IA Newsletter, March 2012

Car insurance: 5 questions to ask.
Insurance agents reveal what their customers should be asking -- but often don't -- before deciding what kind of coverage to buy.

This article was reported by Kat Zeman for Insure.com

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5 Questions to ask about your Car Insurance.

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Asking the right questions when you get car insurance quotes can save you money and frustration.

Your agent may not discuss your policy in excruciating detail, instead assuming that you'll read it. But if you're like most people, you'll park it in a filing cabinet and forget about it.

A better approach would be to ask questions before your policy disappears into a black hole of paperwork.

To make things easier, we asked insurance agents across the country to give us their tips for what customers should ask their insurance agents but often don't. Here's what they told us.

1. Am I getting all the discounts that my auto insurer offers?

Many car insurance companies offer much more than safe-driver discounts. You may qualify for a variety of other discounts, called credits. Derek Ross, of C.M. Meiers, an insurance brokerage in Woodland Hills, Calif., says insurers offer discounts if your car has safety features such as a car alarm, air bags or an anti-theft or electronic vehicle-locator device. Your insurer may even give you a discount if you park in a garage.

If you drive a hybrid, some insurers offer discounts simply because the vehicle is eco-friendly.

Bragging about your child's accomplishments in school could save you up to 20% on your insurance policy: Ask for a good-student discount (most companies require at least a B average). This generally applies to young drivers up to age 23 or 25.

Being a member of a professional organization -- such as a state bar association or medical board -- within your field can save you money, Ross says. Some insurers even offer discounts if you graduated from a specific college or university.

You could also qualify for low-mileage savings. If you don't drive long distances, some companies will award you a discount based on your annual mileage.

And if you happen to have a homeowners insurance policy with the same company, don't forget to ask for a multiline discount.

2. Do I have comprehensive and collision coverage, and is it worth it?

Comprehensive and collision are separate coverages, and you can buy one or the other, or both. Collision coverage pays for repairs to your car in the event of an accident, no matter who caused it. Comprehensive coverage pays for damage suffered through other events, such as vandalism, flood, theft or tree damage. Both coverages generally require that you pay a deductible.

Alex Soto, a former chairman of the Independent Insurance Agents and Brokers of America and the president and CEO of InSource in Miami, says that collision and comprehensive coverage can be a good idea if you own a newer car. But once your car declines in value, you may want to cancel it.

For example, it may not be worthwhile to pay $400 a year for collision and comprehensive insurance to protect a car that is valued at only $3,000. If you make a total-loss claim, you'll pay your deductible -- say, $1,000 -- and the insurance company then pays the remainder -- in this case, $2,000. Would that $400 premium be worth it?

On the other hand, if your car is valued at $40,000, buying comprehensive and collision coverage for $500 to $600 may be a good idea.

"It is worth it, because while you can afford a $2,000 loss as in the previous example, you may not wish to self-insure $40,000," Soto says. Check the NADA Guides' value of your car each year and decide whether collision and comprehensive coverage is a good bet.

3. Does my policy include uninsured- and underinsured-motorist coverage?

Not all states require you to have uninsured-motorist coverage. (See your state's minimum levels of requires auto insurance.) If you must buy it, your agent will tell you. If not, Ross says, it's an important coverage to consider. If you have collision coverage, damage to your vehicle will be covered if an uninsured driver crashes into you. But if you don't, you may want to consider purchasing coverage for uninsured-motorist property damage, or UMPD.

"A lot of people cannot afford comp and collision," Ross says. "So if you don't have it because you can't afford it, you can get UMPD."

Because it's less expensive than collision, UMPD usually pays up to only $3,500 for repairs, but it does not require you to cough up a deductible. If you do have collision coverage and want to avoid paying the deductible (usually at least $500) after an accident, you can add on a collision deductible waiver. Relatively inexpensive, this will waive your collision deductible if your vehicle is hit by an uninsured motorist.

You should also ask your agent what type of coverage you have in the event an uninsured driver hits your vehicle and injures you. Although collision coverage pays for damage to your vehicle, it does not cover medical bills. You may want to inquire about uninsured-motorist coverage for bodily injury.

4. If my car is totaled, how much will my insurance pay to cover the loss?

If you don't address the issue when you buy your policy, the claims check to pay for your totaled car may shock you. Mary Paquette, the vice president of private client services at Chartwell Insurance Services in Chicago, says that some insurance companies pay "actual cash value" while others pay an "agreed-upon value" in the event of a total loss. Actual cash value is the depreciated value of your car at the time of the loss. Many insurance companies use the NADA Guides to look up this figure, Paquette says.

For example, say you insure your new car valued at $20,000 in January. With an actual-cash-value policy, your car may be valued at only $16,000 in July, Paquette says. That's what you would be paid for your wrecked car.

"It can be a surprise," Paquette says. But if your policy has an "agreed-upon value," the total loss value of your car (agreed upon annually when you renew your insurance) does not drop during the term of your policy.

"This way you have the peace of mind of knowing exactly what that value is listed at, and sometimes you have the flexibility to increase that agreed value for an additional premium," says Paquette, adding that companies such as Chubb Group, Fireman's Fund and Chartis Private Client Group offer agreed-upon value. Check with your agent to see if your insurer offers that option. Adding the feature to your policy will cost around $100 extra annually for the average policyholder, Paquette says.

5. If I need new parts for my car, will my insurer pay for original manufacturer parts?

Some insurance companies guarantee "original equipment manufacturer" parts while others will pay only for aftermarket parts, Paquette says. As the name suggests, OEM parts are those made by the manufacturer of your vehicle. Aftermarket parts are generally less expensive and made by another manufacturer.

"To some people it really doesn't matter, but to some people it does. These are just good things to know," Paquette says.

Some insurance companies also retain the right to use either one. For example, when it comes to safety items that include air bags and engine parts, some insurers will guarantee OEM parts. But if you need to replace nonsafety items such as a stereo, power windows and doorknobs, you may get aftermarket parts. This may not always be negotiable. Some insurance companies will not write policies that guarantee OEM parts. Of course, you can always choose to pay the extra cost for OEM parts if you're in an accident.

"But if you have an option between companies, you may want to go with a company that does not retain the right to use aftermarket parts," Paquette says.