Kennebunk Savings Bank: Insurance

Your car is likely one of the most expensive things you own. Insurance protects your investment and guarantees you a way of coping with the expense of accidents, vandalism or theft. It also secures your financial responsibility to the institution lending you money to buy your vehicle.

When you drive you are responsible for the safety of your passengers, your fellow drivers, other people's property, pedestrians and yourself. Insurance helps ensure your ability to cover the costs of potential damages or injuries.

You are also required to be financially responsible by state laws, which are best satisfied through your insurance coverage. In most states insurance is a prerequisite to registering your car. So if you want to drive your own vehicle, you must be insured.

Auto insurance is divided into several types of coverage:

• General liability covers damage you cause to other people's property and injuries to the people themselves.
• Collision covers damage to your own vehicle in an accident.
• Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc., unless the vehicle is overturned, then it is considered a collision).
• Medical payments insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This "good-faith" coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friend's car.
• Uninsured motorist (UM) and underinsured motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.
• Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or "endorsements" to your policy.

Where you live (or, more precisely, where you keep your car) has a bearing on your chances of having an accident or becoming a victim of theft or vandalism. That's why a vehicle owner in Brooklyn, New York, pays a higher rate than the owner of an identical vehicle in Casper, Wyoming.

Other factors affecting regional insurance rates include time and efficiency of police response and law enforcement, local road and traffic conditions and the quality of local medical services. Insurers even factor in the litigation rates in a given area, that is, how many lawsuits are filed, go to trial, are settled out of court and for how much.

Vehicles are also grouped into categories according to their likelihood of being damaged, vandalized or stolen. Insurers generally consider the size and type of vehicle, as well as the value and the cost of repairs (which can vary greatly, even on vehicles that cost roughly the same). Thus, a new station wagon is expected to hold up better in an accident than a sports car or a subcompact.

Putting insurance aside, safety is key when buying an automobile. Your life depends on it! Some cars are considered safer than others because of their performance record in safety tests and real accidents.

That's why you should research insurance coverage before you buy your car. It helps you to understand the actual cost and indicates those vehicles with good safety records. Your insurer will ultimately reward you for putting safety first.

No-fault insurance is a system adopted in some states that essentially bypasses the conventional legal procedure which finds fault in an accident. (This is the procedure by which you hire a lawyer, file suit and possibly go to court to prove the accident was the other guy's fault.) No-fault simply does away with the concept of one party or the other being at fault. There are no lawyers, no court, no judge, no jury, and no lengthy lawsuits against the other party. This is considered beneficial to taxpayers, because it eliminates costly legal proceedings that the state must manage, and to insurance policyholders, because it helps keep rates down.

If you are insured in a no-fault state and have an accident, you don't go after the other driver. You contact your own insurer and file a claim. Your own insurance policy guarantees you immediate compensation for damages, medical expenses, lost wages, etc.

The type and range of no-fault coverage varies by state. What defines the limitations of no-fault policies can differ in two critical areas:

• Threshold—The type of damage/injury or the cost of repair/recovery that triggers the need for legal action.
• Mandated Benefit Level—The package of benefits (medical, wage loss, replacement services and other expenses) your state requires you to carry.

The details of no-fault insurance can be complicated. Contact your agent or your state's insurance department for further information.

No. Some states, while not mandating auto insurance, have "financial responsibility laws" that require all drivers to be able to pay for any damage or injury they may cause. However, carrying liability insurance is still the best way for you to meet your state's financial responsibility requirements.

UM and UIM policies are offered by law in all states, including no-fault states. In fact, some states require all motorists to carry this coverage to gain protection from inadequate insurance coverage of other drivers.

Technically, in most states your insurer can cancel your policy only if:

• you fail to pay your premium;
• you lose your driver's license;
• you are guilty of material misrepresentation during the application process (i.e., you fail to notify your insurer of a recorded violation such as a drunk-driving offense); or
• you fail to report a substantial change of risk, such as buying a high-powered sports car to replace a family sedan.

However, your insurer can choose not to renew your policy for a variety of reasons.

Do you have a bad driving record? Have you received a lot of speeding tickets? Have you ever been caught driving drunk? Not only are these scenarios considered unsafe and illegal, they are justifiable cause for your insurer to label you a bad risk and refuse to renew your policy. (Some insurers may feel compelled to cancel policies after only one accident.)

Where do you live? Has the neighborhood changed in the last few years? Have the accident or crime rates risen noticeably? As regions are reassessed periodically, their status could change and you could suddenly find yourself living in a high-risk area where your insurer's rates may not be adequate to cover losses.

Even "good" drivers can be dropped by their carrier. Reasons range from a "drinking while driving" violation or other serious violations (that make you a high risk) to situations outside your control, such as when insurers in your state are suffering severe business losses. Overall rises in claims or losses can cause insurers to become highly selective in determining whom they can afford to insure.

If you are licensed to drive, by law, you are eligible for insurance. However, your options for new coverage may be limited. Each state has created and regulates a market of last resort for those who cannot otherwise obtain coverage. These groups have various names, depending on the state you live in, such as "assigned risk" plans or the "residual market." Your agent will know more about the particulars in your state.

Regardless of the reason you were dropped, you need to act immediately to get a new policy. Under no circumstance should you drive your vehicle without insurance. Call your agent to help you find new coverage. If you do find yourself in the residual market, the price may be higher but it may be your only alternative in maintaining your freedom to drive.

Insurers often discount their rates for good drivers and those who take of safety and security precautions. Depending on the insurer, you can often lower your rates from 5 to 35 percent.

Sometimes the investment you make in your vehicle is worth the discount, and sometimes it's simply worth some peace of mind. For example, the purchase of anti-lock brakes merits a discount from nearly every insurer, but the discount probably will not pay for the brakes during the normal life of your vehicle.

You can also lower your insurance rates by requesting higher deductibles (the amount of money you pay before you make a claim). Increasing your deductibles on collision and comprehensive coverage from $100 to $250, or even $500, will bring your rates down. Moreover, you may not need collision and comprehensive coverage if you drive an older car. Ask your agent which discounts are available to you.

The more people you allow to drive your vehicle on a regular basis, the greater the chances of your vehicle being in an accident. Teenagers are especially expensive to insure because they are the least experienced drivers.

A driver's education course can help ease the burden of insurance costs since it teaches your teenager defensive driving techniques. If your child's high school does not offer driver's education, try to find one offered by another school or a private firm in the area. After all, the cost of driver's education could be cheaper than the extra cost of your insurance. (Many insurers offer "good student" discounts as well.)

An adult's driving experience can also affect your rates significantly. Don't assume that every adult you know has been driving since age 16 or is a competent driver with a clean record. Again, taking a defensive driving course is a good way for adults to prove they are responsible drivers, thus lowering their risk and their insurance rates. (This is a great solution for new couples who are jointly insured but unmatched in their driving skills or experience.)

Yes. Liability and coverage for physical damage (i.e., comprehensive and collision) always follow your car. So, if a friend borrows your car and has an accident, you're still protected against the cost of damages or injuries. Plus, if the driver of your car is insured, his/her policy will also be available to cover the cost of damages and injuries.

The same rules apply when you borrow someone else's vehicle. Your own insurance follows you no matter whose car you are driving. But the vehicle owner's policy is the key coverage if you have an accident.

Comprehensive insurance, which covers you for fire and theft, generally covers you against damage by flood, earthquake, hail and other natural perils, except when your car is overturned (which is technically considered a collision). If you have special concerns about the safety of your vehicle in the face of Mother Nature's wrath, contact your agent for information on catastrophic coverage.

Usually, insurers that refuse to cover a claim have a strong legal reason for doing so—even if you disagree. First, contact your agent if you feel you are being treated unfairly because your agent is your strongest advocate in insurance matters. But if it is a legal problem, you may have to hire a lawyer.

Talk to your agent if you have a problem with your insurer, and talk to your state insurance department if you want more specific information on state regulations and legal precedents.

After an accident, you should call your agent as quickly as possible, to help you complete a claim form, determine what exactly happened and evaluate any damages or injuries. Your agent then will contact your insurer's claims adjuster—usually within an hour of your report—whose job is to work with you to fix the problem. While compensating you for auto repairs or medical expenses is easy and immediate, determining liability is more complicated. The adjuster will begin the settlement process, the length of which will depend on the cooperation of the other party.

The amount of compensation for your loss can vary according to the adjuster's analysis of the damage. You do not have to accept the first amount of money you are offered, if it is lower than the cost of your repair or recovery. While you may have to do some homework to prove your reported loss is valid, it's worth it to be certain your insurer lives up to the provisions of your policy.

Remember, negotiating with an adjuster is just business. Insurers simply want to settle claims fairly in light of possible fraud. While it is your insurer's responsibility to root out false claims, you pay the price in the end. In fact, you spend nearly a dime on every dollar of your premium to cover the false claims of others. So, try to keep an open mind when working with your adjuster to settle on a price that's fair to both you and your insurer.

You should always talk to your agent about coverage of rare and valuable property. Since a classic car usually cannot be replaced, you'll probably want ample compensation if it is lost. A classic car, because it is rare or unique, may indeed require a special insurance policy.