Are You Paying Twice?
Car Insurance

When New Jersey governor Christine Todd Whitman addressed the Republican National Convention last year, hushed whispers of "Could she be the first woman President?" rippled through the crowd. Today, less than two years later, she is on the verge of being ousted from the governor's mansion.

Why the sudden about-face by voters? Chalk it up to New Jersey's high auto insurance, according to "Car Trouble," an article in last week's Newsweek magazine. In some areas, insurance premiums are nearly as much as car payments. For example, a 27-year-old male (with one speeding ticket) who owns a nearly new Chevy Blazer can expect to pay anywhere from $2,200 to $2,800 per year in insurance premiums. One accident can increase his premium as much as 50%. Get in a fender-bender, and he'll feel like he's paying for his car twice.

There are ways to make your insurance cheaper, but it requires active participation on your part. In order to understand how to make your insurance less expensive, first you need to understand exactly how insurance policies work.

Policies vary widely depending on dozens of different variables. Not only is your driving record important, but even things like your credit rating, whether or not you smoke, and what you do for a living can affect how much you will pay. Even within the same state, the cost of insurance premiums can vary by as much as four-fold depending on the insurance company.

To keep costs down, it is important that you know what's in your policy and what you can and can't afford to do without. Your insurance will protect you in four general areas:

-- liability (if the accident is your fault)
-- collision and comprehensive (damages to your vehicle)
-- medical payments
-- uninsured motorist coverage

Liability Coverage

Property Damage Liability -- covers the repair or replacement of another person's property if you damage it in an accident.

Bodily Injury Liability -- pays for the medical treatments, rehabilitation or funeral costs of another person (or persons) in the event that the accident is your fault. The "other person" can be a driver or passenger in another car, a passenger in your car, or a pedestrian. This will also pay legal costs (which you will inevitably need if you were at fault).

Collision and Comprehensive

Collision -- pays for getting your car fixed or a replacement of its market value whether it was your fault or not.

Comprehensive -- covers for repairs or a replacement if your car has been stolen or if it has been damaged by things like a flood or a fire.

Medical Payments

Medical Payments Coverage -- pays for doctor and hospital bills and some funeral costs for you and your passengers.

Personal Injury Protection -- a more comprehensive version of the medical payments coverage, which covers medical and funeral costs for you and your family. It can also cover lost wages.

Uninsured and Under-Insured Motorist Coverage (UIMC)

UIMC pays for medical costs, funeral costs, and losses from pain and suffering from an accident caused by a driver who has no insurance or not enough insurance to cover your needs.

Other

Rental Reimbursement or Towing -- covers towing your wrecked car to a mechanic or body shop and the rental of an auto while yours is being fixed.

The amount of insurance coverage you need is dictated by two things -- the state-mandated minimums and what you can afford. What you can afford is not only what you can afford to pay, but also what you can afford to lose. The liability elements of your policy are very important if you have assets to protect.

Collision and comprehensive coverage is only good for the amount that your car is worth, not how much you paid for it. Before you call any insurance company, have a good idea of how much your car is really worth. To get a feel for your car's fair market value, look it up the latest monthly edition of the National Automobile Dealer's Association's Official Used Car Guide. Most public libraries have a copy or two.

Your health plan will probably cover you and your family already if you were to be injured in an accident. Know exactly what it will pay so that you don't pay for redundant coverage in your car insurance.

For a comparison worksheet to use when you call around for quotes, go to the Auto Insurance Worksheet page from the Insurance Information Institute website.

Most importantly, be Foolish! Do your homework and don't let anyone sell you something that you don't want or need. Why pay for your car twice?

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