age, gender and marital status of the insured driver (men under 25 years old can pay two to three times more what men over 25 pay and rates are generally lower for married people).
- Your credit score.
Some companies offer discounts for completing a driver training program, getting good grades, carpooling, driving fewer than a set number of miles in a year or insuring more than one car.
The one thing that affects your rates most is your driving record. Every moving violation you get and every accident you cause means you may have to pay a higher premium or that your policy will be cancelled.
Drive safely and insure yourself against the financial consequences in case the worst happens. Armed with information and a willingness to shop around and ask questions, you can find the best policy for you at the best price possible.
For informational brochures on a variety of insurance topics, visit http://insurance.mo.gov/.
For more information on auto insurance, go online to http://insurance.mo.gov/consumer/auto/.
Israelsen, C. 2003. Personal and Family Finance class lectures at the University of Missouri, Columbia.
Israelsen, C. and Weagley, R. 2002. Personal and family finance workbook. 3rd ed. Dubuque, Iowa: Kendall/ Hunt Publishing Co.
Kobliner, B. 2000. Get a financial life: Personal finance in your twenties and thirties. 2nd ed. New York: Fireside.
Missouri Department of Insurance. Consumer Guide to Automobile Insurance, 2008. http://insurance.mo.gov/consumer/auto/autobuy/.
Last update: Friday, March 12, 2010