Insurance Expert Advisor

How to Choose the Right Insurance Company

2009-07-05T02:48:00.000-07:00

If you've read our "10 Steps to Buying Insurance" article, you should have a pretty good idea of how much car insurance to buy and how to find a low-cost policy. But how do you make sure that the company you sign on with is going to be reliable? When we say "reliable," we're talking about how the insurer treats you, the customer. Most importantly, how will the company deal with you when you file a claim?

To help answer this question, we consulted two insurance experts: Dennis Howard, director of the Insurance Consumer Advocate Network (I-CAN) and a retired insurance adjuster, and Doug Heller, a consumer advocate at The Foundation for Taxpayer & Consumer Rights, a California-based consumer advocacy group. Both had several ideas for consumers determined to make sure their car insurance investment is directed toward a trustworthy company, one that will pay on time and in full.

1) Visit your state's department of insurance Web site. Although you may not be familiar with it, your state, and every state, has a department of insurance. Most departments have Web sites, and many publish "consumer complaint ratios" for all of the insurance companies that sell policies in their state. This ratio tells you how many complaints a car insurance company received per 1,000 claims filed.

Both experts recommended that consumers use complaint ratios to screen prospective insurers. "Just because they're a big name doesn't mean that they'll be a 'good neighbor' or that you'll be 'in their hands,'" Heller noted.

If you've done your homework, you should already have a list of car insurance companies with the lowest premium quotes. Now jot down the companies with the lowest (or best) complaint ratios. Then, compare your two lists — the companies that rank best on both lists merit your strongest consideration.

If you can't find complaint ratios for your state, Heller recommends examining the complaint ratios published by other states. Keep in mind that a single insurance company's practices can vary significantly from state to state — a subpar ratio in one state doesn't necessarily mean the situation is the same in your state. But watch for general trends. If an insurer is getting a lot of complaints in several other states, you probably don't want to get involved with this company. The I-CAN Web site provides links and contact information for every state's department of insurance.

Also note that insurance department Web sites often provide basic rate comparison surveys. These can give you a rough idea of which insurers might interest you on a financial basis without the hassle of typing in all your personal information (as you must when you use one of the online quote sites).

2) Find out which insurers body shops recommend. One of the best ways to identify reliable insurers, according to Howard, is to contact local body shops that you trust and ask for their recommendations. Body shop managers have a unique perspective to offer, since they regularly interact with insurance adjusters. They know which companies have the smoothest claim processes, which affects how quickly the work can be completed on a damaged vehicle. And they know which companies are pushing aftermarket parts, in lieu of genuine original equipment manufacturer (OEM) parts, to cut costs.

3) Check the J.D. Power Ratings. J.D. Power and Associates collects data from individual policyholders nationwide and rates them according to coverage options, price, claims handling, satisfaction with company representatives and the overall experience. A quick visit to the J.D. Power Consumer Center will give you a feel for how the major carriers stack up. J.D. Power also publishes an annual survey of major auto insurers — Amica and Erie have finished at the top for the last three years. These are also companies that Howard recommends: "Erie is sold by independent agents, who are very knowledgeable about the product. I like their claims handling approach. Almost all other companies look at a claim and find a way to not pay it. Erie and Amica will look at it and try to find a way to cover it."

4) Consider insurers' financial strength ratings. As a final check, you can take a look at the A.M. Best and Standard & Poor's ratings. Both companies publish financial strength ratings for all insurance companies — these "measure" an insurance company's ability to pay out a claim (they have nothing to do with the way a company treats its customers).

For the general consumer, looking up these ratings is only a formality, since most of the well-known carriers are going to be a safe bet. Moreover, independent agents would be unlikely to recommend a company with dubious financial standing. Still, if you're considering a smaller, unfamiliar insurance carrier, you might consider this research time well spent. Insurance companies often provide this information on their Web sites, but if not, you can run a search at the A.M. Best and Standard & Poor's sites.

The A.M. Best rating is expressed as a letter grade from A++ (the highest) to D. Some companies may be assigned ratings of E (indicating regulatory action regarding the company's solvency), F (in liquidation) and S (suspended). In any case, you should only work with companies that have at least a B+ rating.

The Standard & Poor's ratings range from AAA (the highest) to CC. Additionally, some companies receive ratings of R (under regulatory supervision) and NR, which means "not rated." The letter grades might be modified by a plus or minus mark. Consider only those companies that have at least a BBB rating.

5) Still confused? Consider working with an agent. It used to be that everyone purchased auto insurance from an agent, but now, car insurance companies like Esurance, Geico and others allow you to purchase insurance directly — over the phone from a customer service representative or online. Still, many of the major players have preserved their national networks of local agents — even if you use State Farm's or Allstate's Web site, you will still be assigned a local agent.

There are two kinds of agents:

a) the captive agent, who represents only one insurance company (major carriers like AAA, Allstate and State Farm sell policies through captive agents).

b) the independent agent, also known as a broker, who represents several insurance companies and therefore does not have a vested interest in selling you a policy from one particular company.

The main advantage in having your own agent is that this person has a vested interest in keeping you happy. Accordingly, he can become familiar with your situation and guide you toward a suitable policy. Howard favors the use of agents and advised, "Don't rule out direct providers, but my personal preference is to have an agent, preferably an independent agent, write your policy for you.... An independent agent would become aware of less advantageous conditions with one company [and help you move to another]. You can change carriers without changing your agent. I encourage consumers to develop a relationship with their agent."

The prospect of good working relations with an agent may help you to make a decision: When Heller purchased auto insurance for the first time, two insurers gave him similar quotes, but he went for the slightly higher one because the agent had been highly recommended by a friend. "You shouldn't go direct without always checking out other options," he said.

But, he cautioned, "Never feel pressured by a broker or an agent. Take the time to talk with an agent or a broker as well as do your online research. You may not need an agent — you may find a better deal with a company that operates direct."

Independent agents sometimes charge a fee for their services, but you may be able to negotiate that. You should agree upon any fee in writing before making a purchase. Look for agents who are certified by Independent Insurance Agents of America (Big "I") or Professional Insurance Agents (PIA).

Of course, we know you have better things to do with your time than think about car insurance. Realistically, most people won't be able to do everything on this list before choosing an insurance carrier. But if you feel that you've been burned during the claims process in the past, consider at least one or two of these suggestions — you'll thank yourself if you're ever involved in another accident.

10 Steps to Buying Auto Insurance

2009-07-05T02:44:00.000-07:00

Introduction
The following simple steps will help you determine how much car insurance you need to carry. And it will also help you get the best coverage at the lowest price. If you are confused about any of the terms we use, be sure to review the glossary in "Little-Known but Important Insurance Issues."

Step 1: Starting Out
When it comes to auto insurance, you want to be adequately covered if you get in an accident but you don't want to pay any more than you have to. So how can you navigate your way through this murky subject?

Keep telling yourself there is money to be saved. How much? Hundreds, even thousands, per year. For example, one of our editors typed all of his insurance information into a comparative insurance service. The quotes (for very basic coverage on two old cars) ranged from $1,006 to $1,807 — a difference of $801 a year. If you're currently dumping thousands into your insurance company's coffers because of a couple of tickets, an accident or a questionable credit rating, shopping your policy against others may be well worth the effort.

Look at it this way — you can convert the money you save into the purchase of something you've desired for a long time. Hold that goal in your mind.

Step 2: How Much Coverage Do You Need?
To find the right auto insurance, start by figuring out the amount of coverage you need. This varies from state to state. So take a moment to find out what coverage is required where you live. Make a list of the different types of coverage and then return for the next step. (You will find a list of each state's requirements and an explanation of the various types of insurance in "How Much Auto Insurance Do You Really Need?" Also, check out "Little-Known but Important Insurance Issues" as it has a glossary of basic insurance terminology.)

Now that you know what is required, you can decide what you need in addition. Some people are quite cautious. They base their lives on worst-case scenarios. Insurance companies love these people. That's because insurance companies know what your chances are of being in an accident, and how likely it is for your car to be damaged or stolen. The information the insurance company has collected over previous decades is crunched into "actuarial tables" that give insurance adjustors a quick look at the probability of just about any occurrence.

So how much insurance should you buy beyond your state's minimum?

Experts recommend that if you have a lot of assets you should get enough liability coverage to protect them. For instance, if you purchase $50,000 of bodily injury liability coverage but have $100,000 in assets, attorneys could go after your treasures in the event of an accident in which you're at fault and the other party's medical bills exceed $50,000.

General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (that is, 50/100/25) given that half of the cars on the road are worth more than $20,000. Here again, though, let your financial situation be your guide. If you have no assets, don't buy excess coverage.

Another issue to consider is that the limits of any uninsured and/or underinsured motorist coverage that you purchase cannot exceed the limits of your liability coverage. Such coverage, he said, can be valuable, as it will cover lost income if you're out of work for several months after being injured in a major accident.

Your driving habits may also be a consideration. If your past is filled with crumpled fenders, if you have a lead foot or a long commute on a treacherous winding road, then you should get more comprehensive coverage. Keep in mind that you don't have to buy collision and comprehensive coverage. If your vehicle is older, if you have a good driving record and if there is a low likelihood that it would be totaled in an accident, but a high likelihood of it being stolen, you could buy comprehensive but not collision.

Step 3: Review Your Driving Record and Current Insurance Policy
Before you begin shopping for insurance you should check the following: the status of your driving record, your current coverage and the premiums you are paying.

You should know how many tickets you have had recently. But time plays tricks and our memories repress painful incidents. If you can't remember how long that speeding ticket has been on your record, check with your state's DMV. If your record will soon improve, and the points you earned will finally disappear, wait until that happens before you get quotes. Nothing drives up the price of insurance like a bad driving record.

Also, you should contact your auto insurance company or pull out a recent bill. Jot down the amount of coverage you have and what you are paying for it. Take note of the yearly and monthly cost of your insurance since many of your quotes will be given both ways. Now you have a figure in mind to try to beat.

Step 4: Solicit Competitive Quotes
Now that you have made several practical and philosophical decisions, it's time to start shopping. Begin by setting aside about an hour for this task. Bring all your records — your current insurance policy, your driver license number and your vehicle registration. Drink plenty of coffee. Have a phone at your elbow. And, of course, power up your computer.

Begin with the online services. If you go to InsWeb.com or other online insurance quote sites, you can type in your information and get a list of comparative quotes. These forms take about 15 minutes to complete. If this bores you, just remind yourself how much you will be saving and that you can use the money to buy something nice for yourself. If the entire shopping process takes you two hours to complete and you save $800, you're effectively earning $400 an hour.

A few things to keep in mind: 1) When you use quote sites, you may not get instant quotes. Some companies may contact you later by e-mail, and some that are not "direct providers" may put you in touch with a local agent, who will then calculate a quote for you. (A "direct provider," like Geico, sells an insurance policy to you directly; other companies like State Farm sell insurance through local agents. We'll discuss the pros and cons of each later.) 2) It's not easy to get quotes from these sites in all states — if you live in New Jersey, for instance, you'll probably find it faster to pick up the phone, since most insurers in this state currently don't provide online quotes.

You can also try getting quotes from some of the insurance companies listed on the Edmunds.com Web site — Liberty Mutual, Geico or Progressive. These forms will take about 10 minutes each to complete.

Step 5: Record and Compare Quotes
While you're researching companies, make notes in a separate computer file or on a piece of paper divided into categories. This will keep you from duplicating your efforts. When you visit the different online insurance sites, you should take note of several things:

Annual and monthly rates for the different types of coverage — make sure to keep the coverage limits the same so that you can make "apples-to-apples" comparisons

An 800 number to call for questions you can't get answered online

The insurance company's payment policy (When is your payment due? What happens if you're late in making a payment?)

Discounts offered by the insurance company that pertain to you

The insurance company's consumer complaint ratio from your state's department of insurance Web site (more on this later)

The insurance company's A.M. Best and Standard & Poor's ratings (more on this later)

Step 6: Work the Phones
Once you have exhausted your online options, it's time to work the phones. Those companies you haven't been able to get an online quote from should be contacted. At times, doing this process verbally can actually go faster than the online counterpart, providing you have all the information regarding your driver license and vehicle registration close at hand. When you get a quote, be sure to confirm the price. Also, ask them to fax or e-mail the quote to you as a record.

Step 7: Look for Discounts
While talking to the insurance companies' telephone salespeople, make sure you explore all options relating to discounts. Insurance companies give discounts for a good driving record, favorable credit score, safety equipment (for example, antilock brakes), certain occupations or professional affiliations and more. For more guidance in this area, check out "How to Save Money on Auto Insurance."

Step 8: Choosing the Right Insurance Company
You now have most of the information in front of you that you need to make a decision. However, there is something more to consider. You can clearly see which company is least expensive, but when you need them to cover a claim, what kind of job will they do? To put it another way, which is the most reliable insurance company?

Below, we offer a number of issues to guide your thinking and help you reach a decision:

Visit your state's department of insurance and check consumer complaint ratios and basic rate comparison surveys.

Get in touch with local body shops or dealerships you trust and ask which insurance companies they recommend.

Consider contacting an insurance agent for additional information about a particular company.

Check out the financial strength ratings for an insurance company by referring to the A.M. Best and Standard & Poor's ratings.

Look over J.D. Power and Associates' consumer satisfaction surveys reviewing auto insurance companies.

Step 9: Review the Policy Before You Sign
So, you've done your research, and you've decided on a company. Before you sign, though, read the policy. In addition to verifying that it contains the coverage you want, there are two clauses that you should look for in the contract:

Retain your right to sue. "Find out if you are giving up your right to go to court and will be forced into arbitration if there is a disagreement [between you and the insurance company]," one expert advised. "You're much better off if you don't give up this right…. It makes it easier for [insurers] to take advantage of you." If you find a clause to this effect, all isn't necessarily lost. "At least in theory, a contract is a mutual agreement, so you should be able to cross out that line in the policy," he said. If the company won't agree to the policy sans clause, then you should probably take your business elsewhere.

Avoid aftermarket parts requirements. If an insurance company has written in the policy that "new factory," "like kind and quality" or "aftermarket parts" may be used for body shop repairs, go to another company, one expert advised. If you own a relatively new car that you plan to keep for a while, you will probably be much happier if you spend a little more time researching companies on the front end rather than try to fight the company when you have a claim.

Step 10: Cancel Your Old Policy
After you lock in the insurance policy you want with the company you select, you have two more things to do. The first is to cancel coverage with your existing insurance company. Second, if your state requires you to carry proof of insurance, make sure you either have it in your wallet or the glove compartment of your car (some experts discourage this, however — if your car is stolen, the thief has everything he needs to prove the vehicle is his).

Now, there's one last thing to do: reward yourself for saving so much money on car insurance.

Checklist

Determine your state's insurance requirements.

Consider your own financial situation in relation to the required insurance and consider buying more to protect your assets.

Review the status of your driving record — do you have any outstanding tickets or points on your driver license?

Check your current coverage to find out how much in premiums you are paying.

Get competing quotes from an Internet insurance Web site such as InsWeb.com, YouDecide.com and InsureOne.com.

Make follow-up phone calls to insurance companies to get additional information about coverage.

Inquire about discounts you might qualify for such as a multiple policy discount.

Evaluate the reliability of the insurance company you're considering by visiting your state's insurance Web site.

If you have chosen a new insurance company, remember to cancel your old policy.

Little-Known but Important Car Insurance Issues

2009-07-05T02:39:00.000-07:00

Even though you've done your research and insured your vehicle, there's still more to know when it comes to the wonderful world of car insurance. Below, we look at some not so commonly discussed, but important, issues about insurance that can benefit you tremendously when managing your automotive coverage.

Switching Auto Insurance Companies Relatively Painlessly

You may choose to terminate your auto insurance policy for any number of reasons. Maybe you're moving to another state, getting rid of your car altogether, or maybe you're just dissatisfied with your existing company's service. Beware, however, that if you don't give your insurer sufficient notice, it could end up costing you money, or negatively affecting your credit history.

Standard practice for most insurance companies is to allow you to cancel your policy at any time during the policy term by sending written notice stating the date of cancellation. Your car insurance policy does not necessarily terminate at the end of each policy term, so it isn't safe to assume that you can just cancel by failing to pay your next bill. If you don't send notice of cancellation, your insurance company will automatically bill you in advance for the next term's premium payment. If you don't pay it, they'll cancel your policy and it will go on your credit report.

Don't expect this information to be made explicit in your policy; while insurers are quick to inform you that your coverage will terminate at the end of the policy period if you don't pay your next premium, they don't always inform you of the repercussions you may face for not giving formal notice of your policy termination.

Another thing to keep in mind is that allowing your car insurance policy to be canceled may hurt your chances of obtaining auto coverage in the future. A cancellation in your insurance history may cause other companies to label you a high-risk applicant, thus giving them an excuse to charge you a higher premium. However, you can usually avoid this trap by officially terminating your policy in a timely manner.

Here's what to do: Call your insurer, let them know that you want to cancel your policy and give them an effective date. They will then send you a cancellation request form - review this form carefully before you sign and return it to your insurer.

If you're switching to another insurer, and you plan on driving your car throughout the process, you want to make sure there is no lapse in your car insurance coverage. Therefore, be sure to coordinate the effective starting date of your new policy with the termination date of your old policy. The last thing you want is to get in an accident during an uninsured interim - how stupid would you feel if that happened?

As long as you are considerate about giving your insurance company plenty of notice when you want to cancel your auto policy, and then go through the official termination process, you should avoid any negative repercussions.

Closing the Gap—With Gap Insurance

Just when you thought you knew everything about insurance — along comes gap insurance.

Though it may sound trivial, gap insurance is a must for leasing. And if you made a small down payment when buying a car, a gap policy can be lifesaver as well. But first, let's look at why it exists.

As the name implies, gap insurance covers what traditional auto insurance doesn't. In other words, it closes the gap between what your insurance company pays if your car is stolen or totaled and what you owe the finance company.

Let's take a test case. Say you bought your car two months ago for $25,000. You begin making payments at about $500 a month based on a 6 percent interest rate. Then, disaster strikes: a tree falls on your car and flattens it.

You call the insurance company and it looks into its crystal ball and decides at the time of the accident your car was worth only $20,000. The car may only be a couple of months old, but it has already lost 20 percent of its value. Unfortunately, the finance company still wants the full amount you owe them. With interest, tax and license fees, they figure that to be $27,000.

Yikes! There's a gap of $7,000 between the $20,000 that the insurance company is willing to pay you and the $27,000 the finance company is demanding. Most folks are going to be eating Spam dinners for the next two years, but if you have gap insurance you can safely order steak.

Apply the same scenario to someone who bought their car. If they left the dealer lot without putting several thousand dollars down, they likely owe more than the insurance company will pay if the vehicle gets totaled or stolen in the first few years. Once again, gap coverage can save the day.

And that's why gap insurance is a must for many drivers. In fact, gap insurance is usually mandated by lease contracts or included within them. If a gap policy is required but not included in your contract, you should shop around for this coverage (insurance companies sell it). If gap coverage is included in the lease, check to see how much is offered and how much you're going to be paying for it. (In some cases, lease contracts may include what is known as a gap waiver, which protects you from gap charges in the event that the leased vehicle is declared a total loss — eliminating the need for a gap policy.)

Is gap insurance necessary for people who finance their cars? Well, it depends on your coverage. If your regular insurance policy is written to pay off the fully financed amount, then you don't need gap insurance.

A few things to keep in mind when buying gap insurance:

Although most people purchase it when a lease is initiated, some insurance companies will sell you a gap policy anytime during the lease term.
You must be in compliance with all terms of the lease.
Your gap insurance policy may not be honored if you don't have collision and comprehensive insurance coverage. Further, lease contracts generally require that you carry collision and comprehensive at all times.

If your car is totaled, or stolen, carefully follow all requirements made by your insurance company. For example, some companies require you to continue making loan payments on your totaled car until the money from the gap insurance is paid out.

So when initiating a car loan or lease, always remember to ask your insurance agent or loan officer about gap insurance. If you have an accident you'll be glad you planned ahead.

OEM vs. Aftermarket: Decisions, Decisions... You've been in an accident, you're dealing with the nuisance of getting your car repaired, finding someone to chauffeur you around (unless your insurance covers the cost of a rental, which is always nice), and you've probably had to take some time off from work to recover and take care of the whole mess. Life couldn't get much more complicated, right?

Um...well, wrong.

Oh, did you think you could just turn your car over to the body shop and trust them to do the best job possible to make your car like new again? 'Fraid not, dear friend. You must decide whether or not to mandate that the repair facility use OEM (original equipment manufacturer) replacement parts, as opposed to aftermarket parts. What difference does it make, you ask? The answer is debatable.

According to non-OEM manufacturers and many insurance companies, the difference between OEM and aftermarket parts is negligible. And it's not surprising that insurance companies are such strong advocates of using aftermarket parts, seeing as how they are considerably less expensive than OEM parts. For that reason, many insurance companies will not reimburse 100 percent of your repair costs if OEM parts are used. Most insurers discourage the use of OEM parts by making the policyholder pay for the difference in cost between the non-OEM parts specified in the estimate and the OEM parts used. This can turn into a large sum of money, as OEM parts may cost nearly twice as much as aftermarket parts. For example, an OEM replacement hood for a '96 Ford Contour can cost close to $600, whereas an aftermarket hood can be had for about 300 bones.

A few insurance companies, such as Chubb Insurance Group, actually encourage their policyholders to use OEM repair parts, while not charging them a penalty. It should be noted however, that Chubb is one of the more expensive auto insurers.

The use of aftermarket parts can be called into question for two reasons. First of all, they decrease a vehicle's resale value. This should certainly be taken into consideration if you plan on reselling or trading in your car. Many dealers check the repair history of vehicles to see what kinds of parts were used. The trade-in value of a BMW with non-BMW parts can certainly be adversely affected. By the same token, using non-OEM replacement parts to repair a leased car could cost you all or part of your security deposit, because technically you would not be returning the vehicle in the same condition as when it was leased.

The other concern with aftermarket parts has to do with safety. Advocates of OEM parts claim that non-OEM parts aren't subjected to the same crash-testing procedures as OEM and therefore are not as safe. The Insurance Institute for Highway Safety (IIHS), however, contends that making cosmetic repairs with non-OEM replacement parts does not degrade the safety of a vehicle in a crash.

In the end, it's up to you to decide what type of replacement parts are used in your vehicle's repair. If you opt to save money and use non-OEM parts, you should make sure that they are approved by the Certified Automotive Parts Association (CAPA), which sets the standards that must be met in the manufacturing of non-OEM parts for collision repairs.

Obviously, you want to know your options before you turn your car over to a repair facility. If you are concerned with the depreciation of your car, especially if it's a high-end vehicle, you'll probably be wise to go with OEM parts at repair time, even if you have to foot part of the bill. But if your car's resale value isn't of extreme importance to you, and you'd rather not dig too deeply into your own pocket, you should consider allowing the body shop to use non-OEM parts.

Just make sure that you specify one way or the other with your repair facility - the last thing you want is to end up paying for OEM parts that you weren't concerned with using, or to get aftermarket parts put on the super-rare ride that you intend to keep in tip-top shape for the rest of your life. As long as you play an active role in choosing your body shop and then communicate clearly with both the repair facility and your claims adjuster, you shouldn't be caught off guard.

Deciphering Auto Insurance Lingo Here's a glossary of commonly used auto policy terms.

Actual Cash Value The cost to replace property minus the amount it has depreciated since the original purchase date.

Benefit The amount an insurance company pays to you or your beneficiary when you file a claim.

Bodily Injury Liability This covers medical expenses for injuries the policyholder causes to someone else.

Claim The policyholder's request for the reimbursement of a loss covered by their insurance policy.

Collision This covers damage to the policyholder's car from any collision. The collision could be with another car, a light post, parking curb, garage wall, etc.

Comprehensive For damage to the policyholder's car that doesn't involve hitting another car. Covers damage resulting from fire, theft, falling objects, missiles, explosion, earthquake, flood, riot and civil commotion.

Deductible The portion of losses that you agree to pay in the event of an accident. Higher deductibles lower premiums significantly, but will come back to haunt you in the case of an accident, especially if you're at fault.

Endorsements These are changes to the original insurance contract, such as a different deductible or an additional car or driver.

Exclusions Situations that are not covered by a given insurance policy; specific exclusions are listed on your insurance policy.

Extraordinary Medical Coverage Sometimes included in Personal Injury Protection, this coverage protects you if you suffer accident-related injuries that require serious and/or long-term medical care and begins once you have exhausted the limit on your standard medical benefitscoverage.

Full Coverage This indicates that you have all the minimum coverage for your state of residence; it does not necessarily mean you will always be fully covered.

Income Loss Coverage Sometimes a part of Personal Injury Protection, income loss coverage takes care of you if you're unable to work due to accident-related injuries.

Indemnity A predetermined sum paid for a covered loss.

Limits The maximum amount of money your insurance company will pay out for your losses; many states have minimum required limits.

Medical Payments or Personal Injury Protection (PIP) Covers the treatment of injuries to the driver and passengers of the policyholder's vehicle. At its most extensive, PIP can cover medical payments and the lost wages of those injured in an accident. It may also extend to covering the policyholder if he/she is injured while in another vehicle or is hit by a car while on foot.

No-Fault Insurance A no-fault policy usually will not require that someone be assigned the blame in order for the policyholder to receive his/her money. In no-fault states, insurance companies are required to have this type of policy.

Property Damage Liability Pays for damage the policyholder causes to someone else's property.

SR-22 A document that shows proof of financial responsibility in the case of a traffic violation.

Tort A legal term that describes circumstances when someone is deemed legally responsible for injuring another person or damaging his/her property. Some states encourage you to make a tort provision, thereby reducing the cost of your premium by limiting your right to sue for non-monetary damages.

Uninsured/Underinsured Motorist Coverage This is to pay for treatment and/or property damages of the policyholder in the event that he/she is injured in a collision with an uninsured driver. Underinsured motorist coverage is another policy option; it kicks in when an at-fault driver has auto liability insurance, but the limit of insurance is insufficient to pay for the victim's damages.

To delve even more deeply into the wonderful world of car insurance and find out your own minimum policy requirements, see the state-by-state table in our feature "How Much Auto Insurance Do You Really Need?"

Car Insurance for Teenage Drivers

2009-07-05T02:35:00.000-07:00

The statistics about teenage drivers aren't good. According to the Insurance Institute for Highway Safety (IIHS), 16-year-olds get into accidents almost six times more often than drivers between the age of 30 and 59. No wonder car insurance premiums are so high for this age group.

However, not all car insurance companies take the same dim view of young drivers. And some discounts are available to help you cut costs. Remember, the higher the risk, the higher the cost of insurance premiums. Let this be your guiding principle as you shop for insurance.

Here are 10 suggestions to help lower premiums and keep your teenager's license free of violations:

1. Help your teen learn the laws and follow them to the letter. By far, the best way to lower car insurance costs for teens is for them to keep their driving record clean. Make safe driving a family project. In some states, restrictions apply to new drivers. Parents should know what the laws are and insist that their sons and daughters follow them.

2. Set a good example. Do you break the speed limit and tailgate? Do you yell at other drivers when you're behind the wheel? If you do these things, how can you expect your children to act differently? Start watching your own driving long before they get their license and you'll have a much easier time convincing them to be safe drivers. Remember, actions speak louder than words.

3. Put your teenager on your policy. Rather than setting up an independent policy for your teen driver, put them on your auto insurance policy as an additional driver. In this way, all the discounts applied to your policies will be passed on to them.

4. Pay your teenager to get good grades. Here's a creative tip — find out how much you save if your teenager gets a good grade point average and pass it on to them. Usually, having a 3.0 or higher GPA will reduce your car insurance premium by 10 percent. Figure out exactly how much this saves you and give that money to your teenager. This accomplishes two things. First, it provides a direct reward for academic performance. Secondly, it motivates them to continue getting good grades.

5. Enroll them in driver education courses. Discounts are available for teens who take recognized driving classes. But call your car insurance company to find out which schools are covered before paying big bucks.

6. Steer clear of sports cars. Don't try to live vicariously through your teenager by giving them the hot car you couldn't get in high school. Getting your teenager a safe car to drive, with the latest safety equipment, will lower your premiums. Not only will you save money on car insurance, but fast driving will be less of a temptation.

7. Get their support. Don't assume that your teenager wants to vacuum clean your wallet. Ask them for help cutting costs and point out that you will share in the savings (see rule #4). Tell them how much car insurance costs and show them how this fits into the family budget. If nothing else, you will score points for treating them as adults.

8. Talk to your kids about drugs and alcohol. This is a tough subject to broach with teenagers, who think they have everything under control. But the consequences of saying nothing can be catastrophic. Take the time to lay down some guidelines in this important area.

9. Take traffic school to beat tickets. Once a ticket is on your teen's license, it takes months to get the violation removed. Instead, encourage them to take traffic school if the judge allows it. A day spent thinking about the consequences of unsafe driving can bring rewards for years to come.

10. Ride with your teenager. Your teenager was a safe driver last year when he or she got a license. But what's happened since then? Let your son or daughter take the wheel while you sit back and relax in the passenger seat. If you see them doing something that breaks rules or seems unsafe, point this out in a diplomatic way. If they are doing a good job driving, praise them for their efforts.

If you follow the above suggestions, you will find that you can make it through the teenage years safely — and without paying an arm and a leg for car insurance. It just takes cooperation and understanding from both sides of the generation gap.

How Much Car Insurance Do You Need?

2009-07-05T01:52:00.000-07:00

A growing number of people are dropping their auto insurance to try to save money, according to a recent study by the Insurance Research Council (IRC). If the current rate of unemployment continues, the IRC estimates that the national uninsured rate will climb from 13.8 percent in 2007 to 16.3 percent in 2010. With that many people driving without coverage, it's dangerous to be uninsured. But how much car insurance do you really need?

If you're like many people feeling the pinch, your inclination is to get the bare minimum of insurance coverage required by the law in your state. That's a good place to start, though those minimums may not fully protect you -- or your assets -- if you file a claim. We recommend getting more than the minimum coverage unless you are driving a beater and have no assets to protect.

Every state in the nation, except for New Hampshire and Wisconsin, requires that you have liability insurance, and that mandatory coverage varies according to state.

In the chart below, minimum liability limits are read as follows (in thousands of dollars):

Bodily injury liability for one person in an accident

Bodily injury liability for all people injured in an accident

Property damage liability for one accident

So, for Alabama, the minimum requirements are $25,000 of bodily injury liability for one person, $50,000 bodily injury liability for all people and $25,000 property damage liability.

Personal Injury Protection (PIP), or Medical Payments (MedPay) in some states, pays for your own medical expenses, any lost wages and whatever other costs may arise when you're injured in an accident. It usually pays about 80 percent of your losses, and it also pays a death benefit. PIP is required in: Arkansas, Delaware, Florida, Hawaii, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, Pennsylvania and Utah.

Some states also require you to purchase car insurance that will cover your own medical expenses, pain and suffering losses and, in some states, car damage in the event that the other motorist is at fault and is either uninsured or underinsured. See the chart below to find out if this applies to you.

State	Liability limits (in thousands of dollars)	Uninsured/Underinsured motorist coverage required?
Alabama	25/50/25	No
Alaska	50/100/25	No
Arizona	15/30/10	No
Arkansas	25/50/25	No
California	15/30/5	No
Colorado	25/50/15	No
Connecticut	20/40/10	Yes
Delaware	15/30/10	No
D.C.	25/50/10	Yes
Florida	10/20/10	No
Georgia	25/50/25	No
Hawaii	20/40/10	No
Idaho	25/50/15	No
Illinois	20/40/15	Yes
Indiana	25/50/10	No
Iowa	20/40/15	No
Kansas	25/50/10	Yes
Kentucky	25/50/10	No
Louisiana	10/20/10	No
Maine	50/100/25	Yes
Maryland	20/40/15	Yes
Massachusetts	20/40/5	Yes
Michigan	20/40/10	No
Minnesota	30/60/10	Yes
Mississippi	25/50/25	No
Missouri	25/50/10	Yes
Montana	25/50/10	No
Nebraska	25/50/25	No
Nevada	15/30/10	No
New Hampshire	Not required 25/50/25	Yes
New Jersey	15/30/5	Yes
New Mexico	25/50/10	No
New York	25/50/10	Yes
North Carolina	30/60/25	Yes
North Dakota	25/50/25	Yes
Ohio	12.5/25/7.5	No
Oklahoma	25/50/25	No
Oregon	25/50/10	Yes
Pennsylvania	15/30/5	No
Rhode Island	25/50/25	Yes
South Carolina	25/50/25	Yes
South Dakota	25/50/25	Yes
Tennessee	25/50/10	No
Texas	25/50/25	No
Utah	25/65/15	No
Vermont	25/50/10	Yes
Virginia	25/50/20	Yes
Washington	25/50/10	No
West Virginia	20/40/10	Yes
Wisconsin	Not required 25/50/10	Yes
Wyoming	25/50/20	No

Even though each state has minimum (or no) requirements for bodily injury liability, it is probably in your best interest to purchase higher limits. If someone else is injured and you're at fault, the minimum liability coverage may not cover their medical expenses, in which case their attorney will most likely come after your assets. It is generally recommended that you purchase 100/300 limits of bodily injury liability. On the other hand, if your personal assets don't amount to much, you don't have a whole lot for them to bother about, so the minimum requirements might actually suit you and will save you some much-needed cash.

Besides various forms of liability insurance, there is collision and comprehensive auto insurance coverage to consider. Collision covers damage to the policyholder's car resulting from running into anything, be it another car, a fire hydrant, or a light post. Comprehensive coverage takes care of your car in the case of theft, fire, falling objects, explosions, or other unexpected problems.

Collision and comprehensive coverage are required in most lease contracts, and are essential if you own an expensive car. If you're driving an old rattletrap, on the other hand, and the sum of your premium and your deductible are close to or exceed the worth of your vehicle, you might want to consider doing without this coverage.

Before you purchase any type of auto insurance coverage, be sure to study your other insurance policies so you don't end up paying for something you don't need. If you have a decent health insurance plan, you might get away with purchasing the bare minimum personal injury protection coverage- or none at all if your state doesn¿t require it. However, you might end up paying a co-pay and deductible that wouldn't apply if you have PIP or MedPay.

Uninsured or underinsured motorist coverage might also be a wise buy, even if you have full medical coverage, as it can pay for your pain and suffering damages. If you belong to an organization that offers roadside assistance, you don't need to purchase that through your insurer. The same thing applies for mechanical breakdown insurance if you own a newly financed or leased vehicle which is still covered under warranty.

It's easy to be resentful of the money spent on insurance. Keep in mind that auto insurance will most likely come to your rescue at some point, so it's imperative to purchase a worthwhile policy. Know what coverage you must have and know what additional coverage fits your lifestyle. Then if trouble strikes, you'll be ready.

How to Save Money on Car Insurance

2009-07-05T01:50:00.000-07:00

There is a very good chance that you are — this very moment — paying too much for your car insurance. There is an even better chance that you could get a better rate, from another insurance company, than you could from your existing insurer.

So why not take an hour or so and review your policy for potential savings? Or, if you're fed up with the high insurance rates from your current insurer, shop around for a new company.

The Internet has created increasing competition between car insurance companies. It is easier than ever for consumers to shop for low insurance rates, to analyze coverage and compare premiums. Still, studies have shown that people don't shop around for insurance in the same way they might shop for a new car. Also, people tend to stay with the same car insurance company for years. Why not prove these studies wrong? Put the power of the Net to work for you and save money in the process.

You can save on auto insurance in five ways:
Make sure you get all discounts you qualify for
Keep your driver's record clean and up-to-date
Adjust your coverage to assume more risk
Drive a "low profile" car equipped with certain money-saving safety features
Shop around for a good, low cost insurance provider
First, let's look at the discounts you might qualify for. Discounts fall into a number of categories:
Low-risk occupations
Professional organizations
Combined coverage
Discounts for safety features
More risk assumed by driver
Discounts for senior citizens

Low-Risk Occupations
Insurance is a numbers game. Adjustors collect information about what types of people get into accidents. Over the years they see a trend. Drivers that work as engineers tend to get into fewer accidents. Why? It would be fun to speculate about the reasons (pocket protectors — need we say more?) but the insurance companies don't really care about that. All they know is that, in fact, engineers are a low risk. Since there is less chance that they will wrap their cars around the trunk of a horse chestnut tree, they charge engineers less for insurance. Simple.

But you say you are a teacher instead of an engineer? You might still be in luck. There may be discounts for teachers. You never know unless you ask — and unless you shop around. Not all insurance companies are the same.

Professional Organizations and Auto Clubs
Have you ever been about to pay $100 for a hotel room, only to discover that a AAA discount saves you 15 percent? Now you're paying $85 and feeling proud of yourself. It's similar in the insurance business. Affiliation with AAA — and certain other professional organizations — will lower your rates. You should check with your employer to see if there are any group insurance rates. At the same time try checking directly with the insurance company representative when you inquire about the cost of policies.

Combined and Renewal Discounts
A big source of savings is to insure your cars with the same company that insures your house. Make sure you ask if combined coverage is available. This will lower your payments on your car insurance and make your homeowner's policy cheaper too.

It's also important to make sure you are getting a "renewal" discount that many car insurance companies offer. This is a discount given to people who have been with the same insurance company for an extended period of time. If you have carried insurance with a company for several years, and not had an accident, your insurance company likes you. Think about it. You paid them a lot of money and they didn't have to do anything except send you bills and cash your checks. True, they were ready to do something if you got in an accident. But you didn't get into an accident so they're happy and want to continue their relationship with you. A renewal discount is a good incentive to urge you to return. And it's a good reason for you to stay with them.

Discounts for Auto Safety Features
Auto safety features will also lower your payments. Heading the list of money saving safety features is antilock brakes. Certain states — such as Florida, New Jersey and New York — encourage drivers to buy cars with antilock brakes by requiring insurers to give discounts. Check to see if you live in such a state, or if the insurance company you are considering gives a discount for this feature. Automatic seatbelts and airbags are also frequently rewarded with insurance discounts.

Assume More Risk
Two powerful ways to bring your coverage down is to assume a higher risk. This is done in two ways. The most dramatic reduction can be realized by dropping your collision insurance on an older car. If the car is worth less than $2,000, you'll probably spend more insuring it than it is worth. The whole idea of driving an older car is to save money, so why not get what is coming to you?

Another way to redesign your policy — and save money in the process — is to ask for a higher deductible. The deductible is the amount of money you have to pay before your insurance company begins paying the rest. In other words, you pay for the little dings and bumps and let your insurance company pay for the heavy hits.

For example, a common deductible amount is $500. This means if an accident you're in causes $1,500 worth of damage, you pay $500 and the insurance company pays $1,000. You could, however, set your deductible to $1,000. This still covers you against heavy losses, but it may decrease your monthly premium by as much as 30 percent.

As a final note, if you are being strangled by high insurance costs, keep this in mind when you go car shopping next time. The more expensive and higher-performance the car is, the higher the premium will be. This is particularly true of cars that are frequently stolen, or are expensive to repair. The insurance company keeps this in mind when setting its insurance rates for this vehicle. Shop for a low-profile car and get your kicks in other ways. You'll love the savings you'll see on your auto insurance.

Avoiding Auto Theft and Insurance Problems

2009-07-05T01:37:00.000-07:00

What's worse than experiencing auto theft? Finding out your car insurance policy doesn't fully cover your loss or out-of-pocket expenses.

A vehicle theft occurs at least twice each minute in the United States, at an estimated cost of $7.6 billion last year. Fewer vehicles are stolen by that legendary joy-riding teen than by pros who drive your car onto a freighter heading overseas, or to a chop shop to cannibalize it for parts.

To help consumers avoid getting burned not just once, but twice, the Council of Better Business Bureaus and the Insurance Information Institute have teamed up with a program called Wiser Drivers Wise Up to address both vehicle theft prevention and what to do if your car is stolen or in an accident. Here are some of their tips:

Don't think manufacturer-installed vehicle theft protection is enough. It can be disabled by experienced and determined thieves, who also know how to unlock a Club and similar devices. Even Steve Cox, a BBB vice president, was the victim of car theft. In fact, he lost two vehicles in three years with these protections; his Pontiac Firebird was stolen in daylight, and his Nissan 300ZX at night. Aftermarket vehicle anti-theft systems are usually more sophisticated and are worth paying a professional to install.

Don't think your old clunker is safer than a shiny new model, or that a luxury sedan is more attractive to thieves than a less expensive model. Older vehicles are usually stolen for their parts, which are no longer being manufactured; newer cars are stolen for their popularity. In 2008, the top five model years stolen were 1995, 1991, 1989, 1997 and 1994, respectively, according to the National Insurance Crime Bureau (NICB). In recent years, cars that have been glamorized in pop culture, like the Cadillac Escalade , have put it on many "most stolen" lists.

Contact police immediately, preferably while still at the scene of the crime. Speed is essential to recovering stolen cars, since any delay means your car is more likely to be in a chop shop or driven out of town. Of course you know the make, color and model of your car, but you also should know the license plate number and vehicle identification number (VIN). Keep a copy of those identifying numbers and your insurance card in your wallet, and keep a photocopy of your registration and insurance card at home, so you can provide information quickly to both law enforcement and insurance claims agents.

Don't assume your insurance covers you. Take a close look at your policy to see if you are covered for a replacement rental car if your car is stolen, and if there's a waiting period before you're allowed to rent a car. Many people don't elect the rental car coverage, but it costs only a few dollars a month. A year's worth of replacement rental coverage usually costs less than renting a car for a day or two, so it's a good deal.

Make sure you have roadside assistance. Your insurance company will likely offer this for a few dollars per term, or you can go through an outside company such as AAA or even your automaker. Be sure to research the details of the coverage. For example, if your car is broken into and disabled, are you covered for a tow to any mechanic, or only a dealer's service shop? Are both towing and labor costs covered?

Despite the bells, whistles and computer chips of today's technological vehicle theft-prevention devices, the most important theft deterrents are simple ones. Park in well-lit areas. If you park in a lot, resist the temptation to park near the exit, because it makes your vehicle a more likely target for thieves. According to the FBI, more than one-third of all vehicle thefts occur at a home or residence. So always lock your car, even in your own driveway.

Auto Insurance Tips - Confessions of a Car Thief

2009-07-05T01:26:00.000-07:00

A Professional Comes Clean on How It's Done
By Joanne Helperin, Senior Features Editor and Gary Sousa, Contributor

Introduction

You lock your car and activate the alarm system, but can that keep out the thieves who steal more than 1 million vehicles in the U.S. each year?

Absolutely not.

That's what former car thief Gary Sousa (not his real name) told us in this story about his life of crime. We found Gary through a friend who works in a municipal drug court, where car thieves sometimes end up. In this four-part article, Gary shares all his secrets, including how he began stealing cars before he reached legal driving age, which types of cars are the easiest marks and the techniques he used to steal them.

You'll be amazed how easy it is to steal cars, especially when their owners are a little careless. At the end of this series, we'll show you how best to protect your car from folks like him.

— The Editors at Edmunds.com

Part I

Learning the Ropes

I was stealing two cars every day, and that would put about $800 in my pocket. I went from staying in abandoned houses to being able to rent motel rooms for a week at a time, with just an hour's work.

My brother was a dope dealer and my dad was on drugs, so by the time I was 15 I did a lot of methamphetamine. It got so bad that I was living on the streets, in motel rooms and abandoned houses. I felt like, "Only the strong survive" and I did whatever it took to get money. I started hanging out with a couple guys from Las Flores, a gang in El Monte who stole cars. Car thieves like to talk about their business; they think it's cool, so most new thieves get their knowledge and tools from other criminals.

Every night we would go out and look for people slippin' — you know, leaving stuff outside where we could take it. Things like lawn mowers or whatever we could steal to make money. These guys taught me to look around for cars parked outside around 4:30 or 5 in the morning. See, people have a habit of going outside and starting their car to warm it up. Then they leave their keys in the ignition, go back in and get their coffee or books or whatever. If you see a car idling like that, it only takes a quick second to steal.

You can easily grab new cars that way, but often you can't really make any money on a new car, because the parts are all stock and stamped with serial numbers. But there are ways around that, too. A lot of gangs take the stolen cars to a crooked used car dealership. That dealership will file off the serial numbers, stamp their own numbers on it, then sell and register the car. Presto.

To make real money, you want something that's been all tricked out. You can just take it apart yourself and make money selling the parts on the streets. I stole cars with rims, stereo systems and body kits. Sometimes I got lucky and found drugs, guns, jewelry, cell phones or money in them. I didn't want to sell the parts myself most times, so I'd drive the car to a chop shop in Los Angeles.

I was stealing two cars every day, and that would put about $800 in my pocket. I went from staying in abandoned houses to being able to rent motel rooms for a week at a time, with just an hour's work. I'd get a room and food; then I'd go buy alcohol and party. I thought I was going to be a millionaire from selling drugs and stealing cars. When I was drugged out, I even used to break into a police station and steal stuff, 'cause I just didn't care!

I've even stolen cars from dealerships. If you take a walk through a dealership — one where the lot's located off the street — you'll find cars with keys in the ignition or on the floor. You just break the window and take off. The only thing you're chancing is that a cop could pass by when you're pulling out of the driveway.

Another place with easy pickings is an auto parts store or mechanic's shop — anywhere you drop off your car to have it fixed. If they don't have enough room in their garage, they'll leave your car in the parking lot with the keys in the ignition. They can see it from the shop, sure, but who's to stop me when I get in the car and lock the doors behind me? Gas stations are good places, too. Hang around at a gas station and you're bound to see someone jump out of their car, leave the key in the ignition, and run into the cashier or the mini mart.

The time of day didn't matter either; it just called for a different approach. If it was broad daylight, I went for auto parts stores or gas stations. I would also go for a car parked in a carport or an underground garage — somewhere I could hide in the dark. If a car was in a lighted area, I wouldn't go for it. I also wouldn't go for any car with an alarm. I could have, but personally I went for whatever was easiest.

Before I approached a car, I would hang around and watch the area. If I saw big vans driving by, I wouldn't go for the car. It could mean someone in the van was watching you, maybe a cop. I've had big white vans roll up on me and bust me with drugs. So I was really cautious about those. I also learned to avoid police "bait cars;" cops leave 'em unlocked to attract car thieves.

PROTECT YOURSELF FROM INSURANCE FRAUD

2009-07-05T01:22:00.000-07:00

In weak economic times, consumers can avoid becoming victims by staying vigilant and knowing their options

KANSAS CITY, Mo. (June 9, 2009) — Insurance fraud has become a nationwide problem, highlighted by recent scams in such states as California, New Jersey and Florida. In today’s unstable economy, insurance fraud has the potential to get even worse as consumers may be looking for ways to cut down on their insurance costs. However, taking a shortcut when it comes to your insurance could prove catastrophic and costly.

Purchasing a policy without thoroughly researching it could leave consumers susceptible to insurance fraud, according to the National Association of Insurance Commissioners (NAIC). Selecting the cheapest policy available without first checking into the agent or company could potentially leave consumers without any legitimate coverage.

“What seems too good to be true often is,” said NAIC Chief Executive Officer Dr. Therese M. (Terri) Vaughan. “Consumers need to be extremely careful not to take a shortcut with their insurance, which, in the long-term, can affect the safety and security of themselves and their loved ones.”

Fake insurance companies and dishonest insurance agents can defraud consumers by collecting premiums for bogus policies with no intention or ability to pay claims. Phony home, health, life and auto policies typically are offered at rates that are significantly lower than the traditional market price in order to woo consumers who are trying to save money.

But consumers can rely on their state insurance commissioners to actively protect them against fraud.“State insurance regulators are always on the lookout for these individuals and companies,” continued Vaughan. “Consumers can always protect themselves through proper research and vigilance.”

Verify the Provider
Before purchasing a new policy, the best way consumers can protect themselves is to research the insurance company and to read the Explanation of Benefits (EOB) to familiarize themselves with their coverage and confirm that their policies provide the coverage they need. For help with your research, consult the NAIC’s Consumer Information Source to review the company’s financial and claims history. To use this free resource, go to https://eapps.naic.org/cis/. If you are unsure about the insurance company or agent you are dealing with:

STOP before signing any paperwork or writing a check.
CALL your state insurance department, which is easily reached by phone.
CONFIRM that the company or agent offering insurance is legitimate and licensed in the state.

Go to www.naic.org/state_web_map.htm for a link to your state insurance department’s Web site.

Watch for Hidden Fraud
Employees of legitimate insurance companies can also deceive consumers for personal gain. For example, an unscrupulous agent could collect premiums from a customer without delivering the insurance policy to the company. The insurance company could cancel or refuse to renew the policy. Signs of fraud with reputable companies include the failure to receive an insurance identification card or a copy of your policy in a timely manner. If you have questions or concerns, contact your insurance company directly or call your state insurance department for assistance.

Report Suspected Insurance Fraud
If you believe you have been a victim of insurance fraud, or if you are aware of an instance of insurance fraud, it is important to report it by:

Contacting your state insurance department to file a complaint against the insurance company.
Visiting www.naic.org and completing the form provided by the Online Fraud Reporting System (OFRS). Through the OFRS, consumers can take a proactive role in identifying and reporting insurance fraud.

Get More Information
Consumers can always get more information or explanation about their insurance policies from their state insurance department. Visit www.naic.org to find answers to your questions or to find contact information for your state insurance department.

Get smart about your insurance needs. For more information about auto, home, life and health insurance options — as well as tips for choosing the coverage that is right for you and your family — visit www.InsureUonline.org.

What is an annuity?

2009-07-05T01:19:00.000-07:00

In its most general sense, an annuity is an agreement for one person or organization to pay another a stream or series of payments. Usually the term “annuity” relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company.

There are many categories of annuities. They can be classified by:

Nature of the underlying investment – fixed or variable
Primary purpose – accumulation or pay-out (deferred or immediate)
Nature of pay-out commitment – fixed period, fixed amount, or lifetime
Tax status – qualified or nonqualified
Premium payment arrangement – single premium or flexible premium

An annuity can be classified in several of these categories at once. For example, you might buy a nonqualified single premium deferred variable annuity. For brief definitions of these categories, click here.

In general, annuities have the following attractive features:

Tax deferral on investment earnings
Many investments are taxed year by year, but the investment earnings—capital gains and investment income—in annuities aren’t taxable until you withdraw money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount you can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs.
Protection from creditors
If you own an immediate annuity (that is, you are receiving money from an insurance company), generally the most that creditors can access is the payments as they’re made, since the money you gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities. And your money in tax-favored retirement plans, such as IRAs and 401(k)s, are generally protected, whether invested in an annuity or not.
An array of investment options, including “floors”
Many annuity companies offer a variety of investment options. You can invest in a fixed annuity which would credit a specified interest rate, similar to a bank Certificate of Deposit (CD). If you buy a variable annuity, your money can be invested in stock or bond (or other) mutual funds. In recent years, annuity companies have created various types of “floors” that limit the extent of investment decline from an increasing reference point. For example, the annuity may offer a feature that guarantees your investment will never fall below its value on its most recent policy anniversary.
Tax-free transfers among investment options
In contrast to mutual funds and other investments made with “after-tax money,” with annuities there are no tax consequences if you change how your funds are invested. This can be particularly valuable if you are using a strategy called “rebalancing,” which is recommended by many financial advisors. Under rebalancing, you shift your investments periodically to return them to the proportions that you determine represent the risk/return combination most appropriate for your situation.
Lifetime income
A lifetime immediate annuity converts an investment into a stream of payments that last as long as you do. In concept, the payments come from three “pockets”: Your investment, investment earnings and money from a pool of people in your group who do not live as long as actuarial tables forecast. It’s the pooling that’s unique to annuities, and it’s what enables annuity companies to be able to guarantee you a lifetime income.
Benefits to your heirs
There is a common misconception about annuities that goes like this: if you start an immediate lifetime annuity and die soon after that, the insurance company keeps all of your investment in the annuity. That can happen, but it doesn’t have to. To prevent it, buy a “guaranteed period” with the immediate annuity. A guaranteed period commits the insurance company to continue payments after you die to one or more beneficiaries you designate; the payments continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when you started receiving the annuity payments). Moreover, annuity benefits that pass to beneficiaries don’t go through probate and aren’t governed by your will.

Annuities A - Z

How are annuities different from life insurance?
What is an annuity?
Why should I consider purchasing an annuity?
How are annuities different from life insurance?
How much should I invest in an annuity?
How are annuities sold?
How do I pick a life insurance company?
How do I pick an insurance agent?
What is a “free-look” provision?
What are surrender fees?
How will I receive my annuity payments?
What are the different types of annuities?
What is the difference between a fixed and variable annuity?
What are deferred and immediate annuities?
What is a lifetime annuity?
How often should I review my annuity portfolio?
What if I lose my annuity policy?
How will I receive my annuity payments?
Where can I get additional information on annuities?

Why should I consider purchasing an annuity?

2009-07-05T01:17:00.000-07:00

Annuities can serve many useful purposes.

If you are in a saving-money stage of life, a deferred annuity can:

Help you meet your retirement income goals. Employer-sponsored plans such as a 401(k), 403(b) or Keogh are an important part of planning for retirement. However, contributions to these plans and to IRAs are limited, and they might not add up to enough for the retirement income you need, especially if you started saving for retirement late or had contributions interrupted—perhaps due to job changes and/or family responsibilities. Moreover, your social security and defined-benefit pension (if you have one) may provide less than you need to retire. Remember that the purchasing power of defined-benefit pension income is eroded by inflation.
Help you diversify your investment portfolio. Investment experts routinely advise that, to get the best return for a given level of risk, you should diversify your investments among a number of asset classes. Fixed annuities, in particular, offer a unique asset class—an investment that is guaranteed not to decrease and that will actually increase at a specified interest rate (and, often, potentially more). The guarantees are supported by the claims-paying ability of the insurer.
Help you manage your investment portfolio. Investment experts routinely advise that, whenever your investments in various asset classes get too far from the percentage allocations you prefer, you “rebalance” to the original formulation, by shifting funds from the classes that have grown faster to the ones that have grown more slowly. If you do this with mutual funds, you pay capital gains taxes; if you do it in a variable annuity, you don’t pay capital gains taxes. When you eventually withdraw money from the annuity (which could be many years after the rebalancing), you pay tax then at the ordinary income rate.

If you are in a need-income stage of life, an immediate annuity can:

Help protect you against outliving your assets. Social security pays retirement income for as long as you live, as do defined-benefit pension plans. But the only other source of income available that continues indefinitely is an immediate annuity.
Help protect your assets from creditors. Generally the most that creditors can access is the payments from an immediate annuity as they’re made, since the money you gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities.

How are annuities different from life insurance?

2009-07-05T01:11:00.000-07:00

Both annuities and life insurance should be considered in your long-term financial plan. While both include death benefits, you buy life insurance in the event you die too soon and an annuity in case you live too long. In other words, life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met, while annuities guard against outliving your assets.

There are two main types of annuities—deferred and immediate—and two main types of life insurance—term and whole life. The chart below compares them.

Main types of life insurance

There are two main types of annuities—deferred and immediate—and two main types of life insurance—term and whole life. The chart below compares them.

	Life Insurance		Annuities
	Term life	Whole life	Deferred annuities	Immediate annuities
Main reason for buying it	Provide income for dependents	Provide income for dependents or meet estate planning needs	To accumulate money in a tax-deferred product	To assure you don’t “outlive your income”
Pays out when	You die	You die, borrow the cash value or surrender the policy	You make withdrawals	One period after you buy the annuity, stops paying when you die*
Typical form of payment	Single sum	Single sum	Single sum or income	Lifetime income
Buyer’s age when it is typically bought	25-50	30-60	40-65	55-80
Accumulates money tax-deferred?	No	Yes	Yes	Yes, but only in the early payout years
Pays a death benefit?	Yes	Yes	Yes	*payments continue if the annuity has a guaranteed-period option that hasn’t expired at the annuitant’s death
Are benefits taxable income when received?	No	No, unless a cash value withdrawal exceeds the sum of premiums	Yes, but only the part derived from investment income	Yes, but only the part derived from investment income

Beware of Insurance Fraud

2009-07-05T01:03:00.000-07:00

To avoid insurance fraud:

When shopping for insurance on the Internet, check that the website is secure. Look for the lock icon, a URL that begins "https:" and never provide personal information if you don't trust the site.
Be wary of people selling insurance door-to-door and over the telephone.
Be suspicious if, after an accident, a stranger contacts you to offer “quick cash” or recommends a particular attorney or health care provider. Report the incident to your police department.
Don’t give your insurance identification numbers to companies you don’t know.
Carry a disposable camera in your glove compartment. If you are in an accident, take pictures of the damage and the people involved. Ask for names, telephone numbers and driver’s license information for all those involved. Getting contact information for any witnesses is also a good idea.

For more information, check out www.insurancefraud.org

Long Term Care And Other Insurance

2009-07-05T00:59:00.000-07:00

Medical advances have resulted in an increased need for nursing home care and assisted living. Most health insurance plans and Medicare severely limit or exclude long-term care. Here are some questions to ask when considering a separate long-term care insurance policy.

What qualifies you for benefits? Some insurers say you must be unable to perform a specific number of the following activities of daily living: eating, walking, getting from bed to a chair, dressing, bathing, using a toilet and remaining continent.
What type of care is covered? Does the policy cover nursing home care? What about coverage for assisted living facilities that provide less client care than a nursing home? If you want to stay in your home, will it pay for care provided by visiting nurses and therapists? What about help with food preparation and housecleaning?
What will the benefit amount be? Most plans are written to provide a specific dollar benefit per day. The benefit for home care is usually about half the nursing-home benefit. But some policies pay the same for both forms of care. Other plans pay only for your actual expenses.
What is the benefit period? It is possible to get a policy with lifetime benefits but this can be very expensive. Other options for coverage are from one to six years. The average nursing home stay is about 2.5 years.
Is the benefit adjusted for inflation? If you buy a policy prior to age 60, you face the risk that a fixed daily benefit will not be enough by the time you need it.
Is there a waiting period before benefits begin? A 20 to 100 day period is not unusual.

Other Insurance

Travel Insurance. There are four kinds of travel insurance: Travel Cancellation Insurance, Baggage or Personal Effects Coverage, Emergency Medical Coverage and Accidental Death. One helpful website is www.insuremytrip.com.
Identity Theft Insurance. This type of insurance provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports. Some companies now include this as part of their homeowner's insurance policy. Others sell it as a stand-alone policy. Ask your homeowner policy company for information.
International Healthcare Insurance. A policy that provides health coverage no matter where you are in the world. The policy term is flexible so you can purchase only for the time you will be out of the country. Check online or write your current healthcare provider for coverage information.
Liability Insurance. Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person. Search online or ask your personal insurance agent for more information.

Life Insurance And Disability

2009-07-05T00:58:00.000-07:00

Your need for life insurance will change with changes in your life. For example, the arrival of children usually triggers a sharp increase in the amount you need. As children grow older and leave the nest, you will probably need less protection.

Term life insurance policies are the least costly. They pay death benefits but have no cash value if you decide to stop making payments. As the word "term" suggests, these policies are in effect for a specific period of time-one year or until you reach a certain age are common. Visit www.accuquote.com for online comparisons of term life insurance.

Whole life, universal life, and other cash value policies combine a long-term savings and investment product with life insurance. Canceling these policies after only a few years can more than double your life insurance costs.

Disability Insurance

Disability can be more disastrous financially than death. If you are disabled, you lose your earning power, but you still have living expenses and often huge expenses for medical care. When purchasing disability insurance, ask:

How is disability defined? Some policies consider you disabled if you are unable to perform the duties of any job. Better plans pay benefits if you are unable to do the usual duties of your own occupation.
When do benefits begin? Most plans have a waiting period after an illness before payments begin.
How long do benefits last? After the waiting period, payments are usually available till you reach age 65, though shorter or longer terms are also available.
What dollar amount is promised? Can benefits be reduced by Social Security disability and workers' compensation payments? Are the benefits adjusted for inflation? Will the policy provider continue making contributions to your pension plan so you have retirement benefits when the disability coverage ends?

For more information on disability insurance, visit www.iii.org

Health Insurance

2009-07-05T00:50:00.000-07:00

Most consumers have healthcare coverage from an employer. Others have medical care paid through a government program such as Medicare, Medicaid, or the Veterans Administration.

If you have lost your group coverage from an employer as the result of unemployment, death, divorce, or loss of "dependent child" status, you may be able to continue your coverage temporarily under the Consolidated Omnibus Budget Reconciliation Act (COBRA). You, not the employer, pay for this coverage. When one of these events occurs, you must be given at least 60 days to decide whether you wish to purchase the coverage.

Some states offer an insurance pool to residents who are unable to obtain coverage because of a health condition. To find out if a pool is available in your state, check with your state department of insurance.

Most states also offer free or low-cost coverage for children who do not have health insurance. Visit www.insurekidsnow.gov or call 1-877-KIDS-NOW (543-7669) for more information.

Healthcare Plans

When purchasing health insurance, your choices will typically fall into one of three categories:

Traditional fee-for-service health insurance plans are usually the most expensive choice. But they offer you the most flexibility when choosing healthcare providers.
Health Maintenance Organizations (HMOs) offer lower co-payments and cover the costs of more preventative care, but your choice of healthcare providers is limited. The National Committee for Quality Assurance evaluates and accredits HMOs. You can find out whether one is accredited in your state by calling 1-888-275-7585. You can also get this information as well as report cards on HMOs by visiting its website (www.ncqa.org).
Preferred Provider Organizations (PPOs) offer lower co-payments like HMOs but give you more flexibility when selecting a provider. A PPO gives you a list of providers you can choose from.

WARNING: If you go outside the HMO or PPO network of providers, you may have to pay a portion or all of the costs.

Medicare Beneficiaries

Medicare beneficiaries can compare HMO programs at www.medicare.gov and www.medicarenewswatch.com.

When choosing among different healthcare plans, you'll need to read the fine print and ask lots of questions, such as:

Do I have the right to go to any doctor, hospital, clinic or pharmacy I choose?
Are specialists such as eye doctors and dentists covered?
Does the plan cover special conditions or treatments such as pregnancy, psychiatric care and physical therapy?
Does the plan cover home care or nursing home care?
Will the plan cover all medications my physician might prescribe?
What are the deductibles? Are there any co-payments?
What is the most I will have to pay out of my own pocket to cover expenses?
Are there any limits on expenses covered in a year? In my lifetime?
If there is a dispute about a bill or service, how is it handled? In some plans, you may be required to have a third-party decide how to settle the problem.

Home Owner/Renter Insurance

2009-07-05T00:47:00.000-07:00

You may be able to save hundreds of dollars a year on homeowners insurance by shopping around. You can also save money with these tips.

Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
Ask your insurance agent about discounts. You may be able to get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire retardant roofing material. Persons over 55 years of age or long-term customers may also be offered discounts.
Insure your house NOT the land under it. After a disaster, the land is still there. If you don't subtract the value of the land when deciding how much homeowner's insurance to buy, you will pay more than you should.
Don't wait till you have a loss to find out if you have the right type and amount of insurance.
Make certain you purchase enough coverage to replace what is insured. "Replacement" coverage gives you the money to rebuild your home and replace its contents. An "Actual Cash Value" policy is cheaper but pays only what your property is worth at the time of loss-your cost minus depreciation for age and wear.
Ask about special coverage you might need. You may have to pay extra for computers, cameras, jewelry, art, antiques, musical instruments, stamp collections, etc.
Remember that flood and earthquake damage are not covered by a standard homeowners policy. The cost of a separate earthquake policy will depend on the likelihood of earthquakes in your area. Homeowners who live in areas prone to flooding should take advantage of the National Flood Insurance Program.
If you are a renter, do not assume your landlord carries insurance on your personal belongings. Purchase a separate policy for renters.

Auto Insurance

2009-07-05T00:43:00.000-07:00

Requirements vary from state to state. Check with your state insurance regulator to learn more about individual requirements, as well as insurers you may be considering for your policy.

To get the best coverage at the best price, get several quotes from insurance companies. It may save you hundreds of dollars a year. Other ways to reduce your insurance premiums are:

Raise your deductibles on collision and comprehensive coverages. If you have an old car, you might want to drop these coverages altogether.
Take advantage of discounts. You may be eligible for a discount based on the number of miles you drive; your age (turning 25 or 50); your good grades if you are a student, your driving record (no moving vehicle violations or accidents in three years); or if you've taken a safe-driving course. You might also be able to get discounts if you insure more than one vehicle, insure your vehicle and your home with the same company, have anti-theft devices or have safety features such as air bags.

You can also find valuable information about car ownership in the Cars section.

Insurance Tips

When shopping for insurance on the Internet, check that the website is secure. Look for the lock icon, a URL that begins "https:" and never provide personal data if you don't trust the site.
Be wary of people selling insurance door-to-door and over the telephone.
Be suspicious if, after an accident, a stranger contacts you to offer "quick cash" or recommends a particular attorney or healthcare provider. Report the incident to your police department.
Don't give your insurance identification numbers to companies you don't know.
Carry a disposable camera in your glove compartment. If you are in an accident, take pictures of the damage and the people involved. Ask for names, telephone numbers and driver's license information for all those involved. Getting contact information for any witnesses is also a good idea.

Insurance General Tips

2009-07-04T23:56:00.000-07:00

When buying insurance, whether its home, life, auto, rental or other:

Find out whether your state insurance department offers any information concerning insurance companies and rates. This is a good way to get a feeling for the range of prices and the lowest-cost providers in your area.
Check several sources for the best deal. Try getting quotes from a website such as www.insweb.com, but be aware that many online services may provide prices for just a few companies. An independent insurance agent that works with several insurers in your local area might be able to get you a better deal.
Make sure the insurance company is licensed and covered by the state's guaranty fund. The fund pays claims in case the company defaults. Your state insurance department can provide this information.
Check the financial stability and soundness of the insurance company. Ratings from A.M. Best, Standard & Poor's, Moody's Investors Services , and Weiss Ratings, Inc. are available online and at most public libraries.
Research the complaint record of the company. Contact your state insurance department or visit the website of the National Association of Insurance Commissioners, which has a database of complaints filed with state regulators.
Find out what others think about the company's customer service. Consumers can rate homeowner insurance companies at www.jdpower.com/homes/insuranceratings.
Once you pay your first insurance premium, make sure you receive a written policy. This tells you the agent forwarded your premium to the insurance company. If you don't receive a policy within 60 days, contact your agent and the insurance company.

Tips on Selecting An Insurance Company

2009-07-04T23:49:00.001-07:00

Collision Repair Industry INSIGHT's Consumer Checklist for the Careful Consumer

When shopping for auto insurance, do a little homework first, shop around, and select your insurer carefully. Your insurer should offer both fair prices and excellent service. These tips will help you find the right insurer for you:

Know your state's auto insurance requirements:
Most states require you to carry a minimum amount of liability coverage. Many states have "no-fault" auto insurance systems. Coverage for medical costs for you and your passengers is optional in some states. Coverage for damage to your car is optional.
Write up your personal auto insurance profile:
List pertinent information concerning what type of vehicle you drive, where you drive, who else drives, what your driving record is, where you live, what optional safety features your car has. This profile will make the next step easier.
Comparison Shop:
Prices for the same coverage can vary by hundreds of dollars, so it pays to shop around. Ask your friends, check the Yellow Pages, and call your state insurance department for guidance. Contact insurance agents or companies for general pricing information. Select a few insurers for personalized quotes.
Meet with potential insurance agents:
Make a few appointments, bring your personal auto insurance profile with you, and ask questions. You want a fair price AND quality service. Ask about available discounts, higher deductibles, service options and claims procedures after accidents. Take notes.
Compare Again:
Consider cost, coverage offered, and quality of service available. Select your insurer.
Read your policy:
Yes, even the fine print! Ask questions. Keep your policy at hand. Call your insurer to keep your policy up-to-date, inform your agent of any changes (new car, new job, new driver, etc.), and ask periodically about any possible discounts. Review your policy yearly with your insurer.
Keep your insurance information with you:
Many states require drivers to carry a proof-of-insurance card with them when driving. Ask your insurer for a card, and keep it in your wallet or in your car.

Tips on Selecting An Insurance Company

2009-07-04T23:49:00.000-07:00

Collision Repair Industry INSIGHT's Consumer Checklist for the Careful Consumer

Know your state's auto insurance requirements:
Most states require you to carry a minimum amount of liability coverage. Many states have "no-fault" auto insurance systems. Coverage for medical costs for you and your passengers is optional in some states. Coverage for damage to your car is optional.
Write up your personal auto insurance profile:
List pertinent information concerning what type of vehicle you drive, where you drive, who else drives, what your driving record is, where you live, what optional safety features your car has. This profile will make the next step easier.
Comparison Shop:
Prices for the same coverage can vary by hundreds of dollars, so it pays to shop around. Ask your friends, check the Yellow Pages, and call your state insurance department for guidance. Contact insurance agents or companies for general pricing information. Select a few insurers for personalized quotes.
Meet with potential insurance agents:
Make a few appointments, bring your personal auto insurance profile with you, and ask questions. You want a fair price AND quality service. Ask about available discounts, higher deductibles, service options and claims procedures after accidents. Take notes.
Compare Again:
Consider cost, coverage offered, and quality of service available. Select your insurer.
Read your policy:
Yes, even the fine print! Ask questions. Keep your policy at hand. Call your insurer to keep your policy up-to-date, inform your agent of any changes (new car, new job, new driver, etc.), and ask periodically about any possible discounts. Review your policy yearly with your insurer.
Keep your insurance information with you:
Many states require drivers to carry a proof-of-insurance card with them when driving. Ask your insurer for a card, and keep it in your wallet or in your car.