Car InsuranceCar Insurance

Justine McAleeseJustine McAleese

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Rita KamauRita Kamau

Elements of a ContractElements of a Contract

• Must be an agreement based upon a definite offer by one party Must be an agreement based upon a definite offer by one party and the acceptance of that offer by the other partyand the acceptance of that offer by the other party

• The two parties must be legally competent to make a contractThe two parties must be legally competent to make a contract

• There must be a consideration; both parties must give something There must be a consideration; both parties must give something of value and both must receive something of valueof value and both must receive something of value

• The contract must have a legal purposeThe contract must have a legal purpose

InsuranceInsurance

• Indemnity Principle: legal doctrine stating that the function of Indemnity Principle: legal doctrine stating that the function of insurance is to repay (indemnity) insured's for their actual lossesinsurance is to repay (indemnity) insured's for their actual losses– Insurable interest: Insured must be in position to sustain financial loss Insurable interest: Insured must be in position to sustain financial loss

in the event insured against occurs in the event insured against occurs – Loss measurement: A way to determine the amount of payment when Loss measurement: A way to determine the amount of payment when

a loss occursa loss occurs• Car Insurance: Market valueCar Insurance: Market value

– Subrogation: legal principle that provides that to the extent an insurer Subrogation: legal principle that provides that to the extent an insurer has paid for a loss, the insurer obtains the right of its policyholder to has paid for a loss, the insurer obtains the right of its policyholder to recover from any third party who caused the lossesrecover from any third party who caused the losses

Auto AccidentsAuto AccidentsCasual factors in Fatal Auto Accidents

Factor Percent of Cases

Improper driving75.9

Speed too fast 30.1

Right of way violation 14.1

Drove left of center 10.5

Other improper driving 21.2

No improper driving 24.1The time with the most fatal accidents is weekend nights between midnight and 3am. Fires occurred in .1 percent of all accidents but in 3 percent of fatal accidents. People ages 16-20 had the highest fatality and injury rates in car accidents per 100,000 people. 39 percent of fatal crashes involved alcohol. Between midnight and 3 in the morning the percentage rose to 76%.

PremiumsPremiums Classification System: a method of establishing the price of individual

insurance policies by classifying policyholders in groups-each of whose members have similar characteristics

• Factors that affect your premium:Factors that affect your premium:– AgeAge– GenderGender– Marital StatusMarital Status– GeographyGeography– Driving ViolationsDriving Violations– Vehicle TypeVehicle Type– Accident ClaimsAccident Claims– Credit RatingCredit Rating– OccupationOccupation– EducationEducation– Driving Distance to WorkDriving Distance to Work– Miles Driven each yearMiles Driven each year– Years of driving experienceYears of driving experience– Whether or not you currently have auto insurance and how high are your limits Whether or not you currently have auto insurance and how high are your limits – Theft protection devices (often results in discounts) Theft protection devices (often results in discounts) – Multiple cars and drivers (another opportunity for discounts) Multiple cars and drivers (another opportunity for discounts)

Kinds and Amounts of CoverageKinds and Amounts of Coverage

Cost of insurance depends upon the kind and amounts that are purchased

More coverages purchased and the higher the limits, the greater the cost

Liability Limits Factor

$25,000 1.00

$50,000 1.13

$100,000 1.22

$500,000 1.48

Insurance fraudInsurance fraud

• soft auto-insurance fraud:soft auto-insurance fraud:– filing more than one claim for a single injuryfiling more than one claim for a single injury– filing claims for injuries not related to an automobile accidentfiling claims for injuries not related to an automobile accident– misreporting wage losses due to injuries misreporting wage losses due to injuries – reporting higher costs for car repairs than those that were actually paidreporting higher costs for car repairs than those that were actually paid

• Hard auto-insurance fraud:Hard auto-insurance fraud:– staging automobile collisionsstaging automobile collisions– filing claims when the claimant was not actually involved in the accidentfiling claims when the claimant was not actually involved in the accident– submitting claims for medical treatments that were not receivedsubmitting claims for medical treatments that were not received– inventing injuriesinventing injuries– illegally register their car to a location that would net them cheaper insurance illegally register their car to a location that would net them cheaper insurance

rates than where they actually live, sometimes called "rate evasion". rates than where they actually live, sometimes called "rate evasion". – "fronting“: registering someone other than the real primary driver of a car as "fronting“: registering someone other than the real primary driver of a car as

the primary driver of the car.the primary driver of the car.– falsely report their vehicle as stolenfalsely report their vehicle as stolen

CoverageCoverage

• Automobile coverage are grouped Automobile coverage are grouped into two categories:into two categories:

A) A) Bodily Injury Coverage : Bodily Injury Coverage :

I.I. Bodily injury liability- for the risk of Bodily injury liability- for the risk of financial loss due to legal expenses, financial loss due to legal expenses, medical expenses and other medical expenses and other expenses caused by an automobile expenses caused by an automobile accident for which you are accident for which you are responsible. responsible.

II.II. Medical Payments – covers the cost Medical Payments – covers the cost of healthcare for people who are of healthcare for people who are injured in your vehicle. injured in your vehicle.

III.III. Uninsured Motorists Protection- Uninsured Motorists Protection- covers the cost of injury if you are covers the cost of injury if you are hit by an uninsured driver. hit by an uninsured driver.

B) B) Property Damage CoverageProperty Damage Coverage: : Protect from financial loss due to Protect from financial loss due to damage of other people’s property damage of other people’s property or your vehicle.or your vehicle.

I.I. Property Damage Liability – protects Property Damage Liability – protects from damage to other people’s from damage to other people’s property, street signs, lampposts, property, street signs, lampposts, buildings etc. The last number in the buildings etc. The last number in the Split Limit irpresents the property Split Limit irpresents the property damage liability (100/200/50).damage liability (100/200/50).

II.II. Collision- covers the damages to a Collision- covers the damages to a vehicle in case of an accident. vehicle in case of an accident. However, if you are not at fault, the However, if you are not at fault, the insurance might try to recover the insurance might try to recover the money from the other insurance money from the other insurance Company ( Subrogation). Company ( Subrogation).

III.III. Comprehensive Physical Damage – Comprehensive Physical Damage – Covers you for other risks such as Covers you for other risks such as wind, vandalism, fire , theft, falling wind, vandalism, fire , theft, falling objects etcobjects etc

Coverage Limit and Coverage Limit and DeductiblesDeductiblesCoverage Limit :Coverage Limit :

• Your auto insurance coverage limit is the highest dollar amount Your auto insurance coverage limit is the highest dollar amount an insurance company will pay if you make a claim on a covered loss an insurance company will pay if you make a claim on a covered loss (that's insurance-speak for any losses that fall within the bounds of your (that's insurance-speak for any losses that fall within the bounds of your policy).policy).

• The higher your coverage limit, the more the company pays, but The higher your coverage limit, the more the company pays, but the higher your premiums will be to obtain that coverage.the higher your premiums will be to obtain that coverage.

• Lowering your coverage limit is a good way to bring your Lowering your coverage limit is a good way to bring your premiums down and save money now, even if you may need to pay more premiums down and save money now, even if you may need to pay more out-of-pocket later, after an accident.out-of-pocket later, after an accident.

•Deductibles:Deductibles:

• Your deductible is the amount of money you agree to pay out-of-Your deductible is the amount of money you agree to pay out-of-pocket (on your own) when you make a claim covered by your policy.pocket (on your own) when you make a claim covered by your policy.

• This means, for example, that if your repairs cost $1,500 and This means, for example, that if your repairs cost $1,500 and you've set your deductible at $500, theoretically, you'll pay the first $500, you've set your deductible at $500, theoretically, you'll pay the first $500, and the company will pay the remaining $1,000 to get your car fixed and and the company will pay the remaining $1,000 to get your car fixed and back on the road.back on the road.

•

Auto Insurance Premium Auto Insurance Premium FactorsFactors– Age - Statistically, drivers under the age of 25 are at greater risk of being in an Age - Statistically, drivers under the age of 25 are at greater risk of being in an

accident accident than those over age 25. Drivers between the ages of 50 and than those over age 25. Drivers between the ages of 50 and 65 generally have 65 generally have the safest records.the safest records.

– Gender - Women are statistically safer drivers, but that trend is changing as more Gender - Women are statistically safer drivers, but that trend is changing as more female female drivers get on the road. young unmarried male drivers have drivers get on the road. young unmarried male drivers have more accidents more accidents and expect to pay more premium ( because they and expect to pay more premium ( because they have more moving violations have more moving violations and license suspensions). and license suspensions).

– Marital Status - A married person will pay less than a single person with an Marital Status - A married person will pay less than a single person with an identical driving identical driving record. record.

– Geography – Also known as Rating Territory- different locations have different Geography – Also known as Rating Territory- different locations have different costs due to costs due to the number of claims reported every year. Cities the number of claims reported every year. Cities such as Los Angeles and such as Los Angeles and New York have higher rates.New York have higher rates.

– Vehicle Type – The year, make and model of the vehicle impacts the insurance Vehicle Type – The year, make and model of the vehicle impacts the insurance costs. costs. Expensive replacement parts and body repairs due to the Expensive replacement parts and body repairs due to the body style may also body style may also increase the cost of insurance. Other car increase the cost of insurance. Other car models such as Mercedes, Corvette models such as Mercedes, Corvette have higher theft rates thus have higher theft rates thus increasing the cost. increasing the cost.

– Accident Claims – The number of claims that you file also affects the rate of Accident Claims – The number of claims that you file also affects the rate of premiums. premiums. Expensive liability settlements and extensive Expensive liability settlements and extensive property damage increases the property damage increases the rate of premiums. rate of premiums.

– Driving record _ If you have poor driving record, then the insurance company Driving record _ If you have poor driving record, then the insurance company may cancel may cancel your policy. You therefore get the “assigned risk your policy. You therefore get the “assigned risk Pool” where you pay several Pool” where you pay several times the regular rate until your driving times the regular rate until your driving record improves. record improves.

Auto Insurance Premium Auto Insurance Premium FactorsFactors

– Driving Violations - The more driving violations you have , the higher the premium Driving Violations - The more driving violations you have , the higher the premium you pay. you pay.

– Number of miles driven - Drivers pay more when they put more miles on their car Number of miles driven - Drivers pay more when they put more miles on their car annually annually because it increases risk. Most auto insurance because it increases risk. Most auto insurance companies provide companies provide discounts for low mileage.discounts for low mileage.

– Coverage - Auto insurance calculates premiums based on the number of coverages Coverage - Auto insurance calculates premiums based on the number of coverages selected selected by the driver, deductibles, and payment limits. The more by the driver, deductibles, and payment limits. The more coverage, the greater coverage, the greater the cost. However, drivers can elect to raise the cost. However, drivers can elect to raise deductibles and lower payment deductibles and lower payment limits which reduces the cost of limits which reduces the cost of the auto insurance.the auto insurance.

– Discounts - Auto insurance provides discounts for car safety features including Discounts - Auto insurance provides discounts for car safety features including daytime daytime running lights, airbags, and theft prevention systems. It also running lights, airbags, and theft prevention systems. It also provides provides discounts for multi-car auto insurance policies, customer loyalty, discounts for multi-car auto insurance policies, customer loyalty, and in some and in some states, driver safety courses.states, driver safety courses.

– Miles driven- Drivers pay more when they put more miles on their car annually Miles driven- Drivers pay more when they put more miles on their car annually because it because it increases risk. Most auto insurance companies provide increases risk. Most auto insurance companies provide discounts for low discounts for low mileage.mileage.

– Credit Rating- Many insurance companies view having a poor, or even no credit Credit Rating- Many insurance companies view having a poor, or even no credit history as history as suggestive of higher risk and thus, charge you a higher suggestive of higher risk and thus, charge you a higher premium. A better premium. A better credit score will save on insurance premiums.credit score will save on insurance premiums.

– Occupation - Insurers have statistically found a correlation between your occupation Occupation - Insurers have statistically found a correlation between your occupation and and risk. For instance, a newspaper delivery person is most likely a risk. For instance, a newspaper delivery person is most likely a higher risk than higher risk than the personal banker sitting at their desk all day.the personal banker sitting at their desk all day.

How do you reduce the How do you reduce the PremiumPremium• Discounts: Discounts:

Discounts for Safe Drivers:Discounts for Safe Drivers:

- Premier Discount: If you've been safe on the road and accident-free for the - Premier Discount: If you've been safe on the road and accident-free for the past three past three years, and you're also clear of any moving violations, you years, and you're also clear of any moving violations, you might qualify for our might qualify for our auto insurance Premier Discountauto insurance Premier Discount

- Defensive driver class discount : If the principal driver usually 55 years old or - Defensive driver class discount : If the principal driver usually 55 years old or older has older has completed an approved defensive driving class a discount could completed an approved defensive driving class a discount could apply. apply.

Discounts for Safe Cars:Discounts for Safe Cars:

- Passive Restraint Systems: If your car came equipped with airbags, or- Passive Restraint Systems: If your car came equipped with airbags, orfactory-installed motorized seatbelts, you could receive a factory-installed motorized seatbelts, you could receive a

Passive Restraint Passive Restraint Discount on your auto insurance. Discount on your auto insurance.

- Auto Safety features: Certain states will give you discounts for anti-lock - Auto Safety features: Certain states will give you discounts for anti-lock breaks, alarm breaks, alarm systems, fuel shut off, and second ignition. These reduce systems, fuel shut off, and second ignition. These reduce the risk of thest, the risk of thest, lowering insurance cost.lowering insurance cost.

Good Student discount : If you are a full-time student who meets certain grade Good Student discount : If you are a full-time student who meets certain grade requirements and are unmarried and usually under 25 years of age requirements and are unmarried and usually under 25 years of age

(some (some states the age is 21) you could be eligible for a good student discount.states the age is 21) you could be eligible for a good student discount.

--

How do you reduce the How do you reduce the PremiumPremiumMultiple vehicles discount. This will only apply if you have two or more drivers. Multiple vehicles discount. This will only apply if you have two or more drivers.

- If you have a clean driving record, meaning you do not have any - If you have a clean driving record, meaning you do not have any tickets, tickets, accidents or suspensions in the last three years (some companies accidents or suspensions in the last three years (some companies require five require five years) then you could be eligible for a safe years) then you could be eligible for a safe driver's discount.driver's discount.

• Deductibles Deductibles - Buying a policy with higher deductibles will save you - Buying a policy with higher deductibles will save you money. money.

• Have a policy with no lapse in it. Have a policy with no lapse in it. Renewing on time and avoiding Renewing on time and avoiding cancellations, due to lack of payment or otherwise, will help you because cancellations, due to lack of payment or otherwise, will help you because at renewal a discount may apply.at renewal a discount may apply.

How do Claims affect How do Claims affect Premiums?Premiums?• Auto claim premiums are affected by three main factors:Auto claim premiums are affected by three main factors:

ISO Symbols :ISO Symbols :

To determine the cost of repair to a vehicle after an accident, insurance companies To determine the cost of repair to a vehicle after an accident, insurance companies and agents subscribe to a service provided by a company called “Insurance Services and agents subscribe to a service provided by a company called “Insurance Services

Offices, Inc.”, or “ISO”. Offices, Inc.”, or “ISO”.

This service rates every vehicle produced in the USA and throughout the world with This service rates every vehicle produced in the USA and throughout the world with a symbol, called an “ISO symbol”. The ISO symbol isa symbol, called an “ISO symbol”. The ISO symbol is built in as part of the insurance built in as part of the insurance company’s computer rating system, (your insurance premium quote)company’s computer rating system, (your insurance premium quote). .

In general, the higher the vehicle cost, the more expensive to repair, and a In general, the higher the vehicle cost, the more expensive to repair, and a higher policy premium cost required. higher policy premium cost required. The higher the symbol number, the higher The higher the symbol number, the higher the insurance premium cost and the higher the parts cost, and for a body shop to the insurance premium cost and the higher the parts cost, and for a body shop to repair. repair.

EExample ISO symbols for 2005 vehicles:xample ISO symbols for 2005 vehicles:

6 - Dodge Caravan SE 4 dr. Wagon 6 - Dodge Caravan SE 4 dr. Wagon

10 - Mercury Sable GS 4 dr. Sedan10 - Mercury Sable GS 4 dr. Sedan

16 - Honda Accord EX 2 dr. Coupe16 - Honda Accord EX 2 dr. Coupe

25 - Audi A8 Quattro 4 dr. Sedan25 - Audi A8 Quattro 4 dr. Sedan

How do Claims affect How do Claims affect Premiums?Premiums?

Driving Record:Driving Record:

• Your premiums are based upon a rating system which is filed and Your premiums are based upon a rating system which is filed and regulated by the state or country where you live.regulated by the state or country where you live.

• Almost all insurance company premiums are based upon an “allocation” Almost all insurance company premiums are based upon an “allocation” type of rating system. This system is set up in order to allocate policy type of rating system. This system is set up in order to allocate policy premiums fairly and is based upon several factors, but one of the main premiums fairly and is based upon several factors, but one of the main factors is: How safe are you in your driving record? factors is: How safe are you in your driving record?

• When any person has an accident or a claim, the cost which the insurance When any person has an accident or a claim, the cost which the insurance company must allocate to auto policy premium is more than just the cost company must allocate to auto policy premium is more than just the cost of repairing the vehicle.of repairing the vehicle.

• All costs must be allocated based upon a driver’s statistical likelihood of All costs must be allocated based upon a driver’s statistical likelihood of creating claims. Insurance premiums are designed to highly reward safe creating claims. Insurance premiums are designed to highly reward safe drivers. A claims free driver, will pay less than a driver with claims. drivers. A claims free driver, will pay less than a driver with claims.

How do Claims affect How do Claims affect Premiums?Premiums?

Insurance Fraud:Insurance Fraud:• soft auto-insurance fraud:soft auto-insurance fraud:

– filing more than one claim for a single injuryfiling more than one claim for a single injury– filing claims for injuries not related to an automobile accidentfiling claims for injuries not related to an automobile accident– misreporting wage losses due to injuries misreporting wage losses due to injuries – reporting higher costs for car repairs than those that were actually paidreporting higher costs for car repairs than those that were actually paid

• Hard auto-insurance fraud:Hard auto-insurance fraud:– staging automobile collisionsstaging automobile collisions– filing claims when the claimant was not actually involved in the accidentfiling claims when the claimant was not actually involved in the accident– submitting claims for medical treatments that were not receivedsubmitting claims for medical treatments that were not received– inventing injuriesinventing injuries– illegally register their car to a location that would net them cheaper insurance illegally register their car to a location that would net them cheaper insurance

rates than where they actually live, sometimes called "rate evasion". rates than where they actually live, sometimes called "rate evasion". – "fronting“: registering someone other than the real primary driver of a car as "fronting“: registering someone other than the real primary driver of a car as

the primary driver of the car.the primary driver of the car.– falsely report their vehicle as stolenfalsely report their vehicle as stolen

Works CitedWorks Cited

• Kapoor, Jack R. Kapoor, Jack R. Personal financePersonal finance. Homewood, IL: Irwin, 1991. Homewood, IL: Irwin, 1991

• Bertot, Cathey H. Bertot, Cathey H. New financial planner a guide to client serviceNew financial planner a guide to client service. . Homewood, Ill: Dow Jones-Irwin, 1986.Homewood, Ill: Dow Jones-Irwin, 1986.

• Crane, Frederick G. Crane, Frederick G. Insurance principles and practicesInsurance principles and practices. New York: . New York: Wiley, 1980. Wiley, 1980.

• "Factors That Affect Your Car Insurance Premium." "Factors That Affect Your Car Insurance Premium." Car Insurance: Car Insurance: Get an auto Get an auto insurance quote, car insurance quotes and a fast insurance quote, car insurance quotes and a fast online insurance policy.online insurance policy. 26 26 Apr. 2009 Apr. 2009 <http://www.carinsurance.com/Articles/content6.aspx>. <http://www.carinsurance.com/Articles/content6.aspx>.

• "Vehicle insurance -." "Vehicle insurance -." Wikipedia, the free encyclopediaWikipedia, the free encyclopedia. 26 Apr. . 26 Apr. 2009 2009 <http://en.wikipedia.org/wiki/Car_insurance <http://en.wikipedia.org/wiki/Car_insurance www.Carinsurance.comwww.Carinsurance.com

• www.allstate.comwww.allstate.com

• www.insure.com