The first step in shopping for auto insurance is to decide on the types
and levels of coverage that will keep risk to an acceptable level for a
reasonable annual premium. You will have to choose from a broad range of
auto insurance coverage options. In terms of the amount of coverage, keep
in mind that the purpose of insurance is to protect you from losses you
cant afford to cover yourself. When you buy more insurance than you need,
you are simply wasting money.
When you injure someone else, or damage someones property, you may be
legally required to pay for the loss. Your home, your savings, and even
your future wages are vulnerable.
Liability coverage pays the amount for which you may be liable for bodily
injury and property damage to othersup to certain limitsand covers legal
fees incurred in your defense. Bodily injury claims can include wage loss,
medical expenses, rehabilitation costs, and pain and suffering. Property
damage can include damages to someone elses car, building, or other property.
Liability coverage generally protects you, your spouse, other members of
your household, and anyone else who drives your car with your expressed
or implied permission. But any liability coverage has payout limits, and
if the damages for which you are found liable exceed those limits youll
have to pay out of pocket. Determine what limits you can live with, keeping
in mind that the higher the limits the higher the premium.
Your policys limits are usually expressed as a set of three numbers each
representing a multiple of $1,000 divided by diagonal lines. For example,
a 100/300/50 policy pays a maximum of $100,000 for bodily injury to one
person, a maximum of $300,000 for total bodily injuries when more than
one person is hurt in an accident, and a maximum of $50,000 for property
damage in a single accident. Some policies are written with a single limit,
say $300,000, and will pay up to this limit even if only one person is
injured or only property is damaged. Because of its greater flexibility,
single-limit $300,000 coverage is worth somewhat more than 100/300/50 split-limit
Since your liability insurance not only protects your assets but also ensures
financial relief for anyone you injure, Delaware, New Jersey, and Pennsylvania
laws require you to carry at least a minimum level of liability insurance.
The minimums are 15/30/10 in Delaware and 15/30/5 in Pennsylvania. New
Jerseys minimums vary because two types of insurance policies are available:
Basic insurance is a bare-bones policy that requires only $5,000 in property
damage liability coverage and no bodily injury coverage. The Standard
policy requires liability limits of at least 15/30/5.
Be aware that if you drive without liability insurance, or buy a policy
with minimum coverage amounts, most companies will treat you as a person
who takes unnecessary risks and charge very high premiums for future coverage.
To protect their assets from catastrophe, most drivers buy liability insurance
and insure above the legal minimum. Drivers who possess substantial assets
(or anticipate substantial future assets) have the strongest incentives
to purchase substantial liability coverage: They have the most to lose;
they are the most attractive targets for lawsuits; and they may receive
the least sympathy from juries.
Although coverage with higher limits costs more, cost increases are often
modest. As this figure shows, policyholders with 100/300 bodily injury
liability coverage (and $500 deductibles for collision and comprehensive
coverages) can expect their total annual premium to increase by about 12
percent by moving up to 250/500 coverage, and expect to save only about
nine percent by moving down to 50/100 coverage. And for most drivers, doubling
the limits of property damage coverage from $50,000 to $100,000 costs very
little. Most consumers consider these extra costs a small price to pay
for increased peace of mind.
If you want to protect your assets and future income from claims in excess
of $500,000, consider an umbrella policy that supplements the liability
protection provided by your auto and homeowners policies. In addition to
protecting you from claims for bodily injury and property damage, an umbrella
policy will protect you against suits for other types of injuriessuch
as libel, slander, defamation of character, false arrest, and invasion
of privacywhich are not covered by your auto or homeowners policies. Before
selling you an umbrella policy, insurance companies may require you to
increase the liability coverages in your auto and homeowners policies to
the maximum offered.
Collision and comprehensive coverage pay to repair or replace your car
following an accident, regardless of who is at fault. This coverage is
not required by law, but if your vehicle is financed your lender may require
you to purchase it.
Collision coverage pays for the damages your car suffers when it runs into
something. Comprehensive coverage pays for damage to your car from almost
all other causesincluding vandalism, explosion, fire, wind, and collision
with animals. It will even pay if your dog chews up the upholstery. Comprehensive
also pays if your car is stolen.
Both collision and comprehensive pay only up to the actual cash value of
your car. If you want to cover additions to your carvideo screens, an
upgraded sound system, a special paint job, or other featuresyou will
have to pay an extra premium.
As the cars value diminishes, the price of comprehensive and collision
coverage declinesbut only during the first few years of the cars life.
The collision premium for a 10-year-old carfor which an insurance company
would pay almost nothing in the event of a complete lossis about the same
as for a six-year-old car. So collision coverage becomes increasingly wasteful
as your car ages.
Collision and comprehensive coverages are sold with deductiblesthe amount
you agree to pay out of pocket before you can collect from the company.
You save by taking a high deductible because it helps the company avoid
the paperwork of processing small claims. In general, the best course is
to take as high a deductible as you can afford to lose without seriously
disrupting your life.
This figure illustrates the considerable savings yielded by high deductibles.
For example, the sample couple would save about nine percent off their
total insurance bill by increasing their collision and comprehensive deductibles
from $500 to $1,000.
The virtues of substantial deductibles are more obvious insofar as you
may not even choose to file claims for under $1,000 or so. Filing small
claims might lead a company to cancel your coverage or raise your premiums.
In Delaware, drivers are required to purchase personal injury protection
coverage (PIP) with a limit of at least $15,000 per person involved in
an accident and $30,000 per accident. Under this coverage, your insurance
company will cover medical expenses and loss of wages resulting from an
auto accident for you, your family members, and your passengers, regardless
of who is at fault.
New Jersey drivers are also required to purchase PIP coverage. Under this
coverage, your insurance company will pay medical expenses for you, your
family members, and your passengers injured in an auto accident, regardless
If you choose a state-authorized Basic policy, you are required to take
PIP coverage for medical expenses up to $15,000 per person per accident
and up to $250,000 for permanent or significant injury.
If you take a Standard policy, you have a number of choices. You can
take coverage limits for medical expenses as low as $15,000 and up to $250,000
regardless of whether there is permanent or significant injury (there
is always mandatory coverage up to $250,000 if there is permanent or significant
injury). You pay a higher premium to cover lost wages and to pay someone
to perform tasks you ordinarily perform yourself, such as housecleaning
and laundry. With the Standard policy, you have the option of taking a
deductible, which means you wont collect on your PIP coverage until expenses
exceed the deductible. You can also save money by making your familys
health insurance plan the primary payer of medical expenses in the event
of an accident.
Pennsylvania drivers are required to purchase at least $5,000 of medical
payments coverage. Under this coverage, your insurance company will pay
medical expenses for you, your family members, and your passengers injured
in an auto accident, regardless of fault.
You can choose to exceed the minimum $5,000 level of medical payments coverage,
and you can purchase related coverages for income loss, accidental death
benefits, and funeral expenses. As an alternative to buying all these related
coverages separately, you can purchase combined first party benefits
coverage, which includes medical payments, income loss, accidental death,
and funeral expenses.
How Much Makes Sense
Should you buy more than the minimum medical expense and PIP coverages?
Most of the medical expenses paid for by medical payments coverage or PIP
coverage would be covered by the injured partys regular health insurance.
If you and your family have health insurance, medical payments coverage
or PIP coverage will fill in gaps in health insurance (deductibles, copayments,
etc.) and cover medical expenses for your passengers who may not have health
Increasing medical payments coverage to a high limit is relatively inexpensive,
and could make sense if you do not have health insurance. But you might
do better to use this money to purchase health insurance that would protect
you and your family from any disease or injury that might befall you, not
merely from injuries that involve automobiles.
Additional protection for income loss is relatively expensive. Since such
coverage pays out only if you lose income as a result of an auto accident,
the money may be better applied toward financing disability insurance which
would protect you from a wide range of disabilities in addition to those
that involve automobile accidents.
New Jersey and Pennsylvania are called choice no-fault states. No-fault
refers to the fact that, if you live in one of these states, your own auto
insurance coverage protects you regardless of who is at fault in an accident.
No-fault laws were established to help ensure timely reimbursement of medical
costs for all parties involved in an accident, and to reduce the incidence
of lawsuits related to auto accidents. According to New Jersey and Pennsylvania
law, the coverages for personal injury protection, medical payments, and
loss of income (described in the previous section) will provide benefits
to you and your passengers in the event of an accident, regardless of who
was at fault.
In both New Jersey and Pennsylvania (and other states that have no-fault
laws), the guarantee that benefits will be paid regardless of fault is
accompanied by a requirement to relinquish some portion of your rights
to sue the other party. So when you purchase an auto insurance policy in
New Jersey or Pennsylvania, you will have to choose between buying full-tort
or limited-tort coverage.
Delaware is what is known as an add-on no-fault state, where no-fault
coverage is added on to traditional tort coverage. In other words, if you
are injured in an auto accident, your rights to sue the other party (and
vice versa) cannot be limited. Delaware residents dont have to decide
between a full-tort or limited-tort policy.
With full-tort coverage in New Jersey and Pennsylvania, you retain your
unlimited right to sue the at-fault party in an accident. With limited-tort
coverage, your rights to sue for pain and suffering, or non-economic losses,
are restricted, unless your injuries reach a threshold of severity.
Full-tort coverage costs typically 20 to 30 percent more than limited-tort
Aside from the obvious cost considerations, it is difficult for us to recommend
either full- or limited-tort policies. On one hand, limited-tort policies
cost much less and benefit all consumers by eliminating lawsuits and lowering
premiums for everyone.
On the other hand, limited-tort policies essentially limit your ability
to seek full compensation for pain and sufferingeven in accidents caused
by another drivers negligence.
If you are the victim of an accident in which another driver is at fault,
you would expect to be compensated by that drivers insurance company.
But despite mandatory coverage laws, many drivers remain uninsured. Also,
even an insured driver may be underinsured against large losses. If you
are the victim of an uninsured or underinsured motorist, you can use your
collision coverage (if you carry it) to repair your car, or your medical
payments or personal injury protection coverage, for your medical bills.
But you will need additional coverage if your losses exceed these coverages
and to compensate you for pain and suffering. Uninsured/underinsured
motorist coverage fills this gap if you can show that the other driver
was at fault or if you were the victim of a hit-and-run driver.
Neither Delaware nor Pennsylvania requires this coverage. New Jersey requires
this coverage at the 15/30 level on a Standard policy, but not on a Basic
policy. In Pennsylvania, if you choose to buy this coverage and have more
than one car on your policy, you may stack your coverage. Stacking essentially
pools your un/underinsured motorist coverage, increasing your limits for
any one car in an accident to the total coverage for all your cars. That
is, if you have 100/300 stacked coverage and two cars on your policy, in
an accident involving an un/underinsured driver your policy would pay up
to $200,000 per person and $600,000 per accident. Stacking 100/300 coverage
for two cars could raise your total annual premium by about nine percent.
All the reasons that argue for higher limits on liability coveragewhich
protects someone elsealso argue for high limits on uninsured/underinsured
motorist coveragewhich protects you. The cost of increasing your limit
for the personal injury portion of uninsured/underinsured motorist coverage
from 20/40 or 25/50 to 100/300 is generally small.
For an additional premium, most insurers will broaden your collision or
comprehensive coverage to include reimbursement for renting a car while
your own car is being repaired.
Given that even a modest level of coveragetypically $30 per day with a
limit of $600 per claimusually costs $50 to $100 per year, our advice
is to decline it altogether, since the additional premiums over time are
very likely to exceed any benefits you will collect.
Towing coverage covers the costs of towing your vehicle; emergency road
service coverage pays the labor charges for any repairs that can be made
at roadside (such as changing a tire or jumping a battery). Some insurance
companies offer only towing coverage, others both towing and road service
coverage together. Most companies offer these coverages for about $10 to
$20 per year, and a few companies charge nothing for towing coverage. Under
many policies, this optional coverage will reimburse you only for $25 per
claim, but for $3 or $4 more per year you can get coverage for up to $75
per claim. Though towing and road service coverage is inexpensive, an auto
club membership that includes towing and road service could be a better
deal if you would use other club benefits.
What youll pay for insurance depends not only on the coverage limits you
select but also on your driving record; your age, gender, and marital status;
where you live; the kind of driving you do; your credit record; and other
factors. Knowing these factors will give you a sense of how warmly insurance
companies are likely to greet your requests for coverage and what changes
you could make in your life to lower insurance rates.
Your driving record is very important. Industry data indicate that an individual
who has had two accidents in the past two years is almost two-and-a-half
times more likely to have an accident in the coming year than someone who
has had no accidents. Similarly, the accident rate for individuals with
two traffic violation convictions in a three-year period is twice as high
as the rate for drivers with no convictions.
Its not surprising, then, that your previous driving record has a big
impact on your auto insurance premiums.
This figure shows that, for one illustrative couple, if the husband
had not received a recent traffic citation the couples premiums would
be $353 per year lower, on average. With some companies, one traffic violation
wont affect premiums much; but with others, one ticket incurs big penalties.
Previous accidents are even more costly than tickets. Most companies charge
an extra 20 percent or more for customers who have had one accident in
the last three years, and an extra 50 percent or more if theyve had two
accidents. Many companies wont even insure drivers with poor driving histories.
Most companies consider the driving records of everyone who will be driving
your car or cars. Therefore, if you have a perfect driving record but your
spouse has had violations or accidents, you may not qualify for the preferred
rate. Different companies treat driving records differently for families
with more than one car. Some companies will charge a higher premium only
for the car driven primarily by the driver with violations and/or accidents,
while others will pool the points from the violations and accidents and
spread them over all the cars, or assign the driver with the worst record
to the highest cost car.
Men under 25 have the highest accident rates; after age 30, accident rates
drop and remain fairly constant up to age 65. Married men generally have
lower accident rates than unmarried men. And women, especially married
women, have the best records of all.
This does not mean that women or older men are better drivers than, say,
25-year-old men. They may have fewer accidents simply because they drive
Nonetheless, low accident rates result in lower premiums. If a company
agrees to insure him at all, a single 17-year-old male can expect to pay
about four times as much as a 30-year-old male, and twice as much as his
twin sister, for comparable coverage. Even 25-year-old males can expect
to pay about one-and-a-half times as much a 30 year old.
Here are a few common rating guidelines:
Rates for drivers between ages 16 and 20 decrease slightly each year (as
long as their driving records remain accident- and violation-free), then
remain the same between the ages of 21 and 24. But a few companies offer
married women relatively low adult rates beginning at age 21.
Rates for single males age 25 to 29 are often the same as for males age
21 to 24. But single females age 25 to 29 may be classified as adults.
Married males in the 25-to-29 age bracket are often offered adult rates,
and married females almost always are.
Most companies classify single males as adults at age 30, but some continue
to charge higher premiums up to age 49.
Rates for drivers over 64 are normally either the same as, or slightly
lower than, the adult rate. Some companies offer a senior discount
to drivers as young as 50.
Since youthful drivers have especially high accident rates, companies have
sought ways to identify the better risks among them to attract these youths
and their parents.
Many companies offer special rates, usually four to 10 percent lower, for
youths who have taken approved driver training courses. Studies have shown
that these courses do not produce better drivers, but, because good risks
seem to take them, they serve as a convenient screening device for the
Many companies also give a breakoften 10 to 20 percentto youths who earn
good grades (usually a B average or better). The combination of discounts
for driver training and good grades may total 15 to 30 percent of a familys
Most companies also cut premiums dramatically if a youth goes to school
more than 100 miles from home without taking a car. In addition, by agreeing
to restrict a youths driving to a single less-expensive car, a family
may be able to cut the rates on other cars it owns.
Some localities present more chances for accidents, experience a higher
incidence of auto theft and vandalism, or have higher repair costs or medical
and legal charges than others. As shown in our price comparisons, these
differences sometimes result in higher auto insurance rates in some parts
of the Delaware Valley area than in others.
Insurance companies charge more for insurance on cars that are relatively
expensive to replace and repair, or prone to damage and theft. Some companies
charge extra for, or refuse to insure, high-performance cars because their
owners may be less responsible than other drivers.
Your insurance premiums may also be slightly reduced if your car is equipped
with safety devices or anti-theft features. For example, most companies
offer small discounts for cars with four-wheel anti-lock brakes; passive
disabling systems (which deactivate the cars ignition system when the
key is removed); and anti-theft tracking devices. But these discounts are
usually very smalltypically only one to three percent of the total premium.
In short, consider insurance costs when deciding what vehicle to buy (and,
to some extent, how to equip it), but the impact of your choice may be
larger or smaller depending on which insurance company you select.
Premiums are higher for drivers who put a lot of miles on their cars, but
surcharges for high-mileage drivers and discounts for low-mileage drivers
typically are small.
Companies also consider the number of cars they are insuring for a family.
The second car usually costs considerably less than the first because companies
assume you will drive each car less than you would drive a single car.
If you have had a lapse in insurance coverage at any time in the last five
yearsincluding for non-payment of premiumexpect your rates to skyrocket.
Insurers view potential customers who have had insurance lapses as high-risk
policyholders and most will not offer them their lowest rate plans.
Similarly, many insurance companies will not offer their lowest rate programs
to potential customers who have recently maintained liability coverage
limits below the 300/100/50 level.
If you have been loss free with your current company for a while, consider
any longevity discounts your company already offers or will offer in the
future. Many companies offer discounts of five to 10 percent for three
years of coverage without an at-fault accident, and may increase the discount
at six years and nine years. Another benefit of longevity is that your
current company might examine your entire history with it when deciding
whether to re-assign you to a higher risk category (and charge you higher
premiums) if you have accidents, whereas a new company might examine only
your driving record in the last three years. Some companies dont raise
their rates for policyholders who have had clean driving histories for
a long time.
Many insurance companies offer lower rates if you insure both your car
and your home with them. Some knock off five percent, 10 percent, or even
more from either the auto or homeowners rate, and some knock off a percentage
From a consumers point of view, this dual-policy pricing is an undesirable
practice because it makes shopping more difficult; to find out the exact
savings you could realize by switching companies, you have to shop for
both types of coverage at once. And these discounts usually arent large
enough to have a major effect on the relative rankings of companies.
Because many companies have concluded that consumers with poor credit histories
are more likely than others to file claims, most use credit histories as
a factor in setting rates.
Using complicated secret formulas, insurance companiesor credit bureaus
on their behalfcalculate an insurance score that may be used to determine
rates, or even whether to cover a driver at all. The insurance formulas
are not the same as those used by lenders (such as banks or mortgage companies)
to calculate credit scores, but they draw on the same types of data. The
formulas vary from company to company, since different insurers (or scoring
companies) weigh factors differently.
The appropriateness of using credit histories in making insurance decisions
is a hotly debated topic among the insurance industry, consumer groups,
and state legislatures. Aware of the risk of discrimination and unfair
treatment under such practices, many states have passed, or are considering,
laws designed to protect consumers by limiting insurance companies use
of credit data. But insurance companies in Delaware, New Jersey, and Pennsylvania
are allowed to use credit data in setting rates, and most do.
The impact of credit history on rates is dramatic. For potential customers
with poor credit, companies regularly quote premiums that are double the
premiums for customers with excellent credit.
Clearly, saving on insurance is one of many reasons that consumers need
to maintain good credit recordsfor example, by paying bills promptly,
not opening too many lines of credit, and keeping balances relatively low
on existing lines of creditand for making sure credit reports are accurate.
There are two main considerations in choosing among auto insurance companies:
amount of premiums and quality of service. But also consider a companys
record on terminating policyholders and a few other factors.
Our price comparisons show annual premiums quoted by insurance companies
for illustrative profiles in various Delaware Valley area locations, including
rates for the largest insurers writing new auto insurance policies in each
For the Delaware and Pennsylvania profiles, CHECKBOOK first asked each
company to provide rates, but several of them refused: Allstate, Ameriprise,
Donegal, Encompass, Farmers, GEICO, Metropolitan, Nationwide, Progressive,
and Travelers. To gather rates for these companies, our researchers, without
revealing their affiliation with CHECKBOOK, obtained rate quotes by using
the companies online rate-quoting system or, if one wasnt available,
by calling company agents. When we then sent the rates to these companies
for verification, only Ameriprise responded.
The rates in our price comparisons for New Jersey were reported to
the New Jersey Department of Banking and Insurance in response to legal
filing requirements. We collected these rates from the states website
in August 2013. To obtain current rates, visit www.state.nj.us/dobi/division_consumers/insurance/autopremiumcomparison.htm.
As these comparisons indicate, company-to-company rate differences are
dramaticmore than $1,000 a year in almost every case, and several thousand
dollars in many cases.
The rates in our price comparisons will probably not apply exactly
to you; most readers will differ in location of residence, vehicle usage,
vehicle type, or other ways. But the rates provide a good starting point
for shopping. Companies with low rates in our price comparisons are
likely to be excellent prospects.
Once you have identified a few prospective companies, begin shopping on
the Web; many company websites will provide quotes. Or use the websites
to locate agents. Then ask each agent to quote a price for the coverage
you want. Before shopping, make a list of the coverages you plan to purchase.
Independent agents who sell policies offered by many companies can provide
quotes from various companies. But policies from some companies are not
available through independent brokers or agents; to get these companies
rateswhich often are the lowest availableyou have to obtain a quote from
a company website or contact company agents directly.
When contacting agents, you may have to push hard to obtain reliable information.
When we researched our article on homeowners insurance, we found that
many insurance agents were unable to provide accurate price quotes and
that some could not correctly answer even the most basic questions about
coverages. For auto insurance, we find that most agents can quote accurate
rates, but problems still exist. Some agents quote wildly inaccurate rates,
while others persistently push more coverage than requested.
In addition to seeking out companies based on their relative rankings in
our price comparisons, you might consider using an insurance comparison
website, such as www.insweb.com, www.insurance.com, or www.answerfinancial.com.
But because these sites provide rates only from companies with which they
have business relationships, the lowest cost companies for you may not
be included in reports the sites generate.
Most insurance companies write auto policies by assigning prospective customers
to tiers determined by their driving and credit records. When dealing with
agents, make sure you ask whether you qualify for the best rates companies
offer, and, if not, why you dont.
If you have so many accidents or violations that it is difficult for you
to qualify for coverage, you are entitled to buy insurance through your
states assigned risk plan. Rates in the assigned risk plan are often triple
or more what youd pay for a preferred policy.
Companies underwriting policieswhich drivers get the best rates, which
pay more, and which they wont insure at allhave enormous impact on insurance
rates. Unfortunately, companies are not required to publicly disclose their
Consider price in relation to the quality of service companies provide,
especially their claims-handling service. Our Ratings Tables, for the
largest insurers in the area, provide three types of information about
service: a survey of policyholders, a survey of auto body shops, and an
analysis of complaints.
Our Survey of Policyholders
We asked area consumers (primarily CHECKBOOK and Consumer Reports subscribers)
who had recently made auto insurance claims to rate their companies inferior,
adequate, or superior for simplicity of claim procedures, adequacy
of claim payment, and other elements of service. Our Ratings Tables
show what percentage of policyholders rated each company superior on
each element. (For a further description of our policyholder survey and
how its results and our other research results should be interpreted, click
Our Ratings Tables show big differences in how customers rated companies.
Asking the Experts: Auto Body Shops
We also asked area auto body shops to rate the insurers poor, fair,
good, very good, or excellent on treating their customers (car owners)
fairly. Our Ratings Tables show the percent of surveyed shops that
rated each company good, very good, or excellent, and the number
of ratings each company received.
Surveyed shops gave high marks to Chubb and Eriethey both received favorable
ratings from at least 85 percent of shops. Ameriprise, Mercury, Nationwide,
Safeco, and State Farm were rated lowest, receiving favorable ratings from
50 percent or fewer of the shops.
Another way to assess quality is to look at the number of complaints filed
against each company with state insurance departments, compared to its
volume of business. While policyholders might rate a company less than
superior if its deficiencies are minor, filing a formal complaint with
a government regulatory agency presumably reflects serious dissatisfaction.
Our Ratings Tables report counts of private passenger auto insurance
complaints filed in New Jersey and Pennsylvania for 2011 and 2012 and complaint
rates for each company. Complaint rates take into account the fact that
companies that do much more business than others are likely to incur more
complaints. The complaint rates for New Jersey are calculated as the companies
total number of complaints per 100,000 auto insurance policies; for Pennsylvania,
they are calculated as the total number of complaints per $10 million dollars
in private passenger auto insurance premiums written.
You want to be confident that a prospective insurer will not terminate
your coverage or dramatically raise your rates because of accidents or
traffic violations. Termination by your company at best is inconvenient
and at worst can force you to pay rates hundreds of dollars higher when
you find a new company or enroll in a special plan for high-risk drivers.
There are certain legal restraints on termination in Delaware, New Jersey,
and Pennsylvania. It is relatively easy in all three states to cancel a
policy during the policys first 60 days while a company checks the accuracy
of its policyholders applications. After that, termination is much more
difficult. Even at the time of renewal, there are restraints and certain
procedures that must be followed.
In fact, except in cases of non-payment of premiums, termination is relatively
rare. Accordingly, we dont recommend spending more than an extra $100
or $200 per year on a company with a particularly good record of sticking
by its policyholders through a string of accidents or violations. And you
shouldnt have to pay even that, since some of the lowest priced companies
receive high ratings on our policyholder survey on their termination practices.
Of course, termination is not the only disruption you might experience.
If a company raises your rates dramatically in response to an accident
or violation or two, you may want to terminate on your own, or take a big
hit to your budget. On our customer survey ratings on not unreasonably
raising premium, there was big company-to-company variation.
Some individualsusually the young and those with records of accidents
or violationsfind it difficult to locate a company to insure them.
If you are one of these high-risk individuals, the only solution is to
shop. Try several of the major groups and ask to be considered for their
preferred, standard, or non-standard plans. Then try the special
publicly created assigned risk plan in each state: the Pennsylvania Assigned
Risk Plan (PA ARP), the Delaware Automobile Insurance Plan (DAIP), and
the New Jersey Personal Automobile Insurance Plan (PAIP). These plans are
open to licensed drivers who cant get coverage through the regular market.
An agent or broker contacts the plan on the drivers behalf, and drivers
are then assigned to regular insurance companies. Each company is assigned
a pro rata share of policyholders according to its share of business in
the state, and the policyholder pays the same premium at whatever company
he or she is assigned to.
Dont assume that once you have been turned down by a preferred company
you must turn to a high-risk company or the assigned risk plan. Companies
standards for accepting new policyholders vary widely and change constantly
as their rates and volume of business change. To enhance your chances,
remind agents that you or members of your family have other business with
their companyfor instance, a homeowners policy or automobile policies
for other drivers. On the other hand, dont stop shopping even after you
are accepted by a preferred company. High-risk companies or the assigned
risk plan sometimes offer better rates. If you must join the assigned risk
plan at a very high price, look for other coverage after a year.
Recently, several insurers have begun to advertise new policy features.
When considering these features, be aware that some can be useless, and
others need to be carefully evaluated on a cost-benefit basis.
As an example, several companies heavily promote accident forgiveness.
With this option, if you have an accident, your premiums wont change.
Considering that your premiums might increase by 15 percent to more than
100 percent, depending on the company, as a result of having just one at-fault
accident, this type of coverage plan might seem like a pretty good deal.
But usually youll have to pay an additional premium for accident forgiveness
(and most other advertised add-ons), and with some companies you pay $75
or more per year to buy it.
When you consider what the insurance companies are offering customers,
accident forgiveness actually is a somewhat bizarre option: Companies are
offering you regular insurance against losses and claims you might sustain
because of an accident, and also offering insurance against the risk of
them drastically raising your rates if you actually have an accident.
Because many of these plans dont even take effect until drivers have had
an accident-free policy with the insurer for five years, policyholders
end up paying hundreds of dollars in extra premiums before they can benefit
from the planand they would benefit then only if they have an accident.
Some insurers waive their accident-free waiting period, but charge a lot
more for the feature.
Are add-ons like accident forgiveness, disappearing deductibles, and amnesty
for traffic tickets worth the extra cost? If you have a clean driving record,
you probably wont have an accident that would raise your premiums for
a long time, if ever. If you have a checkered driving history, the chances
are higher that you will have a future accident, but the price youre already
payingand the extra price youll pay for accident forgivenesswill be
much higher than what a good driver pays. You have to decide whether even
a substantial increase in premiums as a result of an accident or accidents
would be a catastrophe. If not, dont insure against it; insurance is to
protect you from catastrophes.