FINANCE



FINANCE

Ms. Gordon |UNIT 7 – TAXES AND INSURANCE

Handout #6 | |

AUTOMOBILE INSURANCE

Every state in the United States has a financial responsibility law, a law that requires drivers to prove that they can pay for damage or injury caused by an automobile accident. The coverage provided by automobile insurance falls into two categories. One is protection for bodily injury. The other is protection for property damage.

Motor Vehicle Bodily Injury Coverages

Most of the money that automobile insurance companies pay out on claims goes for legal expenses, medical expenses, and other costs that arise when someone is injured. The main types of bodily injury coverages are bodily injury liability, medical payments, and uninsured motorist’s protection.

1. Bodily injury liability is insurance that covers physical injuries caused by automobile accident for which you were responsible. Bodily injury liability coverage is usually expresses by three numbers, such as 100/300/50. These amounts represent thousands of dollars of coverage. The first number indicates the amount that will be paid to one person in an accident. The second number indicates the amount that will be paid to all persons in the accident. Finally, the third number indicates the limit for payment for damage to the property of others.

2. Medical payments coverage is insurance that applies to the medical expenses of anyone who is injured in your automobile, including you. This type of coverage also provides additional medical benefits for you and members of your family.

3. Uninsured motorist’s protection is insurance that covers you and your family members if you are involved in an accident with an uninsured or hit-and-run driver. In most states it does not cover damage to the vehicle itself. Penalties for driving uninsured vary by state, but they generally include stiff fines and suspension of driving privileges.

Motor Vehicle Property Damage Coverages

Property damage coverage protects you from financial loss if you damage someone else’s property or if your car is damaged. It includes property damage liability, collision, and comprehensive physical damage.

1. Property Damage Liability is automobile insurance that applies when you damage the property of others. In addition, it protects you when you’re driving another person’s car with the owner’s permission.

2. Collision insurance covers damage to your car when it is involved in an accident. It allows you to collect money no matter who was a fault. However, the amount you can collect is limited to the actual cash value of your car at the time of the accident.

3. Comprehensive physical damage coverage protects you if your car is damaged in a non-accident situation. It covers your car against risks such as fire, theft, falling objects, vandalism, hail, floods, tornadoes, earthquakes, and avalanches.

No-Fault Insurance

To reduce the time and cost of settling automobile injury cases, various states are trying a number of alternatives. Under the no-fault system, drivers who are involved in accidents collect money from their own insurance companies. It doesn’t matter who caused the accident. Each company pays the insured up to the limits of his or her coverage. Because no-fault coverage varies by state, you should investigate the coverages of no-fault insurance in your state.

Other Coverages

Emergency road service coverage pays for mechanical assistance in the even that your car breaks down. If necessary, you can get your car towed to a service station. However, once your car arrives at the repair shop, you’re responsible for paying for the bill.

Automobile Insurance Costs

Automobile insurance is not cheap. The premiums are related to the amount of claims insurance companies pay out each year.

1. Amount of Coverage

• The amount you will pay for insurance depends on the amount of coverage you require. You need enough coverage to protect yourself legally and financially. Most people who are involved in auto accidents cannot afford to pay an expensive court settlement with their own money. For this reason, most drivers buy liability insurance.

2. Automobile Insurance Premium Factors

• Vehicle type, rating territory, and driver classification are three other factors that influence automobile insurance costs. They year, make, and model of a vehicle will affect insurance costs. In most states your rating territory is the place of residence used to determine your automobile insurance premium. Driver classification is based on age, sex, marital status, driving record, and driving habits.

3. Reducing Automobile Insurance Premiums

• You can reduce your automobile insurance costs are by comparing companies and taking advantage of discounts. Rates and services vary among automobile insurance companies. The best way for you to keep your rates down is to maintain a good driving record by avoiding accidents and traffic tickets. Installing security devices will decrease the chance of theft and lower your insurance costs. Discounts are sometimes offered for insuring two or more vehicles with the same company. Increasing the amounts of deductibles will also lead to a lower premium.

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