CAR INSURANCE Adapted by Dr. Vivian G. Baglien Auburn Mountainview High School

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

INSURANCE  Indemnity Principle: legal doctrine stating that the function of insurance is to repay (indemnity) insured's for their actual losses  Insurable interest: Insured (You) must be in position to sustain financial loss in the event involved in an accident  Loss measurement: A way to determine the amount of payment when a loss occurs  Car Insurance: Market value- loss usually repaid at value of vehicle at time of loss.

AUTO ACCIDENTS Casual factors in Fatal Auto Accidents FactorPercent of Cases Improper driving75.9 Speed too fast30.1 Right of way violation14.1 Drove left of center10.5 Other improper driving21.2 No improper driving24.1  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 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%.

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 LimitsFactor $25, $50, $100, $500,

PREMIUMS Classification System: a method of establishing the price of individual insurance policies by classifying policyholders in groups-each have similar characteristics  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)

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

BODILY INJURY COVERAGE : I. 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. II. Medical Payments – covers the cost of healthcare for people who are injured in your vehicle. III. Uninsured Motorists Protection- covers the cost of injury if you are hit by an uninsured driver.

PROPERTY DAMAGE COVERAGE: Protect from financial loss due to damage of other people’s property or your vehicle. I. Property Damage Liability – protects from damage to other people’s property, street signs, lampposts, buildings etc. The last number in the Split Limit represents the property damage liability (100/200/50). II. 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). III. Comprehensive Physical Damage – Covers you for other risks such as wind, vandalism, fire, theft, falling objects etc

WASHINGTON STATE LIABILITY The auto insurance policy must have limits of at least: $25,000 of bodily injury or death of 1 person in any 1 accident. $50,000 of bodily injury or death of any 2 people in any 1 accident. $10,000 of injury to or destruction of property of others in any 1 accident. These are minimum rates.

PROOF OF INSURANCE – IT’S THE LAW Showing proof of insurance If stopped by law must have proof of insurance No Proof of insurance (traffic violation). Your proof-of-insurance card shows that either you or your vehicle are covered by liability insurance. Card sent by insurance company Not needed for motorcycles

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.

AUTO INSURANCE PREMIUM FACTORS  Age -.  Gender –  Marital Status –  Geography –.  Vehicle Type –.  Accident Claims –  Driving record _

AUTO INSURANCE PREMIUM FACTORS  Driving Violations -.  Number of miles driven -.  Coverage  Discounts.  Miles driven-.  Credit Rating-.  Occupation

HOW DO YOU REDUCE THE PREMIUM Discounts:  Discounts for Safe Drivers:  Defensive driver class discount  Passive Restraint Systems  Auto Safety features  Good Student discount

HOW DO YOU REDUCE THE PREMIUM Multiple vehicles discount Deductibles – higher limits Have a policy with no lapse in it Safe Driver Record Good Student Discount Cover all insured property with one company- cars, house, boats, etc.

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  This service rates every vehicle produced in the USA and throughout the world with a symbol, called an “ISO symbol  In general, the higher the vehicle cost, the more expensive to repair, and a higher policy premium cost required.

HOW DO CLAIMS AFFECT PREMIUMS? Driving Record:  Your premiums are based upon a rating system  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-  How safe is you driving record?  Costs more than just cost of your vehicle  Based upon a driver’s statistical likelihood of creating claims  Highly rewards safe drivers

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

REFERENCES  Allstate Insurance as retrieved October 3, insurance/Washington-state-info.aspxhttp:// insurance/Washington-state-info.aspx  Bertot, C. (1986)New financial planner a guide to client service. Homewood, Ill: Dow Jones-Irwin,  Crane, F. (1980. Insurance principles and practices. New York: Wiley,  "Factors that affect your car insurance premium." Car Insurance: Get an auto insurance quote, car insurance quotes and a fast online insurance policy. as retrieved Apr., 26,  Kapoor, J. (1991)Personal finance. Homewood, IL: Irwin