Insurance World

When buying insurance, most people ask for “full coverage” without knowing what they’re asking for. What’s the problem? There is no such thing as “full coverage”. While understanding your coverage is important for everyone, it is vitally important if you’re driving a Mercedes, BMW, Bentley, Rolls-Royce, Porsche, Viper, Ferrari, Lamborghini, Lotus, or Aston Martin.

If you’re driving an expensive, exotic or high-performance car, you will want to make sure that after an accident you receive OEM parts, OEM paint, the ability to repair your vehicle at the auto body shop of your choice, and the amount of money needed for the repair.

Repairing an expensive car with non-OEM parts and/or improper workmanship will result in substantial diminished value. With expensive cars, even a proper repair will result in diminished value. What is diminished value? It is the lowered market value of a vehicle subsequent to repair. For instance, a Porsche or Ferrari will be worth less after an accident, even after it has been properly repaired. For research on diminished value, see http://www.hurt911.org/accident/car-accident-car-value.html

You do not want to get into an argument with your insurance company as to whether or not your vehicle can be repaired or should be totaled. Often, insurance companies will want to repair your car, when you think it should be totaled. If the insurance company agrees to total your car, most insurance policies only provide “actual cash value” insurance coverage which would only give you with a payment based on the current replacement cost of your vehicle, less depreciation (the decrease in the value of your car due to use, deterioration and the passage of time).

In the event that an exotic or high-priced car is totaled, the best replacement coverage is “agreed value” or “stated value”. The only insurance companies I have found to offer agreed value insurance are Chubb and MetLife.

Chubb’s web site states: “You and Chubb can agree on a value and lock it in for a full year. That’s the exact amount you’ll receive if your car is stolen or totaled in a covered loss. Never mind the “book” value. We even waive the deductible. No haggling, no depreciation, no deductible, no problem.”

MetLife’s web site states: Equivalent New Automobile Replacement for Total Loss is offered for vehicles within the first year of purchase or the first 15,000 miles, whichever comes first.

What’s the difference between Chubb’s “Agreed Value Option” and MetLife’s “Equivalent New Automobile Replacement” coverage? For high-value cars, Chubb is definitely the better choice. Chubb offers its agreed value coverage every year and readjusts the agreed value upon policy renewal. From what I have seen, the adjusted agreed value even years and over 100,000 miles later is substantially higher than actual value. Additionally, on a different topic, Chubb also offers up to $1 million of underinsured coverage, which is also vitally important. Make sure you ask your Chubb agent for the maximum underinsured coverage.

For average value new cars, MetLife is a good choice. MetLife does not offer its Equivalent New Automobile Replacement coverage after the first year or first 15,000 miles. For drivers of most new cars, this is still a good value because it is not uncommon for someone to total their new car soon after purchasing it. Usually, just driving a car out of the showroom can result in as much as $10,000 depreciation.

Auto insurance can be confusing for most consumers; there are so many different types of insurance and it can be difficult to determine the type of coverage you’re required to carry versus the types of coverage that you really should carry in order to protect yourself but that are not required.

When considering how much car insurance you should have, it is best to do some research and find out what type of insurance is required by the state in which you reside. Not all states require the same levels of insurance. Some states require more types of coverage than others and states also vary in terms of the amount of coverage that is required. So, be sure you know exactly what the minimums are in the state where you live.

You should also understand what is covered by the different types of insurance in order to understand whether you need insurance coverage above and beyond the minimum required by your state of residence.

Bodily injury liability covers injuries that you cause to someone else while driving your vehicle. Generally the rule of thumb for this type of coverage is to purchase more than is required by your state minimums in order to protect your private assets from a law suit in the event that you injure someone.

Medical payments or personal injury protection, commonly known as PIP covers the treatment of injuries for the driver and the passengers of the vehicle. Depending on the level of coverage, this type of policy will compensate lost wages as well as medical payments.

Collision covers any damage that occurs to your vehicle in the event of an accident, even if it is your fault. Of course, a deductible will apply. Your lender will generally require this type of coverage while you still owe on the vehicle.

Comprehensive coverage is for the loss of your vehicle due to damage by something other than a collision such as theft, fire, natural disaster, vandalism, etc. Again, your lender will probably require this coverage for a financed vehicle. Once your loan is paid off, it’s up to you whether you want to continue carrying comprehensive and collision coverage.

Uninsured and underinsured motorist coverage can come in handy in the event that you are either involved in a hit and run or if you are hit by someone who does not have insurance or who is underinsured.

When considering how much insurance to take out, start with the amount that is required at a minimum by your state and then consider whether you’re required to take out any additional coverage due to lender requirements. Remember that while we all hope we won’t have a need for insurance, in the event that we do, it can be a financial lifesaver.

Finally, don’t forget to consider your options regarding deductibles. Raising your deductible can help you lower your premiums and that can make taking out additional insurance coverage more affordable. Just be sure you can reasonably afford the deductible in the event you need to use it.