 Personal finance, PowerPoint, presentation, automobile insurance, prepare to get financially fit by practicing personal finance. We've been breaking the financial decisions into the short-term decisions. The long-term decisions, short-term decisions being those that we train our gut to trust our gut. The long-term ones being those that we use the adage of measure twice, cut once. The insurance planning typically on the long-term side of things. The plan might look something like this. We set our goals. We develop a plan. We put the plan in action. We review the results and then we start it over. Remember that we might be thinking about reducing our risk or liability on multiple things with the use and help of insurance for items such as disability, illness, death, retirement, property loss, liability. We're focusing here on the car insurance or auto insurance. Most of this information comes from Investopedia, auto insurance advice from a consumer advocate which you can find online. Take a look at the references or resources. Continue your research from there. This is by Jim Prabasco, updated February 15, 2022. We talked about in prior presentations the characteristics of car insurance in general, the fact that we have these different components to it. And then we talked about different companies that possibly you can have a list of different kinds of car insurance. We did some comparing and contrasting. And now we'll take a look at this advice from the consumer advocate. So auto insurance advice from a consumer advocate nationally recognized insurance expert and consumer advocate Douglas or Doug Heller spent two decades working on public policy and regulatory matters related to property, casualty, insurance. In other words, he's been there, done that kind of guy when it comes to automobile insurance. So during his career, Heller has authored op eds, articles and reports on auto insurance pricing in the U.S. and provided expertise in insurance related litigation. For nine years, Heller served as executive director for the National Consumer Advocacy Organization, Consumer Watchdog. In addition to conducting research for and providing expertise to consumer rights organizations, Heller's is a member of the Federal Adversary Committee on Insurance. The FACI, what follows is Investopedia's edited conversation with Heller. So we got a question and answer type of format with a professional in the area which might illuminate a few things for us with regards to what we should be looking for for our auto insurance, given the fact that we do have those complications with it, different state laws with regards to it. We got the multiple factors bundled together into the car insurance that we discussed in prior presentations. So the question then, what's the purpose of automobile insurance? Answer says the expert, Heller. There are three objectives of automobile insurance. First, there's liability. The damage you do to another person, their car or property is covered under liability. So notice that's the thing that the state is often going to be concerned with, that liability type of protection, meaning you're not safeguarding your own property, you're safeguarding someone, basically, you know, suing you, you being at fault for the damage that you caused to someone else, that could be quite substantial. This is called third party coverage because it provides coverage to others. So you're providing coverage to the third party, to someone else who actually sustained the problem, property or bodily injury, which you could be held responsible for. Second, auto insurance pays to protect you, your passengers and your vehicle through medical payments, comprehensive and collision coverage. This is a type of first party coverage. So the other thing, of course, we won't think about covering possibly is our own self as well as our own property with the policy as well. You would think from a standpoint in terms of is it required or not, from a legal standpoint, the legal standpoint, you would think they would be more required or be more looking towards the third party, meaning, meaning looking towards the person that's not responsible for the accent to have some recourse, you would think, right. So finally, insurance helps you comply with the law. Automobiles are dangerous, heavy, expensive pieces of machinery. Insurance provides protection for drivers, passengers and others from injury or damage done by someone who would have no way to pay for any damage they do. So in other words, the laws typically stepping in when you're saying there's someone driving something that is a high risk type of situation. If you want to drive the high risk type of type of vehicle, then if you cause damage to somebody else, which is fairly likely that because the auto is one of the highest causes of injuries and whatnot, then you should be, you know, have some means to compensate any damage that you might cause or might be at fault for. You might not have the personal means to do that because some people don't have the personal means to do that and therefore the insurance would be the way that you would think that you would have that mean. So as a result, almost every state requires us to buy coverage. Automobile insurance helps us meet our financial responsibility under state law. So the question then from Investopedia of these means types, which are required, what do you absolutely need to have to drive your car on the street? So if you're saying, OK, I want the bare minimum. I want to know what I need to have. That's the question as I interpret it. So response from the expert helter. OK, let's start with the fact that New Hampshire doesn't require auto insurance coverage. I think most people in New Hampshire buy auto insurance, but it's not required by the state government. And that's kind of an interesting test sample because when this requirement for auto insurance was made, there's there's been a lot of kind of debate as to whether it's going to be a good thing or not. And you would there are pros and cons to having a requirement from the government. You got this free rider kind of argument with the insurance. So it's interesting that some states that we have a state here that doesn't. And we can do some comparison testing as to, you know, what's the result of these two of these two formats. In the case, most states require liability coverage, both bodily injury liability and property damage liability. In other words, if the other guy's car, if you cause the accident and the other person's damage could be either obviously property damage of their car oftentimes or bodily damage, which could be more expensive. Oftentimes, which would be the medical kind of situation. So this recall, this recall is a type of third party coverage. It's the coverage we buy to protect other people. Liability means we are responsible for someone. Somebody else's injury and the damage we do. We often hear numbers like 50, 15, 30 or 50, 100 coverage. These two numbers describe the amount of bodily injury coverage you buy. The first number is is for one person who gets injured. That's the 15 or the 50 in this case. The second number is the total that will be paid if the multiple people are injured. That's going to be the 30 or the 100 in this case kind of capping the item. So in other words, you could have the first number spelling out or listing per person the injuries that could be, you know, the costs that could be sustained. But then it's capped at a per incident. It really would be the terminology on the second number. It would be the concept that we talked about in a prior presentation. There's also a third number in that set. For example, you got the 50, 125. That last number, the 25 represents 25,000 in property damage liability. So now you got the property damage. So if you damage somebody's car or a fence on someone's property, when you career, careen, the insurance company will pay up to 25,000 for the property damage. Liability is the key coverage most people are required to buy by the government in every state except New Hampshire. You could see why the state would be more likely to want to require people to have the liability insurance because they're trying to safeguard the other person, the person who's not at fault to have some kind of recourse even in the event that the person that caused the accident can't be sued because if they don't have insurance, they're not covered that way. And if they don't have any money, it's not going to be worth suing them oftentimes to try to get paid that way. Investopedia, how much liability are you required to purchase? Answer from the expert Heller, you are only required to buy the minimum. The minimum varies from state to state. So clearly your insurance company in the state you're buying in will probably have a good idea of what the minimum is, but it will vary from state to state. I think the most common mandatory personal liability coverage is probably 25, 50, 25,000 dollars for entry to a single person, 50,000 total. The most common property damage liability minimum is probably 25,000 per accident. So we got these first two being the injury, which is usually the more costly one, where it's the 25,000 per person that's your liability, but then it's capped at that 50, and then we have the property liability. And he's saying the most common property damage liability minimum is probably 25,000 per incident. So some states also require uninsured motorist coverage. This is coverage that protects you if you are hit by an uninsured motorist or somebody else on the road without coverage. So now you're saying, again, the state, you could see this would not be as likely for the state to require, because you would think that the more likely scenario is the person that wasn't at fault would be the one that you would want to cover. But you could have a situation where the other person doesn't have coverage. In other words, requiring coverage of everyone kind of solves or supposed to solve the kind of free rider type of incident, so that if you got an accident and someone else is at fault, their insurance should be able to cover it. But even if it's required that they have insurance, they might not have insurance, in which case you wouldn't have any recourse at that time, unless you had some, you might have some minimum policy and the state might require it for that case. So a handful of states also require what's called personal injury protection, the PIP. This type of coverage are called first party coverage, meaning they cover you for any injuries that you sustain in, in irrespective of who is at fault of the accident. It's commonly known as no fault coverage or insurance. So asking the question, investopedia, how do you determine what your state requires? Response from the expert Heller, there are four easy ways to find this information. Your State Department of Insurance, State Department of Motor Vehicles, the National Association of Insurance Commissioners, the NAIC, or what I think is the easiest way, just contact a simple web search. So clearly a lot of that kind of mandatory type of information is pretty clear to be looking up. The things that are more difficult to look up oftentimes would be your particular circumstances and how much insurance you might need over and above that for your particular case because you can't find just one number, that's not just one piece of data. So type in your state and the words minimum auto insurance. So there's one additional type of coverage that is required, not by the government, but by your car lender. It's called comprehensive and collision coverage. If you don't own your car outright, say you have a loan or are leasing your vehicle, the company financing the car, whether it's a bank finance company or lease company will require comprehensive and collision. So meaning now you're talking about your own property in this case. And so you can see why usually the state wouldn't require that generally. But because because you're talking about your own car in the event that you got in an accident, if you got in an accident and the other person was at fault, then in theory, if the other person had liability insurance, which in most states that are required to, then, you know, they would be the one that would be dealing with that. If you got in an accident and you were at fault, then you might have coverage for that, but you could see why the state might not require it. However, if you leased the car or if you got a loan on the car, then it might be required because for the collateral on the loan, then you got the actual car that they would want to recall. So now they have an interest in the car itself. And so they might be requiring it in the event that you're financing the car in some way. So that would be another kind of requirement. You have to get it in that case, not because possibly it's a state requirement, but because the lender or financer is requiring that. Again, it's first party coverage since it's since it refers to damage done to your car. The reason the banks and others require you to buy that coverage is they are not worried about what you do to other people. They're worried about what you do to the car in which they have a financial stake. That's what the bank is worried about or the leasing company. So if you don't own your car outright, you're going to need comprehensive and collision, meaning if you leased it or if you own a loan on it, which you may want, even if you do own the car outright. So then you've got the question of if you own the car outright, then you may not be required for this type of coverage, but you may still want it depending on the value of the car. But you are required to have it again, not by law, but by the financial institution. So when we're talking about, do you have to have this coverage? Well, it's not the state that's requiring. But if you have the financial part, then maybe investopedia, what are the consequences if you somehow managed not to buy that coverage? The response then, if you don't buy it, if you let it lapse, your bank or lender is going to find out because they have a relationship with the insurer. So meaning you got to pay for the coverage. If you're financing it, if you don't, then the lender might find out and they're going to, they're going to be upset. And then what they're going to do, what they're going to do is they're going to buy it for you and charge it on your loan as a product called forced place insurance. So they'll actually force you to cover it and then tack it onto your loan. And that generally you would think would be part of the lease and agreement that you kind of agree to in the contract. And that is not only going to be a surprise on your bill, but it's also much more expensive than the coverage you can get on your own. So if they're going to do it that way, you might think, well, that's pretty convenient, right? But that's probably going to cost more to do it that way. Investopedia asking, since states don't require comprehensive and collision, do they do they have any say in the type of coverage such as how much insurer insurers charge what the coverage is and so forth, expert answering Heller with respect to comp and collision states by virtue of their regulation of auto insurance may say how much can be charged for it. They may require limits or allow companies to set their prices differently in one state from another based on different regulatory regimes. So meaning if you don't require this insurance is is there still any state regulation on it and you're saying there could be different regulations from state to state. So but when it comes to the requirement to have comp and collision, that is governed by financial institutions. For example, a bank isn't going to let you buy a comprehensive policy with a $5,000 deductible. So the Investopedia asking what types of coverage might people want, even though it's not required. So now we were talking about the more comprehensive or the more complex question being, well, I can see what's what's now required by law, because that's going to be it is what it is. Right. Here's the minimum that's required gets more complex when you're saying, well, I would like to be covered over and above that for for my own personal situation, which you can't just simply look up with a yes or no or one number answer online. So one, I mentioned that is required in some but not all states is uninsured motorist and underinsured motorist coverage. This coverage pays for your injuries or damage to your vehicle if you are hit by an uninsured or underinsured driver. So meaning most states have this requirement for the liability insurance so that if someone else is at fault, you don't you can't really control that. All you can do is control your driving. If someone else causes you damage and it's their fault, then you would think you would have the recourse of their insurance. But if they're underinsured or uninsured, then you don't have that that recourse, of course, and they may still be under or not insured, even though it's required to have insurance, because they just might be driving without insurance. That driver is not taking financial responsibility for the damage they cause because they don't have insurance. So what can you do then? You could sue them, but they might not have any money. So it might not be worth the suing. So then what are you going to do? So theoretically, you could take them to court and sue them for it. Oftentimes, however, the primary reason uninsured drivers are uninsured is because they can't afford insurance. So suing someone that doesn't have any money means that even if you win the lawsuit, you're not going to get any money. So research shows that most people who are driving without insurance aren't doing it because they want to stick it to the man. It's because they can't afford coverage. So if they can't afford coverage, then they might not be worth suing. And if they can't afford auto insurance, it's unlikely that they will have much in the way of assets to cover your injuries or damage to your car. This is why even if your state doesn't require it, it's important to consider buying uninsured motorist coverage. By the way, you should really think about buying as much uninsured motorist coverage as you have liability coverage. Otherwise, you're saying the value of injuries to other people is greater than the value of injury to yourself and your car. So I would think when you're considering this kind of coverage to you, we want to be thinking about what's covered with the insurance coverage and then what's covered with your actual health insurance coverage because clearly the injury to yourself is going to be oftentimes the more costly thing than the injury or property damage to the car, unless the car is significant in value. So the bodily injury, you would think, could have the significant cost to it, of course. And then question from Investopedia, is there any other type of coverage that is not required but still a good idea to consider? Expert answering here, Heller, sure. The other thing that people like to think about and for good reason is rental car coverage. Rental car coverage answers the question of what am I going to do for the next seven to 15 days when my car is out of service after the accident? So if there's an accident, you got to get it repaired. You don't have a car. So you might have coverage to help you with with that cost. Keep in mind if somebody hits you and has insurance, their liability coverage should pay for your rental. So someone else hits you and it's their fault. Then again, you would think that their insurance would be the one kind of responsible for that. So if you're at fault, collision coverage may not pay for a rental car unless you have that rider. So question, what type of coverage are sold that aren't helpful? Heller responding to this question, the expert. One that really frustrates me is guaranteed asset protection or gap insurance. It's one of those things that sold along with the undercoating when you buy a new car. It's essentially credit coverage that covers the difference between what you owe on the car and what insurance will pay if the car is totaled. There is a sort of theoretical reason for it. You buy your coverage, the car's value drops, then the car gets totaled. You still owe $18,000 on the car, but the insurance company is only going to pay $15,000. So you still have to have another $3,000 that you're not covered for, which gap insurance would pay. The problem is that gap insurance has exceptionally low loss ratios, meaning the amount that the insurance company pay relative to the premiums they get paid is extremely low because it's largely not a great product for consumers, meaning you could have a payoff with the gap insurance as I interpret it here, but the payoff typically is not going to be worth the amount of the premiums is the general concept here. Now there are certainly people who find value in it, but it's the rare consumer for whom the product is worth it. I mentioned that because oftentimes we see it show up and people hear about it and those sales pitches on the car lot. So it's something for most people it seems that he is saying wouldn't be relevant for a lot of people. It might be a product that could be sufficient for certain people, but again you might hear then they might sell it more widely for people that may not benefit from it. I always guide people to understand that it's a product that works very well for insurance companies, not so much for the consumer who buy it.