Auto Insurance FAQ
The new Discover Insurance Center doesn’t just offer insurance, it offers insurance education too. Get the answers to some of the most commonly asked insurance questions, so you can be empowered with information.
- Can I drive legally without insurance?
- Absolutely not! Every state requires you to have liability insurance or at least enough assets to pay a claim in case you cause an accident. Aside from state requirements, a leasing company or auto loan finance company may insist you carry comprehensive and collision insurance in addition to liability coverage.
- Do I have to buy auto insurance if I lease a car?
- Yes. The state requires liability coverage; the leasing company will surely require comprehensive and collision coverage as well. In some states, the leasing company may also insist on “gap” insurance, which is usually rolled into the lease payments. In the event your car is totaled, gap insurance pays for the difference between the balance owed on the lease and the amount the insurer will reimburse you, which is the actual market value after depreciation.
- What are the laws requiring auto insurance in my state?
- Requirements vary widely according to state, so it’s best to look on your state’s website or call the state insurance department. In general, however, states have automobile financial responsibility laws that require drivers to carry a minimum dollar amount of bodily injury and property damage liability insurance in case of an accident.
- Is there a difference between cancellation and nonrenewal of an auto insurance policy?
- Cancellation takes place when an insurer ceases coverage prior to the policy’s expiration date, while nonrenewal means you’re not given an option to renew once the policy expires. Once a policy has been in force for more than 60 days, it can only be cancelled if you don’t pay the premium, if you misrepresented information on your application or if your driver's license is revoked or suspended.
With nonrenewal, the insurer must give you a certain number of days’ notice and tell you why it’s dropping your policy. It may be the result of your driving record, but it could also be an internal issue, like a decision to write fewer policies in your area. If you feel the decision is unfair, contact your state insurance department. - How can I save money?
- The same coverage can vary widely from insurer to insurer, so you should always shop around and get at least three quotes before purchasing a policy. You can easily research and compare companies on the Internet.
If you haven’t purchased a car yet, select one that’s cheaper to insure. Skip models with high sticker prices and repair costs and look for vehicles with good safety records that don’t rank high when it comes to theft. You can check this out at the Insurance Institute for Highway Safety (www.iihs.org). Other ways to save include boosting deductibles and dropping collision or comprehensive coverage on older cars. Ask about discounts; you may get a reduced premium if you don’t put a lot of mileage on your car or if you’ve taken a defensive driving course. - How much coverage do I need?
- The Insurance Information Institute recommends that you have $100,000 of bodily injury protection per person and $300,000 per accident, since the cost of injury and damage can easily exceed the minimums demanded by most states. If your net worth is more than $300,000, consider buying extra liability coverage or an umbrella policy to cover the shortfall once underlying coverage is exhausted.
- What determines the price of my auto insurance policy?
- First and foremost, the type and amount of coverage you select, as well as your deductibles. Another key factor is your driving record; the fewer accidents and traffic violations you’ve had, the less risky it is to insure you.
Also, if you drive infrequently, you’re less likely to have an accident. So if you don’t put much mileage on the odometer, it will help keeps costs down. The car you choose to drive can change your premium as well. Pricey luxury cars or vehicles with poor safety records will bump up your premiums. Older drivers are presumed to be more responsible and less of a risk, but you can’t do anything to change your age. - What does my credit rating have to do with purchasing insurance?
- Studies have shown that the lower your credit score, the higher your risk of getting into an accident. The converse is also true: the higher your credit score, the less likely it is you’ll get into a car accident. That’s why credit scores have become a key ingredient in the pricing of auto insurance policies.
If you’ve had big increases in your auto insurance premiums for no apparent reason, it’s possible that the insurance company hasn’t checked your credit history recently. Asking your insurance company to reprice your policy based on your credit score could lower your premium. - What information do I need to give to my insurance agent or company?
- You’ll need to provide basic information related to your car, such as make, model, whether it’s driven for business or pleasure, approximately how many miles you drive annually, and what kind of coverage you need. Your agent will want to know how many people drive the car and their ages and driving records. The agent will also ask about safety and antitheft features, and you will have to provide your car's vehicle identification number (VIN).
- What should I do if I can’t find coverage?
- Whether you are having trouble obtaining insurance because of your brief or poor driving record or you live in a high-crime area, you do have options (although you’ll have to pay higher premiums).
You can join a state-assigned risk pool. Every auto insurer is required to accept the motorists assigned to one, either retaining the profit or absorbing the loss that comes with that customer. Contact your state insurance department for more information..
You can also talk to an insurer that specializes in “high-risk” drivers. Go to Roughnotes (www.roughnotes.com) for referrals to brokers who sell this kind of insurance. - How do I insure my teenage driver?
- Teenagers are more likely to get into accidents because they are easily distracted and inexperienced. Insurers protect themselves by hiking premiums—you might pay as much as 50 percent more to cover your teenage daughter and as much as 100 percent more for an even higher-risk son.
You can’t get away from the higher premiums, but you can try to minimize the damage. First, as always, shop around for the right policy and price. Heightened competition among insurers means you should get the best rates around. If your teen is driving his own car, make sure it’s one with an excellent safety record, and put him on your policy to get a multi-policy discount. If he’s in college, ask the insurance company to give you a reduction for the time Junior won’t be driving.
You can also lower your children’s auto insurance premiums if your kids get good grades in school (at least a B average) and take a driver’s ed or defensive driving course. Insurers know that safety training and good grades show responsibility. - Should I purchase an umbrella liability policy?
- An umbrella liability policy provides you with coverage over and above the coverage provided on your other insurance policies. Your homeowner's or auto policy will provide you with some liability coverage in case someone sues you for injuries they sustained in your house or by your car. Since policies set a limit on what they'll pay for judgments against you and attorney's fees, it’s best to have added protection.
A personal umbrella liability policy kicks in after you’ve maxed out your liability coverage in a homeowner’s, renter’s or auto policy.
The cost is only about $150 to $300 per year for a $1 million policy. That’s a fairly inexpensive way to help ensure that your assets won’t be touched if you’re sued.
Most insurers will insist you have at least $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowner's policy before they'll sell you an umbrella liability policy for $1 million of additional coverage. - Will my insurance cover car rental after an accident?
- Drivers who are penny wise and pound foolish—and overly optimistic that they’ll never get into a car accident—try to save the $1 or $2 a month for rental car reimbursement.
But since the average car is in a repair shop for two weeks after an accident, rental car costs can add up to as much as $500. Even if you have an accident every 10 years, it’s still worth it.