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Thursday 8 October 2015

Will My Insurance Pay for a Loss In My Car’s Value if it Is Damaged In a Collision?

Diminished Value Explained

What Is Diminished Value?

After a vehicle has been involved in a major accident and has been repaired, depending on its age and condition, the resale value may be less than if it had not been damaged. In other words, potential buyers may believe the repairs, even if they meet the highest standards, have not restored the vehicle to its pre-accident condition and will be unwilling to pay as much for it as a result. This perceived financial loss is known asdiminished value.

(In fact, older model cars that have been damaged and repaired may actually be worth more because new parts have been substituted for many of the old parts.)

Diminished value claims generally apply to auto insurance policies but can also pertain to a property insurance policy covering real estate.

Will My Insurance Policy Pay for Diminished Value?

An insurance policy is a legal document, a contract between the policyholder and his or her insurance company. Whether an insurer can be expected to compensate an auto insurance policyholder for diminished value depends on state legislation or state court rulings and who was to blame for the accident.

What If an Accident Is My Fault?

Suppose you, as the policyholder, are backing out of a parking lot and ram the car into a lamppost. In most cases, you would not be compensated for diminished value. If you have purchased the standard, optional collision coverage, your insurer will pay for repairs to the car, minus the deductible. Except in a very few states, the language in the collision section of the standard auto insurance policy clearly excludes coverage for diminished value. This exclusion has been affirmed by courts in many states.

What If an Accident Was Clearly Caused by the Negligence of Another Driver?

In all states except Michigan, if an accident is the fault of another driver, you would receive compensation for diminished value because legally the third party has an obligation to make the victim of the accident “whole” again; in other words, to restore the victim’s car to its pre-accident fair market value. This means repairing the vehicle and paying the difference in the car’s resale value before and after the accident, the cost of which is usually covered by the at-fault driver’s liability insurance policy.

If the at-fault driver is uninsured and cannot pay for repairs, receipt of payment will depend on whether you have purchased uninsured motorist’s coverage, the portion of an insurance policy that protects a policyholder against losses due to uninsured and hit-and-run drivers. About half of the states allow recovery for diminished value under this coverage. (Drivers are required to purchase a liability insurance policy in all states except New Hampshire, which only requires drivers to have sufficient financial assets to pay for whatever harm they may cause. Some states, including New Hampshire, also mandate the purchase of uninsured motorist coverage.)

When the law allows the policyholder to recover the amount by which the car’s value has been diminished, whether under the at-fault driver’s liability policy or under the policyholder’s own uninsured motorist or collision coverage, it is always the policyholder’s responsibility to prove the repaired vehicle is worth less than before the accident. Payments may be reduced by the degree to which the policyholder was to blame for the accident.

State Court Rulings

In most states the language in the collision section of the standard auto insurance policy clearly excludes coverage for diminished value. This exclusion has been affirmed by courts in many states. However, a landmark decision in a Georgia case found coverage for diminished value.

The oft-cited case is State Farm Mutual Automobile Insurance Company v. Mabry, decided by the Georgia Supreme Court in 2001, in which the court said the insurance company not only has a contractual obligation to pay for diminution in value in first-party physical damage claims but also that it has a responsibility to establish a procedure for handling diminution of value claims. In response, State Farm developed a formula (“17c”) by which diminished value claims could be measured. Since then, insurers have used this as the basis for creating their own formulas.

In 2011 the Georgia Supreme Court was asked to decide whether the decision in State Farm v. Mabry applied to property, in this case damage to a building. In May 2012, in the case Royal Capital Development v. Maryland Casualty Company, the high court said that “Mabry is not limited by the type of property insured, but rather speaks generally to the measure of damages an insurer is obligated to pay.” In Georgia, therefore, a policyholder’s property insurance policy covers the diminished value of the damaged real estate in addition to the cost of repair.

Resources

Property Casualty Insurers Association of America (PCI)

INSURANCE:Determining Your Car's Value and Cost of Repair

Determining Your Car's Value and Cost of Repair

There are several standard guidelines for determining the value of your car for insurance purposes. You and your insurer can refer to one of the books that list the depreciated value of all new and used cars. One of these books is published by the National Association of Automobile Dealersanother is published by Kelley Blue Book.

When you file your claim, your insurance company will refer you to a claims adjuster. The adjuster will verify the loss and determine what it will cost to repair the car. The adjuster’s estimate can serve as a benchmark to which to compare your own mechanic’s estimate.

No good adjuster or insurance company will expect you to sign an agreement accepting the insurer’s estimate as the total claim payment until you’ve established, to your own satisfaction, that it will cover the cost of repair. The insurer will expect you to get your own estimate from your mechanic, garage or car dealer. Don’t allow yourself to feel pressured into accepting the insurer’s estimate of repair costs without getting at least one estimate of your own.

Your insurance company can’t require you to have repairs done at a particular shop. But they can insist that you get more than one estimate for the work to be done on your car. Just as you want to make sure that your car is adequately repaired, the insurer wants to make sure it doesn’t pay a grossly inflated repair bill.

Don’t be surprised if your insurance company opts to pay for the lowest bid. You don’t have to accept that bid if you believe the low bid won’t adequately repair your car. Don’t hesitate to argue with the adjuster if you really believe his repair estimate is too low based on what your mechanic has told you.

One factor that could reduce the amount of your claim for a repair job is what insurance companies call betterment. If your old car is repaired with brand-new parts, your insurer may argue that the repairs have actually enhanced the car’s value and therefore they can legitimately reduce your claim by the difference between a used part and a new one.

It is up to your insurer to decide whether to pay for repairing your car or to declare it a total loss and pay you its book value. Most standard auto policies will not pay to repair a vehicle if the repairs cost more than the cash value assigned to the car. There won’t be any dispute about whether to repair the car if it was completely totaled. But you may argue about what the pieces of the car were worth when they were assembled as a car. For you to get a settlement higher than the book value of your car’s make and model, you will have to submit evidence such as mileage records, service history and affidavits from mechanics to show that your car was worth more. You’re entitled to the market price of the car you just lost. You shouldn’t get more or less than what you are due.

Filing an Auto Insurance Claim

To file a claim, follow these steps:

Call your insurance agent as soon as possible, regardless of who is at fault. Find out whether you're covered for this loss. Even if the accident appears minor, it is important that you let your insurance company know about the incident.
Ask your agent or company representative how to proceed and what forms or documents are needed to support your claim. Your insurance company will require a “proof of claim” form and, if there is one, a copy of the police report. Increasingly, companies allow you to monitor the progress of your claim on their web site.
Supply the information your insurer requests. Fill out the claim form carefully. Keep good records. Get the names and phone numbers of everyone you speak with and copies of any bills related to the accident.
Ask your insurance agent or company representative the following:
- Does my policy contain a time limit for filing claims and submitting bills?
- Is there a time limit for resolving claims disputes?
- If I need to submit additional information, is there a time limit?
- When can I expect the insurance company to contact me?
- Do I need to get repair estimates for the damage to my car?
- Will my policy pay for a rental car while my car is being repaired? If so, how much?
Remember, each state has its own laws governing the claims process. If you have any questions, call your agent, company representative or your state insurance department.

Insuring Your Classic Car

SPECIAL AUTO INSURANCE PROTECTION FOR CLASSIC VINTAGE EDITION CARS

A classic, collectible or antique car is no ordinary car—and regular auto insurance is not sufficient to protect such a vehicle against damage or loss. Unlike everyday vehicles, which depreciate over time as you add miles to them, classic cars may, in fact, gain value over the years. Your insurance needs to match your special vehicle’s value—and you’ll need to adjust your coverage if its value appreciates.

The first step in insuring your classic car is for you and your insurer to reach an agreement on the value of the vehicle. This value will be specified in your policy and your car will be covered up to that value without depreciation.

Most classic car policies will take into account the importance of using a specialized repair or restoration shop. Make sure your policy gives you the flexibility to bring your vintage Mercedes, Ferrari or Corvette to a specialist—even if the rates may be twice, or three times, what a traditional auto body repair shop would charge.

Moreover, classic car policies generally offer coverage for towing and spare parts coverage to replace valuable vehicle components, such as wheels, transmissions, and engine parts.

In addition, your classic car policy will include provisions found in standard auto insurance policies, notably property damage and bodily injury liability coverage.

What Types of Vehicles Need Special Insurance?

There is no uniform definition of a classic car. If a car’s value exceeds its original selling price, then it might be considered collectible and a candidate for specialized classic car insurance. Vehicles that warrant classic car auto insurance include:

Antique and classic cars, usually at least 25 to 30 years old.
Hotrods and modified vehicles.
Exotic and luxury autos—think James Bond.
Muscle cars.
Classic trucks.

You might also seek specialized insurance for vintage military vehicles, classic motorcycles and antique tractors.

Qualifying for Classic Car Coverage

Simply owning an old car is not enough to qualify for specialized classic car insurance. While requirements differ from company to company, most cars would need to meet the following criteria in order to qualify for specialized coverage:

Limited Use—Your classic car cannot be used for everyday commuting or errands, and the conditions of your policy may include mileage limitations and proof the car is being properly garaged if you do travel with it. In some cases, insurers may require that you also own a primary car for everyday use.
Car Shows and Meetings—The ‘limited use’ provision of a classic car policy allows for travel to car shows and auto club meet-ups; however this coverage may be restricted by some insurers. If this is the case, there are insurers that can provide specialized coverage for car shows and meetings. Before choosing a classic car insurer, it’s worth checking whether they have travel restrictions if you plan to take your car on regular, multi-day, high mileage drives.
Secure Storage—When not in use, your special vehicle must be stored in a locked, enclosed, private structure, such as a residential garage or storage unit.
A Clean Driving Record—You may be disqualified from classic auto insurance if you have serious offenses on your driving record, such as reckless driving, repeat speeding violations or driving while intoxicated.

Note too that not every vehicle, however special, will meet the qualifications of every insurer. For instance, some insurers may not cover vintage off-road vehicles. Insurers may also decline to insure vehicles that are in poor condition or have been previously damaged.

Five Insurance Mistakes to Avoid… And Still Save Money

We are all concerned with saving money and it is important to shop around when looking for insurance coverage. However, simply reducing your coverage or dropping important coverages altogether can leave you dangerously underinsured in the event of a disaster.

Following are the five biggest auto, home, flood and renters insurance mistakes consumers can make, along with suggestions to avert those pitfalls while still saving money:

1. Insuring a home for its real estate value rather than for the cost of rebuilding. When real estate prices go down, some homeowners may think they can reduce the amount of insurance on their home. But insurance is designed to cover the cost of rebuilding, not the sales price of the home. You should make sure that you have enough coverage to completely rebuild your home and replace your belongings.

A better way to save: Raise your deductible. An increase from $500 to $1,000 could save up to 25 percent on your premium payments.

2. Selecting an insurance company by price alone. It is important to choose a company with competitive prices, but also one that is financially sound and provides good customer service.

A better way to save: Check the financial health of a company with independent rating agencies and ask friends and family for recommendations. You should select an insurance company that will respond to your needs and handle claims fairly and efficiently.

3. Dropping flood insurance. Damage from flooding is not covered under standard homeowners and renters insurance policies. Coverage is available from the National Flood Insurance Program (NFIP), as well as from some private insurance companies. Many homeowners are unaware they are at risk for flooding, but in fact 25 percent of all flood losses occur in low risk areas. Furthermore with the significant snow fall this winter, spring related flooding may be particularly severe, thus increasing the importance of purchasing flood insurance.

A better way to save: Before purchasing a home, check with the NFIP to determine whether the property is situated in a flood zone; if so, consider a less risky area. If you are already living in a designated flood zone, look at mitigation efforts that can reduce your risk of flood damage and consider purchasing flood insurance. Additional information on flood insurance can be found at www.FloodSmart.gov.

4. Only purchasing the legally required amount of liability for your car. In today’s litigious society, buying only the minimum amount of liability means you are likely to pay more out-of-pocket if you are sued—and those costs may be steep.

A better way to save: Consider dropping collision and/or comprehensive coverage on older cars worth less than $1,000. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.

5. Neglecting to buy renters insurance. A renters insurance policy covers your possessions and additional living expenses if you have to move out due to an insured disaster, such as a fire or hurricane. Equally important, it provides liability protection in the event someone is injured in your home and decides to sue.

A better way to save: Look into multi-policy discounts. Buying several policies with the same insurer, such as renters, auto and life will generally provide savings.

How Can I Save Money On Auto Insurance?

The price you pay for your auto insurance can vary by hundreds of dollars, depending what type of car you have and the insurance company you buy your policy from. Here are some ways to save money.

1. Shop Around

Prices vary from company to company, so it pays to shop around. Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department may also provide comparisons of prices charged by major insurers. (State insurance department phone numbers and Web sites can be found on the back cover.)

You buy insurance to protect you financially and provide peace of mind. It’s important to pick a company that is financially stable. Check the financial health of insurance companies with rating companies such as A.M. Best (www.ambest.com) and Standard & Poor’s (www.standardandpoors.com/ratings) and consult consumer magazines.

Get quotes from different types of insurance companies. Some sell through their own agents. These agencies have the same name as the insurance company. Some sell through independent agents who offer policies from several insurance companies. Others do not use agents. They sell directly to consumers over the phone or via the Internet.

Don’t shop by price alone. Ask friends and relatives for their recommendations. Contact your state insurance department to find out whether they provide information on consumer complaints by company. Pick an agent or company representative that takes the time to answer your questions. You can use the checklist on the back of this brochure to help you compare quotes from insurers.

2. Before You Buy a Car, Compare Insurance Costs

Before you buy a new or used car, check into insurance costs. Car insurance premiums are based in part on the car’s price, the cost to repair it, its overall safety record and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft. To help you decide what car to buy, you can get information from the Insurance Institute for Highway Safety (www.iihs.org).

3. Consider Higher Deductibles

Deductibles are what you pay before your insurance policy kicks in. By requesting higher deductibles, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more. Before choosing a higher deductible, be sure you have enough money set aside to pay it if you have a claim.

4. Reduce Coverage on Older Cars

Consider dropping collision and/or comprehensive coverages on older cars. If your car is worth less than 10 times the premium, purchasing the coverage may not be cost effective. Auto dealers and banks can tell you the worth of cars. Or you can look it up online at Kelley’s Blue Book (www.kbb.com). Review your coverage at renewal time to make sure your insurance needs haven’t changed.

5. Buy Your Homeowners and Auto Insurance From the Same Company

Many insurers will give you a break if you buy two or more types of insurance. You may also get a reduction if you have more than one vehicle insured with the same company. Some insurers reduce the rates for long-time customers. But it still makes sense to shop around! You may save money buying from different insurance companies, compared with a multipolicy discount.

6. Maintain a Good Credit History

Establishing a solid credit history can cut your insurance costs. Most insurers use credit information to price auto insurance policies. Research shows that people who effectively manage their credit have fewer claims. To protect your credit standing, pay your bills on time, don’t obtain more credit than you need and keep your credit balances as low as possible. Check your credit record on a regular basis and have any errors corrected promptly so that your record remains accurate.

7. Take Advantage of Low Mileage Discounts

Some companies offer discounts to motorists who drive a lower than average number of miles per year. Low mileage discounts can also apply to drivers who car pool to work.

8. Ask About Group Insurance

Some companies offer reductions to drivers who get insurance through a group plan from their employers, through professional, business and alumni groups or from other associations. Ask your employer and inquire with groups or clubs you are a member of to see if this is possible.

9. Seek Out other Discounts

Companies offer discounts to policyholders who have not had any accidents or moving violations for a number of years. You may also get a discount if you take a defensive driving course. If there is a young driver on the policy who is a good student, has taken a drivers education course or is away at college without a car, you may also qualify for a lower rate.

When you comparison shop, inquire about discounts for the following:*

Antitheft Devices
Auto and Homeowners Coverage with the Same Company
College Students away from Home
Defensive Driving Courses
Drivers Ed Courses
Good Credit Record
Higher deductibles
Low Annual Mileage
Long-Time Customer
More than 1 car
No Accidents in 3 Years
No Moving Violations in 3 Years
Student Drivers with Good Grades

*The discounts listed may not be available in all states or from all insurance companies.

The key to savings is not the discounts, but the final price. A company that offers few discounts may still have a lower overall price.

What information do I need to give to my agent or company?

Your agent will ask you what make and model cars you own, roughly how many miles you drive each year, and what kind of liability coverage you will need. The agent will also want to know how many people drive the cars, how old the drivers are, where you live, and driving records of each household member.

The agent will then ask more detailed questions about your cars, such as their Vehicle Identification Numbers (VIN), whether they have passive restraint systems or air bags, anti-lock brakes or anti-theft devices. If you already have another insurance policy with the company for home or life insurance, you might receive a discount on your auto policy. You should also mention if you or other drivers in your household have completed safe-driving courses and if student drivers in your home are getting good grades—both of these may qualify you for discounts on your auto policy.

Once the agent has assembled all of the information, he or she will quote you a premium. The premium will depend on all the factors above and on the deductibles you choose.

What Determines the Price of My Auto Insurance Policy?

The average yearly auto insurance premium is almost $800, but there is wide variation around this average. Many factors can affect your premium, and they all help determine how likely you are to have an accident. Perhaps surprisingly, many of them do a better job than just your driving record. Not all companies use all of these factors, and some might use factors not listed here. Your premium may depend on, in no particular order:

Your driving record.

The better your record, the lower your premium. If you have had accidents or serious traffic violations, it is likely you will pay more than if you have a clean driving record. You may also pay more if you are a new driver and have not been insured for a number of years.

How much you use your car.

The more miles you drive, the more chance for accidents. If you drive your car for work, or drive it a long distance to work, you will pay more. If you drive only occasionally—what some companies call “pleasure use”, you will pay less.

Where your car is parked and where you live.

Where you live and where the car is parked can affect the cost of your insurance. Generally, due to higher rates of vandalism, theft and accidents, urban drivers pay a higher auto insurance price than those in small towns or rural areas.

Other factors that vary from one area or state to another are: cost and frequency of litigation; medical care and car repair costs; prevalence of auto insurance fraud; and weather trends.

Your age.

In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. So insurers generally charge more if teenagers or young people below age 25 drive your car.

Your gender.

As a group, women tend to get into fewer accidents, have fewer driver-under-the-influence accidents (DUIs) and most importantly less serious accidents than men. So, all other things being equal, women generally pay less for auto insurance than men. Of course, over time individual driving history for both men and women will have a greater impact on what they pay for auto insurance.

The car you drive.

Some cars cost more to insure than others. Variables include the likelihood of theft, the cost of the car itself is major rate factor, the cost of repairs, and the overall safety record of the car. Engine sizes, even among the same makes and models, can also impact insurance premiums. Cars with high quality safety equipment might qualify for premium discounts.

Insurers not only look at how safe the car is to drive and how well it protects occupants, they also look at the potential damage a car can inflict on another car. If a specific car has a higher chance of inflicting damage on another car and its occupants, some insurers may charge more for liability insurance.

Your credit.

For many insurers, credit-based insurance scoring is one of the most important and statistically valid tools to predict the likelihood of a person filing a claim and the likely cost of that claim. Credit-based insurance scores are based on information like payment history, bankruptcies, collections, outstanding debt and length of credit history. For example, regular, on-time credit card and mortgage payments affect a score positively, while late payments affect a score negatively.

The type and amount of coverage.

In virtually every state, by law you must buy a minimum amount of liability insurance. The state required limits are generally very low and most people should consider purchasing much more than the state requirement—the recommended amount of liability protection is about ten times the average state minimum. If you have a new or recent model of car, you likely will also buy comprehensive and collision coverage, which pays for damage to your car due to weather, theft or physical damage to the car such as being hit by a tree. Comprehensive and collision coverages are subject to deductibles; the higher the deductible, the lower your auto insurance premium. While there is no legal requirement to purchase these coverages, if you finance the purchase of the car or you lease it you may be required by contract.

How Much Auto Coverage Do I Need?

Almost every state requires you to buy a minimum amount of liability coverage. Chances are that you will need more liability insurance than the state requires because accidents cost more than the minimum limits. If you’re found legally responsible for bills that are more than your insurance covers, you will have to pay the difference out of your own pocket. These costs could wipe you out!

You may want to talk to your agent or company representative about purchasing higher liability limits to reflect your personal needs. You may also consider purchasing an umbrella or excess liability policy. These policies pay when your underlying coverages are exhausted. Typically, these policies cost between $200 and $300 per year for a million dollars in coverage. If you have your homeowners and auto insurance with the same company, check out the cost of coverage with this company first. If you have coverage with different companies, it may be easier to buy it from your auto insurance company.

In addition to liability coverage, consider buying collision and comprehensive coverage. You don't decide how much to buy. Your coverage reflects the market value of your car and the cost of repairing it.

Decide on a deductible—the amount of money you pay on a claim before the insurance company reimburses you. Typically, deductibles are $500 or $1,000; the higher your deductible, the lower your premium.

Where can I buy insurance?

You can buy insurance through your local insurance agent and through insurance companies that sell through their own employees, over the phone, by mail and over the Internet. Consult your state insurance department, the yellow pages of your phone book, and friends or relatives for the names of insurance companies doing business in your state.

In most states, there are dozens, sometimes hundreds of companies to choose from, depending on the type of insurance you're looking for. You can go to our Find an Insurance Company tool for help.

Compare all insurance policy before going to buy your insurance policy.There are many online sites like policybazaar.com which helps in choosing best insurance policy with good rates.

Choosing an Insurance Company

There are many insurance companies, so choosing between them can be a challenge. Here are the main points to keep in mind when selecting an insurance company:

1. Licensing

Not every company is licensed to operate in each state. As a general rule, you should buy from a company licensed in your state, because then can you rely on your state insurance department to help if there’s a problem. To find out which companies are licensed in your state, contact the state insurance department.

2. Price

Many companies sell insurance policies and prices vary greatly from one to another, so it really pays to shop around. Get at least three price quotes from companies, agents and from the Internet. Your state insurance department may publish a guide that shows what insurers charge for different policies in various parts of your state.

3. Financial Solidity

You buy insurance to protect you financially and provide peace of mind. Select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies.

4. Service

Your insurance company and its representatives should answer your questions and handle your claims fairly, efficiently and quickly. You can get a feel for whether this is the case by talking to other customers who have used a particular company or agent. You may also want to check a national claims database to see what complaint information it has on a company. Also, your state insurance department will be able to tell you if the insurance company you are considering doing business with had many consumer complaints about its service relative to the number of policies it sold.

5. Comfort

You should feel comfortable with your insurance purchase, whether you buy it from a local agent, directly from the company over the phone, or over the Internet. Make sure that the agent or company will be easy to reach if you have a question or need to file a claim.

Is there a difference between cancellation and nonrenewal?

There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except when:

You fail to pay the premium
You have committed fraud or made serious misrepresentations on your application
Your drivers license has been revoked or suspended.

Nonrenewal 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 not renewing 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 a satisfactory explanation, call your state insurance department.

The company may have decided to drop that particular line of insurance or to write fewer policies where you live, so the nonrenewal decision may not be because of something you did. On the other hand, if you did do something that raised the insurance company’s risk considerably, like driving drunk, the premium may rise or you may not have your policy renewed.

If your insurance company did not renew your policy, you will not necessarily be charged a higher premium at another insurance company.

Rental Car Insurance

There are more options for renting a car than ever before. In the past, you simply selected a vehicle from one of the many brick-and-mortar car rental companies found at airports, train stations or other locations. Today, technology has made possible other alternatives, including peer-to-peer car services, which enable consumers to rent personally owned cars from others; and car sharing programs in which—for a monthly or annual fee—consumers can pick up a vehicle at a wide range of locations for periods ranging from minutes to days.

While these car rental options mean more choice for consumers, they mean more questions about insurance coverage. Fortunately, it is possible to be properly insured when renting a car without wasting money by purchasing duplicative coverage.

The insurance coverage offered by traditional car rental companies is fairly standardized. However, coverage varies widely amongst other types of car sharing programs. The most important step is to read the car rental/sharing agreement—most companies clearly state what is covered as well as the supplemental coverage that can be purchased.

Regardless of the rental car option, the I.I.I. suggests making two phone calls:

The first, to your insurance company, to find out how much coverage you currently have on your own car. In most cases, whatever coverage and deductibles you have on your own car would apply when you rent a car (providing you are using the rental car for recreation and not for business).

If you have dropped either collision or comprehensive on your own car as a way to reduce costs, you may not be covered if your rental car is stolen or damaged. Insurance rules vary by state, so it is best to check with your insurance professional for the specifics of your policy.
Check to see whether your insurance company pays for—or provides a rider for—administrative fees, loss of use or towing charges.

The second, to your credit card company. Insurance benefits offered by credit card companies differ depending on the company and/or the bank that issues the card, and the level of credit card used (a platinum card may offer more insurance coverage than a gold card). However, most credit card only provide limited coverage, such as covering the deductible if there is a claim.

To know exactly the type and amount of insurance that is included, call the toll-free number on the back of the credit card you will be using to rent the car. If you are depending on a credit card for insurance protection, ask the credit card company or bank to send you their coverage information in writing.

In most cases, credit card benefits are secondary to either your personal insurance policy or the insurance coverage offered by the rental car company.

Brick-and-Mortar Car Rental Insurance

Consumers renting from traditional car rental companies can generally choose from the following coverages (Note: insurance is state-regulated; the cost and coverage will vary from state to state.):

Loss Damage Waiver (LDW) Also referred to as a collision damage waiver, an LDW is not technically an insurance product—it is designed to relieve or “waive” renters of financial responsibility if their rental car is damaged or stolen. In most cases, waivers also provide coverage for “loss of use,” in the event the rental car company charges for the time a damaged car cannot be used because it is being fixed. An LDW may also cover towing and administrative fees. The Loss Damage Waiver may become void if the accident was caused by speeding, driving on unpaved roads or driving while intoxicated.Comprehensive/collision auto coverage generally covers damage to a rental car. Keep in mind, however, that in most statesdiminished value is not covered by personal auto insurance policies.

Liability Insurance By law, rental companies must provide the state required minimum amount of liability insurance coverage—generally this figure is low and does not provide much protection. (See State minimums here.)A standard auto insurance policy includes liability coverage. For additional protection, consider an umbrella liabilitypolicy. Non car-owners who are frequent renters can also purchase a non-owner liability policy, which not only provides liability protection when renting a car, but also when borrowing someone else’s car.
Personal Accident Insurance This covers the driver and passengers for medical and ambulance bills for injuries caused in a car crash Health insurance or the personal injury protection (PIP) provided by your auto insurance will likely cover medical expenses.

Personal Effects Coverage This provides insurance protection for the theft of items from a rental car.A homeowners or renters insurance policy includes off-premises theft coverage. If you frequently travel with expensive items such as jewelry, cameras, musical instruments or sports equipment, consider a personal articles floater to protect your valuables at home and while traveling.

Car Sharing and Peer-to-Peer Car Rental Insurance

The insurance offered by these companies is not standardized. It is therefore important to go to the company’s website to read the insurance coverage information carefully. If you have any questions, call the customer service number listed on the website. And contact your auto insurer if you feel you need more information to make an educated insurance coverage decision.

Car sharing programs like ZipCar, generally include insurance costs in the fee. However, if the car is involved in a collision or is stolen, the renter may be billed for a specific dollar amount that is stated in the membership agreement. For an additional cost, customers can purchase a “waiver” to avoid paying the accident fee. Car renters under the age 21 should read the insurance coverage carefully as many programs limit coverage for young drivers to the minimum state required amount of liability. Young renters can look into whether their parents’ auto insurance would cover them for the difference, or purchasing their own non-owner liability policy.

A number of web-based peer-to-peer rental services (e.g. RelayRides) offer both basic coverage and supplemental insurance. The supplemental insurance includes both coverage for damage to the car and liability protection, and provides a choice of coverage amounts and deductibles. Renters who do not purchase the additional insurance are required to sign an agreement stating that they declined the coverage.

What Is Gap Insurance?

When you buy or lease a new car or truck, the vehicle starts to depreciate in value the moment it leaves the car lot. In fact, most cars lose 20 percent of their value within one year. Standard auto insurance policies cover the depreciated value; in other words, insurance pays the current market value of the vehicle. If you finance the purchase of a new car and only put down a small deposit down, the amount of the loan may exceed the market value of the vehicle in its early years of ownership. Gap insurance is available to cover the “gap” between what a vehicle is worth and what you owe on it.

It’s a good idea to consider buying gap insurance for your new car or truck purchase if you:

Made less than a 20 percent down payment.

Financed for 60 months or longer.

Leased the vehicle.

Purchased a vehicle that depreciates faster than the average.

Rolled over negative equity from an old car loan into the new loan.

While the car dealer may offer to sell you gap insurance on your new vehicle, most car insurers offer it—and it typically costs much less. On most auto insurance policies, including gap insurance with collision and comprehensive coverage adds only about $20 a year to the annual premium.

Insuring a Leased Car

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 will need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.

Collision covers the damage to the car from an accident with another automobile or object.
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. 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 professional about gap insurance; it may not be available in some states.

Protecting Yourself against Uninsured Motorists

Overlooked Auto Insurance Options

About one out of every eight U.S. drivers does not have an auto insurance policy, even though it is mandatory to purchase this coverage in 49 out of 50 states (New Hampshire is the exception), according to the Insurance Research Council (IRC). In several states, more than one in five drivers do not carry coverage.

If you’re involved in a serious accident with an uninsured motorist, you could be at risk for substantial financial losses.

For protection from losses arising from an accident with an uninsured motorist, consider purchasing uninsured motorist coverage. A handful of states require that this coverage be included in all auto insurance policies. Regardless of state requirements, you may already carry uninsured motorist coverage, so check your policy or ask your insurance professional.

Types of Uninsured Motorist Coverage

Specific options for uninsured motorist coverage vary by state and insurer, but in general there are three types of protection:

Uninsured Motorist (UM) Insurance—Also known as Uninsured Motorist Bodily Injury (UMBI) insurance, this coverage will pay your and your passengers’ medical bills if you’re involved in an accident with an uninsured motorist who is at fault. In addition, UM insurance will reimburse you and your passengers for lost wages. UM coverage also kicks in if you are hit as a pedestrian by an uninsured driver, or if you’re the victim of a hit-and-run accident.
Uninsured Motorist Property Damage (UMPD) Coverage—While UM insurance covers injuries, it does not extend to damage to your car or property. For this, you need UMPD coverage. Note that UMPD may not cover damaged property beyond your car, and this option may not be available from your insurer—it depends on what state you live in. In addition, UMPD may not cover hit-and-run accidents.
Underinsured Motorist (UIM) Protection—In some instances, an at-fault driver may have liability insurance, but the policy’s limits do not cover the full extent of damage to your vehicle. In such cases, UIM insurance will cover the shortfall.

Auto Insurance for Lower-Income Drivers

Ideally, you’ll have sufficient auto insurance to provide financial protection for any collision. Uninsured motorist coverage offers an important layer of protection, though making an uninsured motorist claim should be a last resort. You can help limit the chances of such an occurrence for someone else by making sure that you always carry auto insurance yourself.

To help ensure that everyone, regardless of financial circumstances, can obtain car insurance, some states, such as California, have programs to assist lower-income drivers. Check with your state’s insurance division to see if your state has such a program. In addition, shop around. Some insurers specialize in writing policies for lower-income consumers.

Can I drive legally without insurance?

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. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident since accidents may cost far more than the minimum limits mandated by most states.

If you've financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.

For more information, see Automobile Financial Responsibility Laws.

Infographic: Types of Auto Coverage

Some types of auto insurance coverage are required, others are optional, but you’ll want to understand them all because they provide protection against several types of risk.

What Is Covered by a Basic Auto Insurance Policy?

Your auto policy may include six coverages. Each coverage is priced separately.

1. Bodily Injury Liability

This coverage applies to injuries that 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.

2. Medical Payments or Personal Injury Protection (PIP)

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.

3. Property Damage Liability

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.

4. Collision

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.

5. Comprehensive

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.

Comprehensive insurance is usually sold with a $100 to $300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium.

Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.

6. Uninsured and Underinsured Motorist Coverage

This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.

Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.

Cheapest Cars to Insure in 2015

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 policy. Auto insurance provides property, liability and medical coverage:

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. Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium.

There's a lot to take into account when buying a new vehicle. How it feels and looks is important, but how much it costs -- including fuel consumption, potential resale value, and monthly auto insurance premium -- is usually the deal breaker. To help buyers determine which cars are truly the cheapest, Cheapism.com turned to a recent comparison of insurance rates for more than 1,500 vehicles by Insure.com.

This list of the 15 cheapest cars to insure reflects the annual cost of full coverage by six major insurers for a 40-year-old male driver with good credit, a clean record and a 12-mile commute in 10 ZIP codes in each state. Unsurprisingly, family vehicles that are typically driven by cautious parents are cheaper to insure than flashy sports cars, but other affordable models may not be what you expect.

Jeep Wrangler Sport: $1,134 a Year. The least expensive standard model Wrangler on the market, this two-door, 4x4 SUV is notable for its 3.6-liter Pentastar V6 engine and iconic looks. This model also recently ranked first in terms of resale value for compact SUVs. (It retains 57.4 percent of its original list price of $23,500 after five years.)

Jeep Patriot Sport (2WD): $1,136 a Year. Cheaper (starting at $16,895) and roomier than a Wrangler, the two-wheel-drive Jeep Patriot is better suited for family driving than off-roading. Cruise control and 16-inch wheels are standard, but the Sport package lacks power accessories and air conditioning. Car site Edmunds.com asserts there are better options for consumers than the Patriot, citing drawbacks such as insufficient storage space, disappointing ride quality, and lackluster basic options.

Honda CR-V LX (AWD): $1,160 a Year.The LX is the simplest of the available trim packages but still comes with a rearview camera and hands-free text messaging. All CR-V models are powered by a 2.4-liter, four-cylinder engine, although the all-wheel drive included in this model is an upgrade. The CR-V ranked best in a U.S. News & World Report list of affordable compact SUVs and starts at $24,695. The review highlights a spacious interior, responsive steering, and good fuel economy.

Dodge Grand Caravan SE Plus: $1,162 a Year. The top-ranking minivan on the list, the Dodge Grand Caravan carries a mixed reputation but offers some features consumers may like. The second and third rows of seats can be laid flush with the floor, creating plenty of cargo space and the rear seats can be flipped to face the back for tailgating. The SE Plus starts at $25,245; the cheapest trim package, the AVP, starts at $21,795. This is the last year the Caravan will be available; Dodge is dropping it from the lineup.

Honda Odyssey LX: $1,163 a Year. The Honda Odyssey minivan is a favorite among car critics, although at $28,975, it's more expensive than others on this list. Still, it's noteworthy for its smooth handling, quiet and comfortable ride, safety rating, and fuel efficiency (for its class). The LX is the base model but still includes a rearview camera, Bluetooth, Pandora compatibility and power-adjustable front seats.

Jeep Compass Sport (2WD): $1,164 a Year. This third Jeep model on the list, like the Patriot Sport, is less expensive than a Wrangler, at $18,995. It's also less Jeep-like, in that off-roading may just be off-limits for this front-wheel-drive model. That doesn't mean it's not a good compact SUV, though; it gets decent reviews from experts at Edmunds and The Car Connection, a review and research site.

Subaru Outback 2.5i: $1,176 a Year. The 2015 Outback has been redesigned and offers a roomy interior, sleek body and precise steering. All Outbacks come standard with all-wheel drive, making this a suitable vehicle for outdoor adventures. Motor Trend concludes that the 2015 Outback is bigger and handles better than the competition. The 2.5i is the base model and starts at $24,895.

Ford Edge SE (2WD): $1,176 a Year. A mid-size crossover that seats five, the Ford Edge SE is comparable to the Honda CR-V LX, according to The Car Connection, (although this model has front-wheel drive). Other reviewers appreciate the high-quality look and feel, EcoBoost engine and quiet ride. This base model has a list price of $28,100.

Smart Fortwo Pure: $1,186 a Year. The Smart Fortwo is a two-seater car about half the size of a sedan, which makes finding a parking space amazingly easy. But the same $13,270 and up that you'll spend for this model can buy a more comfortable ride that isn't scary to drive on a freeway. The Pure package is bare-bones, although there are options for power windows and mirrors ($80), radio ($350) and power steering ($550). Air conditioning comes standard.

Ford Escape S (2WD): $1,190 a Year. One of the best-selling crossovers on the market, the Escape stands out with its styling and acute handling. Reviewers say it's fun to drive on winding roads, although it can feel a bit firm at times. Even the basic S trim level (starting at $22,960) comes with full power accessories, six-speaker sound system, air conditioning, rearview camera and Ford's Sync voice command system.

Nissan Xterra X (2WD): $1,200 a Year. Based on a shared Frontier pickup platform, the Nissan Xterra (starting at $23,660) boasts the same easy-to-clean interior. The Car Connection notes that owners give up some comforts (those easy-to-clean surfaces are hard plastic) but get a vehicle that's versatile, spacious, and ready for off-roading.

Dodge Journey AVP: $1,201 a Year. The American Value Package, the base model, starts at $20,295 and is a good budget option for consumers seeking a midsize crossover. The Journey AVP seats five, but an optional third row adds an additional two seats. The four-cylinder engine can feel strained, but it's the only option available at this trim level.

Buick Encore: $1,205 a Year. The Buick Encore, a subcompact crossover, is slightly larger than a standard hatchback and feels more luxurious than the competing Honda HR-V, Mazda CX-3 and Jeep Renegade, but there's no need to pay for a luxury marque. The Encore is available for $24,065 and up. There are five seats, but in reality it fits only four adults comfortably. Reviewers also say the 1.4-liter engine doesn't have enough oomph, or the fuel efficiency one might expect from a small-engine subcompact; they like just about everything else.

Chevrolet Spark LS (Manual): $1,206 a Year. The Chevy Spark is a four-door hatchback that works well for city drivers and is kind to the pocketbook: This model's MSRP is just $12,270. Despite being small and light, the Spark feels and drives like a "real car," Edmunds says. This practical car seats four and gets up to 40 mpg. The basic LS trim comes with air conditioning, power windows and a four-speaker sound system.

Toyota Tacoma Access Cab (2WD): $1,210 a Year.The only pickup on this list is a leader in the compact/midsize class. The Tacoma isn't as powerful nor as comfortable as a full-size but is known for durability and does well when stacked against the competition. The basic, two-door Access Cab version comes with a 2.7-liter, four-cylinder engine, air conditioning, manual transmission and two rear seats that are best suited for children. It's an easy pickup to drive, but with a starting price of $20,965, it's more expensive than comparable models.

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