Car Insurance

1. Car Insurance Justine McAleese & Rita Kamau

2. Elements of a Contract • Must be an agreement based upon a definite offer by one party and the acceptance of that offer by the other party • The two parties must be legally competent to make a contract • There must be a consideration; both parties must give something of value and both must receive something of value • The contract must have a legal purpose

3. Insurance • Indemnity Principle: legal doctrine stating that the function of insurance is to repay (indemnity) insured's for their actual losses • Insurable interest: Insured must be in position to sustain financial loss in the event insured against occurs • Loss measurement: A way to determine the amount of payment when a loss occurs • Car Insurance: Market value • 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 recover from any third party who caused the losses

4. Auto Accidents Casual factors in Fatal Auto Accidents Factor Percent of Cases Improper driving 75.9 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 24.1 • The 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%.

5. Premiums • 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: • Age • Gender • Marital Status • Geography • Driving Violations • Vehicle Type • Accident Claims • Credit Rating • Occupation • Education • Driving Distance to Work • Miles Driven each year • Years of driving experience • Whether or not you currently have auto insurance and how high are your limits • Theft protection devices (often results in discounts) • Multiple cars and drivers (another opportunity for discounts)

6. Kinds 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

7. Insurance fraud • soft auto-insurance fraud: • filing more than one claim for a single injury • filing claims for injuries not related to an automobile accident • misreporting wage losses due to injuries • reporting higher costs for car repairs than those that were actually paid • Hard auto-insurance fraud: • staging automobile collisions • filing claims when the claimant was not actually involved in the accident • submitting claims for medical treatments that were not received • inventing injuries • illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". • "fronting“: registering someone other than the real primary driver of a car as the primary driver of the car. • falsely report their vehicle as stolen

8. Coverage • Automobile coverage are grouped into two categories: A) Bodily Injury Coverage : • Bodily injury liability- for the risk of financial loss due to legal expenses, medical expenses and other expenses caused by an automobile accident for which you are responsible. • Medical Payments – covers the cost of healthcare for people who are injured in your vehicle. • Uninsured Motorists Protection- covers the cost of injury if you are hit by an uninsured driver. B) Property Damage Coverage: Protect from financial loss due to damage of other people’s property or your vehicle. • Property Damage Liability – protects from damage to other people’s property, street signs, lampposts, buildings etc. The last number in the Split Limit irpresents the property damage liability (100/200/50). • Collision- covers the damages to a vehicle in case of an accident. However, if you are not at fault, the insurance might try to recover the money from the other insurance Company ( Subrogation). • Comprehensive Physical Damage – Covers you for other risks such as wind, vandalism, fire , theft, falling objects etc

9. Coverage Limit and Deductibles Coverage Limit : • Your auto insurance coverage limit is the highest dollar amount 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 policy). • The higher your coverage limit, the more the company pays, but the higher your premiums will be to obtain that coverage. • 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 out-of-pocket later, after an accident. Deductibles: • 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. • 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, and the company will pay the remaining $1,000 to get your car fixed and back on the road.

10. Auto Insurance Premium Factors • Age - Statistically, drivers under the age of 25 are at greater risk of being in an accident than those over age 25. Drivers between the ages of 50 and 65 generally have the safest records. • Gender - Women are statistically safer drivers, but that trend is changing as more female drivers get on the road. young unmarried male drivers have more accidents and expect to pay more premium ( because they have more moving violations and license suspensions). • Marital Status - A married person will pay less than a single person with an identical driving record. • Geography – Also known as Rating Territory- different locations have different costs due to the number of claims reported every year. Cities such as Los Angeles and New York have higher rates. • Vehicle Type – The year, make and model of the vehicle impacts the insurance costs. Expensive replacement parts and body repairs due to the body style may also increase the cost of insurance. Other car models such as Mercedes, Corvette have higher theft rates thus increasing the cost. • Accident Claims – The number of claims that you file also affects the rate of premiums. Expensive liability settlements and extensive property damage increases the rate of premiums. • Driving record _ If you have poor driving record, then the insurance company may cancel your policy. You therefore get the “assigned risk Pool” where you pay several times the regular rate until your driving record improves.

11. Auto Insurance Premium Factors • Driving Violations - The more driving violations you have , the higher the premium you pay. • Number of miles driven - Drivers pay more when they put more miles on their car annually because it increases risk. Most auto insurance companies provide discounts for low mileage. • Coverage - Auto insurance calculates premiums based on the number of coverages selected by the driver, deductibles, and payment limits. The more coverage, the greater the cost. However, drivers can elect to raise deductibles and lower payment limits which reduces the cost of the auto insurance. • Discounts - Auto insurance provides discounts for car safety features including daytime running lights, airbags, and theft prevention systems. It also provides discounts for multi-car auto insurance policies, customer loyalty, and in some states, driver safety courses. • Miles driven- Drivers pay more when they put more miles on their car annually because it increases risk. Most auto insurance companies provide discounts for low mileage. • Credit Rating- Many insurance companies view having a poor, or even no credit history as suggestive of higher risk and thus, charge you a higher premium. A better credit score will save on insurance premiums. • Occupation - Insurers have statistically found a correlation between your occupation and risk. For instance, a newspaper delivery person is most likely a higher risk than the personal banker sitting at their desk all day.

12. How do you reduce the Premium • Discounts: Discounts for Safe Drivers: - Premier Discount: If you've been safe on the road and accident-free for the past three years, and you're also clear of any moving violations, you might qualify for our auto insurance Premier Discount - Defensive driver class discount : If the principal driver usually 55 years old or older has completed an approved defensive driving class a discount could apply. Discounts for Safe Cars: - Passive Restraint Systems: If your car came equipped with airbags, or factory-installed motorized seatbelts, you could receive a Passive Restraint Discount on your auto insurance. - Auto Safety features: Certain states will give you discounts for anti-lock breaks, alarm systems, fuel shut off, and second ignition. These reduce the risk of thest, lowering insurance cost. 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 (some states the age is 21) you could be eligible for a good student discount. -

13. How do you reduce the Premium 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 tickets, accidents or suspensions in the last three years (some companies require five years) then you could be eligible for a safe driver's discount. • Deductibles - Buying a policy with higher deductibles will save you money. • Have a policy with no lapse in it. Renewing on time and avoiding cancellations, due to lack of payment or otherwise, will help you because at renewal a discount may apply.

14. How do Claims affect Premiums? • Auto claim premiums are affected by three main factors: ISO Symbols : 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 Offices, Inc.”, or “ISO”. This service rates every vehicle produced in the USA and throughout the world with a symbol, called an “ISO symbol”. The ISO symbol is built in as part of the insurance company’s computer rating system, (your insurance premium quote). In general, the higher the vehicle cost, the more expensive to repair, and a higher policy premium cost required. The higher the symbol number, the higher the insurance premium cost and the higher the parts cost, and for a body shop to repair. Example ISO symbols for 2005 vehicles: 6 - Dodge Caravan SE 4 dr. Wagon 10 - Mercury Sable GS 4 dr. Sedan 16 - Honda Accord EX 2 dr. Coupe 25 - Audi A8 Quattro 4 dr. Sedan

15. How do Claims affect Premiums? Driving Record: • Your premiums are based upon a rating system which is filed and regulated by the state or country where you live. • Almost all insurance company premiums are based upon an “allocation” 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 factors is: How safe are you in your driving record? • 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 of repairing the vehicle. • All costs must be allocated based upon a driver’s statistical likelihood of creating claims. Insurance premiums are designed to highly reward safe drivers. A claims free driver, will pay less than a driver with claims.

16. How do Claims affect Premiums? Insurance Fraud: • soft auto-insurance fraud: • filing more than one claim for a single injury • filing claims for injuries not related to an automobile accident • misreporting wage losses due to injuries • reporting higher costs for car repairs than those that were actually paid • Hard auto-insurance fraud: • staging automobile collisions • filing claims when the claimant was not actually involved in the accident • submitting claims for medical treatments that were not received • inventing injuries • illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". • "fronting“: registering someone other than the real primary driver of a car as the primary driver of the car. • falsely report their vehicle as stolen

17. Works Cited • Kapoor, Jack R. Personal finance. Homewood, IL: Irwin, 1991 • Bertot, Cathey H. New financial planner a guide to client service. Homewood, Ill: Dow Jones-Irwin, 1986. • Crane, Frederick G. Insurance principles and practices. New York: Wiley, 1980. • "Factors That Affect Your Car Insurance Premium." Car Insurance: Get an auto insurance quote, car insurance quotes and a fast online insurance policy. 26 Apr. 2009 <http://www.carinsurance.com/Articles/content6.aspx>. • "Vehicle insurance -." Wikipedia, the free encyclopedia. 26 Apr. 2009 <http://en.wikipedia.org/wiki/Car_insurance www.Carinsurance.com • www.allstate.com • www.insure.com