Auto insurance is a mystery for many drivers, especially when it comes to understanding exactly what their insurance covers.
In addition to the basic mandatory offerings, drivers can choose from a variety of coverage including collision and comprehensive, loss of use, underinsured motorist and if the vehicle is newer, waiver of depreciation. Insurers have also started offering accident forgiveness and disappearing deductibles.
Here's a brief description of four of the several choices available to you.
Family Protection Coverage: You or a family member may be injured in a serious accident that was not your fault, and the other driver may not have sufficient liability insurance to compensate you. If your limit is higher and you have purchased this coverage, your own insurance company pays the difference. This is particularly beneficial if you drive into the United States where limits are often less and recently, someone successfully claimed this benefit for an accident occurring in Jamaica.
Collision: This coverage responds if you are at fault in an accident or if your insurance company has yet to determine liability. Newer vehicles are worth insuring, but older vehicles are less so. No matter how well you baby your older car, your insurance company will never pay more than the actual cash value, which may be very low.
Remember that the odds are good that you will not be at fault in the accident. To the extent that you are not responsible, you will be compensated by your direct compensation coverage, which is already included in your basic auto policy. In this circumstance, the amount that you lose because you don't have collision coverage may be more than offset by the premium you saved over a period of time.
You may prefer to pay a little bit of premium each year, than face the higher cost of repairing or replacing your vehicle if an accident happens. Practically speaking, drivers with aging vehicles who are disciplined enough to save the premium that they would have paid for collision coverage, will benefit more frequently than those drivers who do pay for collision coverage.
Accident Forgiveness: While accident severity has increased, accident frequency has decreased, which means that insurers have to find new ways to entice drivers to pay more in premium. What accident forgiveness means is that your insurance company will not increase your rates after your first at-fault accident, but they will if you have a second. It appears as if the insurance industry is doing something really good for drivers, until you look at the big picture.
The concept sounds good, so millions of drivers will pay a few dollars annually to protect themselves from an at-fault accident. You may even switch insurers to one offering this product. Once you have changed insurers and if you have an at-fault accident, you are trapped. Accident forgiveness does not insulate you from approved rate increases, which may be higher than you expected. Also, your at-fault accident makes you less desirable to other companies, which in turn makes it difficult to shop around for the best insurance rates.
Disappearing Deductible: This coverage is being aggressively promoted by at least one insurer along with accident forgiveness. Once again, the concept sounds great and drivers are switching companies because of it. No one wants a second at-fault accident, but the fact that the deductible is being waived makes it appear more palatable.
The insurer knows that once you have reached the status of two at-fault accidents, they have your business for at least the next six years. Almost no other insurer will be interested in insuring you. I was checking the Financial Services Commission of Ontario (FSCO) website recently and I noticed that while in the second quarter of 2006, approved rates declined by -2.43%, the insurer promoting the disappearing deductible was approved for a 7% increase in rates.
Ultimately, when it comes to buying insurance, the motto "buyer beware" still applies. To make the right decision for you, ask lots of questions and always do the math.
Next week: Some facts about insurance fraud.
Susan Saksida, CIP is an insurance consultant who has held senior positions within the insurance companies and brokers. She is currently conducting research into the root cause of consumer misunderstanding of the insurance industry. If you have an auto accident related story please email this to insurancecompliancematters@rogers.com .
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