Driving provides every individual a sense of freedom, but with every freedom there are responsibilities. The most important responsibility while driving is the safety of yourself, of your passengers, fellow drivers and your surroundings. Auto insurance helps you live up to that responsibility by ensuring your ability to cover the expense of potential damages or injuries. 

Auto insurance also protects the investment in your vehicle and offers a means to manage unexpected expenses due to an accident, vandalism or theft. After all, an accident is just that, an unplanned event.

When the first U.S. automobile insurance policy was purchased in 1898, there were barely 100 cars nationally. Horses and carriages ruled the roads and the main concern for both insurers and auto drivers was any injury those noisy new machines might do to horses.

Today, auto insurance is the most widely purchased of all property-casualty insurance, yet few drivers are familiar with the details of their particular policy.

Though this guide does not represent the provisions of any particular policy, it should serve as a starting point on your road to finding the best policy for your needs.

This is the first part of a multi-part guide. This section will answer your questions about why you need auto insurance, about the different types of auto insurance policies and factors that affect the pricing of various policies (different drivers, where you live and what vehicle is being insured).

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Why do I need auto insurance?

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

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

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

What are the different types of policies and what do they cover?

Auto insurance is divided into several types of coverage:

General liability covers damage you cause to other people's property and injuries to the people themselves.

Collision covers damage to your own vehicle in an accident.

Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.--unless the vehicle is overturned, then it is considered a collision).

Medical payments insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This "good-faith" coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friend's car.

Uninsured motorist (UM) and underinsured motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.

Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or “endorsements” to your policy.

Why and how are policies priced for different drivers?

Drivers are grouped according to the level of risk each one poses—i.e., the amount of loss incurred by insurers within categories of policy holders. For various reasons, drivers are categorized by:

Sex	Men have more accidents on the road than women.
Age	Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident.
Marital Status	Married drivers tend to have fewer accidents than single drivers.
Personal Driving Record	Years of driving experience, accidents, speeding tickets and drunk-driving offenses are all factors in determining how much of a risk you pose as a motorist.
How You Use Your Vehicle	If you commute by car during rush hours, you're at greater risk of having an accident than if you only drive for errands and recreation on the weekends. Drivers who use their own vehicles for business also are considered to be at greater risk.
Type of Vehicle	The value, size, weight, age of your vehicle, even the cost of replacement parts, are essential to determining the price of your insurance. Larger, heavier vehicles are considered at lower risk than smaller, lighter ones. Plus, more expensive cars are costlier to have repaired than economy models.

The cost of your insurance policy is based on the average cost of covering actual losses, spread out over your particular "rating group" as a whole. Of course, you may never have an accident or have your car stolen, and therefore will never need to be compensated. But others in your category may not be so lucky. Your premium will help to pay for their losses, just as their premiums would help to pay for yours.

For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because, based on average losses, you have a greater chance of having an accident or being the victim of auto theft

How does where I live affect my premium?

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

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

Why are rates different for different cars, even if the cars cost the same?

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

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

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

Part 2

Date Posted to Site:   Sept. 2003

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