Monthly Archives: June 2016
When it comes to auto insurance, you want to be adequately covered if you get in an accident, but you don’t want to pay more than you have to. Unfortunately many people are doing just that, simply because they don’t want to spend time shopping for car insurance. It’s not inherently enjoyable, after all, despite how it looks in commercials featuring disgruntled cavemen and joke-cracking spokespeople.
But by doing some comparison shopping, you could save hundreds of dollars a year. When one of our editors used a rate-comparison service, he got basic coverage quotes for his two old cars that ranged from $1,006 to $1,807 — a difference of $801 a year. If you’re paying thousands to your current insurance company because you have a couple tickets, an accident or an out-of-date and unfavorable credit rating, shopping your policy against others might be well worth the effort. Look at it this way: You can convert the money you save into buying something you’ve wanted or needed for a long time.
Step 1: Decide How Much Coverage You Need
To find the right auto insurance, start by figuring out the amount of coverage you need. This varies from state to state, so take a moment to find out what coverage is required where you live. You will find a list of each state’s requirements and an explanation of the various types of insurance in “How Much Car Insurance Do You Need?” Also, check out “Little-Known but Important Car Insurance Issues,” which has a glossary of basic insurance terminology. If you’re a first-time driver and need a comprehensive overview of car insurance before you go on, review this guide from the National Association of Insurance Commissioners. Now you’re ready to make a list of the different types of coverage you are considering.
Once you know what’s required, you can decide what you need. Some people are quite cautious. They base their lives on worst-case scenarios and insurance companies love that. Insurance companies are in the risk business, and they know a policyholder’s likelihood of being in an accident, as well as how likely it is for a car to be damaged or stolen. The insurance company crunches the information it has collected over decades into actuarial tables that give adjustors a quick look at the probability of just about any occurrence. You don’t have those tools at your disposal, so your decision will depend on your own degree of comfort in assuming a certain level of risk.
Experts recommend that if you have a lot of assets, you should get enough liability coverage to protect them. Let’s say you have $50,000 of bodily injury liability coverage but $100,000 in personal assets. If you’re at fault in an accident, attorneys for the other party could go after you for the $50,000 in medical bills that aren’t covered by your policy.
General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (usually expressed in insurance shorthand as 50/100/25). Here again, let your financial situation be your guide. If you have no assets that an attorney can seek, don’t buy coverage unnecessarily.
Your driving habits might also be a consideration in determining the coverage you need. If your past is filled with crumpled fenders, or if you have a lead foot, or if you make a long commute on a treacherous winding road every day, then you should get more complete coverage. Collision coverage pays for damage that your car experiences in an accident or damage from hitting an inanimate object (a tree, light post or fence, for example). Comprehensive coverage addresses damage that didn’t occur in a collision — such as from fire, theft or flood. It also covers damaged windshields.
Keep in mind that you don’t have to buy collision and comprehensive coverage. Let’s say your vehicle is older, you have a good driving record and there is little likelihood that your car would be totaled in an accident, but a high likelihood of it being stolen. Then you could buy comprehensive coverage and skip the collision insurance.
Auto insurance fraud adds $200-$300 a year to your individual insurance premium, according to estimates from the National Insurance Crime Bureau (NICB). But that’s a paltry sum compared to its overall impact, because every business has to pay for insurance as well.
When fraud boosts their insurance rates, businesses have to charge you more for goods and services, according to the NICB. That means that not only consumer goods and insurance premiums, but taxes and anything else with a dollar sign in front of it are affected by insurance fraud.
Forms of Fraud
Auto insurance fraud is generally classified as “hard” or “soft.” Hard fraud, which involves staging or inventing an event that would be covered by insurance, includes:
- Staged accidents, such as an intentional rear-end collision
- Phony injury claims, where criminals lie about trauma sustained in an accident
- “Jump-Ins” — inventing injuries to people who were not in the vehicle at the time of the accident
- Claiming a one-car accident was a hit-and-run
An increasingly common scam that has proliferated along with the number of people who are upside downon their car loans is “owner give-up.” A policy holder secretly abandons their car, possibly by dumping it in a lake or even paying an arsonist to torch it, and then reports it stolen. If the insurer pays out, the policy holder can pay off their car loan without damaging their credit rating.
Staged accidents are the most harmful type of insurance fraud for the average driver, as a victim of a staged accident could be injured or killed. Even if the victim was not at fault, their premiums may rise or their policy could be cancelled. They can also lose wages and be bogged down in an endless chain of claims paperwork and vehicle repairs.
Soft fraud, also known as “build up,” is more opportunistic, involving policy holders who pad an otherwise legitimate claim. They may:
- Add previous damage to a current claim
- Conspire with a body shop and/or claims adjuster to pad a repair estimate
- Conspire with doctors to obtain unnecessary medical treatments
So it’s not just the policy holders who participate in auto insurance fraud. Organized fraud rings have become a major national problem, and can include dishonest doctors and lawyers, auto mechanics, even insurance salespeople.
Funding the Fight
The nation’s property/casualty insurers have created special investigative units (SIUs) to fight insurance fraud, and many states have dedicated bureaus and specific laws and regulations to combat fraud. While this all sounds good, the sophisticated systems designed to protect insurance companies (and their customers) from fraud can also take a toll on the policy holder who’s filing a claim.
“We don’t want to go out with the attitude that our policy holder is lying,” says Peter Van Patten, a director for Nationwide Insurance’s Claims SIU. “But if there’s a red flag that comes up — like the law enforcement agency thinks it’s not legitimate, or there’s reasonable cause to believe that it’s not, we’ll get an opinion from legal…and if things build up, we have to make a referral to the state insurance fraud bureau.”
A claim flagged as potentially fraudulent takes longer to settle because it has to be investigated, according to Victoria Kilgore, director of research at the Insurance Research Council. While a claim is under investigation, an insurance company can request medical or police records. Meanwhile, the policy holder, who could be facing expensive medical and vehicle repair bills, waits for the insurer to reimburse him or his doctors. If the policy holder gets fed up waiting or is wrongly denied, Patten says, he can file a suit or take legal action. That’s a heavy financial and emotional burden, if you happen to be wrongly accused.