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Accident Forgiveness: Is It Worth It?

Written by W. Lane Startin. Posted in Research Last Updated: 12/24/2010

How insurance companies rate accidents, how an optional accident forgiveness option can stop auto insurance rate increases, and how it really works.

You don't have to pay more for this ... if you already are.

No doubt you’ve seen the commercials by now. The announcer strolling through a quiet, idyllic suburban scene, telling you how you can protect you and your loved ones with optional accident forgiveness on your car insurance coverage. In other words, if you get in a wreck the insurance company promises not to raise your rates. Sounds like a good deal, doesn’t it?

Well, it can be. However, it’s important to know exactly what “accident forgiveness” entails.

How Accidents Factor in Insurance Rates

The philosophy behind charging people who get in accidents more than people who don’t is pretty simple: those who use insurance benefits more should pay more than those who use them less.

That said, not all auto insurance claims result in higher rates. Those that do tend to fall in one of two categories: liability claims resulting from accidents when you’re found at fault, and full coverage collision claims. What’s more, the latter is usually only subject to rate increases if the claim exceeds a certain dollar amount. That exact amount varies from company to company, but is usually in the neighborhood of $750 to $1,000.

Accident claims stay on your record for three to five years, again depending on the company. Multiple claims in that three- to five-year period may result in you being dropped, forcing you to go to a non-standard or “high risk” company.

How Accident Forgiveness REALLY Works

Accident forgiveness simply means that if you’re in an accident that would otherwise raise your rates, the insurance company instead will keep your rates where they are. Here’s the rub, though. Accident forgiveness is an optional feature, and therefore comes at an additional charge. In other words, in many respects it’s easy for the insurance company to keep your rates where they are after an accident … because you allowed them to raise your rates beforehand.

A lot of it is truly in the marketing. With accident forgiveness or without it, the company’s loss exposure remains covered. It’s all motivated by the bottom line, not by altruism.

Accident forgiveness typically applies to only one accident. If you’re in a second accident – particularly if it occurs in the same policy period as the first – you’ll most likely get uprated (premium increase) anyway. You also may still be subject to being dropped for multiple accidents in the same way you would be without the accident forgiveness option. Consult with your insurance agent for details specific to your company, assuming your company offers an accident forgiveness option in the first place (not all do).

Is Accident Forgiveness Right For You?

One could make the argument that those who take the accident forgiveness are assuming they’ll be in an accident in the next three to five years. Indeed, many may scoff at such a sentiment. For people who do, optional accident forgiveness is probably not a good fit for them. However, if you find the knowledge that your rates won’t go up after an accident comforting, perhaps the peace of mind is worth it. Ultimately it’s a matter of personal preference.

Car Insurance Coverage

Written by W. Lane Startin. Posted in Research Last Updated: 12/09/2010

A history of car insurance coverage, a general overview of what it is, and it’s different components.

Car Insurance. Yeah, it's been around for a while.

A great deal can be written (and indeed, has been written) on car insurance. There are so many components to consider that one could easily fill a book. While exploring these components in detail is necessary, it’s also a good idea to take a look at car insurance coverage from a very general standpoint.

A Brief History of Car Insurance Coverage

In the larger insurance realm, auto insurance is part of what’s known as property and casualty insurance, or P&C. In addition to auto insurance, common types of property and casualty insurance include homeowner’s, renter’s and most commercial insurance products. The origins of P&C insurance in the United States dates back to colonial times, when groups of neighbors would establish simple communal burnout funds. One of the first of these funds was founded in Philadelphia by none other than Benjamin Franklin.

The first true auto insurance policy was a liability only policy written in 1897 in Dayton, Ohio, by Travelers. This policy, purchased for $1,000 (an astounding amount of cash in the day) simply covered the driver against accidental death, bodily injury and property damage. Fortunately for us, auto insurance today covers a lot more for a lot less.

As cars became more commonplace during the first years of the 20th Century, auto insurers were beginning to determine auto insurance premiums based on demographics and risk. Both Farmers Insurance Group in California and State Farm Insurance in Illinois were founded in the 1920s and originally sold auto insurance policies to, you guessed it, farmers. Why? Well, at the time it was believed farmers were good drivers simply because they were farmers. Today auto insurance risk assessment is much more scientific, literally considering thousands of variables.

Liability Car Insurance Coverage

At a basic level, auto insurance is comprised of two main components: liability and full coverage. As it did for that guy in Dayton over a century ago, liability auto insurance today covers drivers against accidental death, bodily injury and property damage. It also covers against damages caused by uninsured and underinsured motorists. This coverage is known as UM/UIM.

Liability coverage is required in all 50 states, the District of Colombia, Puerto Rico and throughout Canada. Some states also require UM/UIM coverage. Exact coverage requirements vary, but many areas require only a small amount of coverage. These state minimum limits are generally inadequate for anything other than minor accidents.

Many insurance professionals recommend carrying liability limits of at least $50,000 for bodily injury to one person, $100,000 for bodily injury to any group of people and $50,000 in property damage in any one accident. This is expressed in industry standard “split limit” format as 50/100/50. Some companies also offer a combined single limit, or CSL, coverage. The rough CSL equivalent to a 50/100/50 policy is $100,000 CSL. Both of these limits well exceed all current legal requirements.

Full Coverage Car Insurance Coverage

Full coverage protects your own car against property damage in a wide variety of situations. As its name implies, collision coverage helps fix your vehicle if it is hit. Comprehensive coverage covers a wide variety of other perils, including theft, vandalism, animal strikes and auto glass damage.

No government entity in the United States legally requires full coverage, however most auto lenders require it as part of their lending agreements. Failing to do so opens you up to “force placed” insurance, which is extremely expensive. If you’re making payments on your car, keep full coverage. It’s worth it.

Cheaper Car Insurance

Written by W. Lane Startin. Posted in Research Last Updated: 12/01/2010

Using discounts to find cheaper car insurance, choosing a cost-effective liability limit, and how to best utilize full coverage.

It's all about the discounts.

So you want cheaper car insurance? Why not?

What’s more the insurance companies know it. For years major insurers have run multi-million dollar advertising campaigns on this very premise. Finding cheap car insurance is no problem at all for most people.

That’s all fine and good, however simply looking for cheaper car insurance is not always the best thing to do. What you really want to do is look for cost-effective car insurance.

Cheaper Car Insurance Means Discounts

Apart from shopping around, the single best way to find cheaper car insurance is to find and qualify for as many discounts as possible. While the exact discounts available vary from company to company, just about everyone offers multi-car discounts, discounts for packaging auto insurance with other insurance lines such as homeowner’s insurance, discounts for good credit, good student discounts, and so on.

Rest assured there are plenty more.

A good agent will look for these discounts on your behalf. It’s the agent’s job to be familiar with the discounts his company offers. He or she is well-motivated to find these discounts for you, both because it’s good customer service, and also because it gives the agent a chance to outbid the competition (insurance agents love doing that). While it’s certainly possible to find these same discounts online, know you’re on your own when you do so.

Shop for Cheaper, Intelligent Liability Coverage

The most straightforward way to save on liability car insurance coverage is to simply go down to your local agency, ask for the state minimum limits and refuse to accept anything else. Indeed, this is how many people shop for insurance. It works, as long as they never get in an accident.

The plain truth is state minimum liability limits are routinely inadequate for anything other than minor accidents. If anything serious occurs, it’s very easy indeed to exceed the limits for bodily injury and property damage on a state minimum liability policy. While the insurance limits run out at a certain point, your legal liability doesn’t. If you’re in this situation you may find the accident very costly indeed, even with adequate insurance coverage in the eyes of the state. You may face subrogation or even be sued.

Instead, many insurance professionals recommend a more robust liability limit, such as a 50/100/50 “split limit” policy or a $100,000 combined single limit policy (CSL). These limits are often still reasonably priced for most people. The myriad of discounts available can make them even more appealing.

Don’t Forget Full Coverage

While no state requires full coverage auto insurance, it’s not always a good idea to forgo it. If you’re still making car payments, your lender will require you to carry full coverage as part of the contract. You’ll need to do so until the car is paid off.

Don’t think you can pull a fast one on them, either.

Lenders will ask your insurance company to send them a “binder,”which in this case is basically a piece of paper that documents that the vehicle in question has full coverage and lists the lender on the policy. Without a binder, a lender can put “force placed” insurance on your vehicle. Force placed insurance usually features limited coverage and extremely high prices. Keeping your full coverage is much more cost-effective.

Once your car loan is paid in full, you’re free to drop full coverage and remove the lender from your policy. Don’t assume the latter happens automatically. It often doesn’t. While this instantly results in cheaper car insurance, it also instantly results in significantly reduced coverage. Without full coverage you’re no longer covered against theft, vandalism or any accidents where fault can’t be pinned on someone else. If you’re OK with that, then go for it. If not, there’s nothing wrong with keeping full coverage.

Full coverage may not make for cheaper car insurance in the short-term, but it may be a cheaper route if you have an at-fault accident in an expensive vehicle.

How To Get Car Insurance in Mexico

Written by W. Lane Startin. Posted in Research Last Updated: 11/22/2010

Getting Mexican auto insurance from an agent or a third party source, and other documents needed to drive in Mexico.

Driving in Mexico takes planning

Yes, you can drive your car in Mexico. Seriously.

But before you strike out south of the border, you should understand how to get car insurance in Mexico.

While its infrastructure doesn’t have the best of reputations, there have been significant improvements made to Mexican highways in recent years, particularly around the major cities. While back roads can still be scary, many major routes are as well-maintained as anything north of the border.

If you have business or family in Mexico, it’s not at all that far-fetched to drive down there. You just need to make sure you have the right paperwork.

Getting Mexican Auto Insurance

Unlike in Canada, American auto insurance is not recognized in Mexico. Indeed, many American auto insurance policies specifically exclude coverage in Mexico. You may be able to get away with U.S. car insurance it if you stay near the “border zone,” but even that’s subject to interpretation. If you drive more than 15 miles or so into Mexico, Mexican auto insurance is an absolute must. There’s no debate there.

It’s best to plan ahead.

Contact your agent to see if he can find you a plan. Although virtually no American insurance company writes auto insurance in Mexico, American agents may have access to Mexican auto insurance companies through brokerages. Insurance agents often use brokerages to fill high-risk or unusual insurance needs. Chances are your agent has access at least one.

Other Methods to Obtain Mexican Auto Insurance

If your agent strikes out, you can purchase Mexican auto insurance coverage online. Failing that, it is possible to purchase Mexican auto insurance near the border. The closer you get to the border, the more ubiquitous these agencies become. But be careful. If you go this route, make sure you’re working with a reputable firm and actually buying Mexican auto insurance.

As in the U.S., Mexican insurance companies are independently rated by A. M. Best, a neutral insurance rating company. Major, respected Mexican insurance companies with good A. M. Best ratings include Grupo Nacional Provincial, ACE Seguros and HDI Seguros (“seguros” is the Spanish word for insurance).

Whatever you do, don’t try to drive in Mexico without at least liability auto insurance underwritten by a Mexican company. According to the State Department, if you’re in an accident and found without insurance you’ll be detained until financial responsibility can be resolved, even if you’re seriously injured. The State Department also says your chances of jail time in such a scenario are “almost certain.”

In addition if you’re found driving under the influence of alcohol or drugs, your Mexican auto insurance is effectively invalidated. Obviously, don’t do that either.

Other Required Mexican Travel Documents

In addition to a valid passport or other approved travel document such as a passport card (which you’ll need to get back into the U.S.), there are several other documents you need to obtain before you legally drive in Mexico.

You and all adults in your party must obtain a Mexican tourist visa at a Mexican consulate or at a port of entry after you cross the border. The application for this visa is pretty straightforward, but you will need to go to a nearby Mexican Army Bank (“Banjercito”) branch to pay the necessary fee, which is currently in the neighborhood of $20 each. Mexican tourist visas are good for up to six months.

Remember, You’re Importing a Vehicle Into Mexico

Mexican authorities also require a “Temporary Vehicle Importation Permit” for every foreign vehicle driven in Mexico. Although there are some exemptions if you stay in the northwestern states of Baja California and parts of Sonora, these permits are required everywhere else. Getting caught without one is no joke. You may be arrested and your vehicle may be confiscated.

This permit can generally be obtained at the same place you get your tourist visa. At the customs port of entry or Mexican consulate, you will need to show the authorities at the Banjercito branch your passport, a valid driver’s license and your vehicle registration or title. Banjercito offers an English-language online application for the permit at its web site, which can expedite the process considerably.

The fee for the permit itself is around $30, while the required bond deposit can be up to $400 depending on the age of your vehicle. A credit card can be used for the bond deposit, which is given back to you once you surrender the permit upon leaving Mexico assuming there were no problems.

Don’t forget to surrender the permit before you head home. If you leave Mexico without doing so you lose your bond deposit and any future vehicle importation permit applications will be denied.

It can be a confusing situation, but it’s not impossible getting auto insurance in Mexico. Just understand the process before leaving the US.

US Car Insurance in Canada

Written by W. Lane Startin. Posted in Research Last Updated: 08/21/2012

What’s needed to drive with US car insurance in Canada, when you need to get Canadian insurance, and things to consider while driving in Canada.

Using Your Auto Insurance In Canada

American auto insurance works in Canada, eh? Beauty!

Have you ever wanted to take a road trip to Toronto, Montreal, Vancouver, Winnipeg or even Alaska?

To do so you need to drive in Canada. While you may think you need to buy additional insurance at the border as you do in Mexico, the fact is in Canada you don’t need to worry about it in many cases.

However, there are several other things to consider before driving in the Great White North. It’s why US car insurance in Canada may not work in all situations.

Driving with US Auto Insurance in Canada

Canada is the only foreign country where U.S. auto insurance is generally recognized nationwide. As long as you’re traveling to Canada on a short-term basis as a “tourist,” purchasing Canadian auto insurance is not required provided you already have a valid U.S. license, registration and auto insurance policy.

As you do back home, as a U.S. drivers you are required to carry your license, registration and proof of insurance with you in Canada. Canadian officials also require you carry a “Non-Resident Inter-Province Motor Vehicle Liability Insurance Card” issued by your insurance company. To get this, just call your agent and tell him or her you need a Canadian insurance card

(yes, they should know what it is, or at least know who to call about it).

Oh yeah, you need a passport or a federally-approved travel document to get into (and out of) Canada in the first place. The days when you could cross the border without this documentation are a thing of the past.

Getting Canadian Auto Insurance (If You Need To)

You don’t need to worry about it if you’re only in Canada for a few days. However, if you plan on moving to Canada or or otherwise driving there for any length of time as anything other than a tourist, such as for college or an extended work-related excursion, you may very well have to get Canadian auto insurance.

While Canadian auto insurance is somewhat similar to auto insurance in the U.S., bear in mind all provinces and territories employ some form of “no fault” auto liability insurance, or auto insurance where your policy pays for your own liability-related damages.

Minimum liability limits in the Canadian provinces and territories are significantly higher than in U.S. states. Most provinces and territories require a liability minimum roughly equivalent to a $200,000 combined single limit (CSL). Although this is in Canadian dollars, it’s still considerably more than required anywhere in the U.S. Canadian auto insurance also often includes components of disability insurance and even life insurance in the form of final expense coverage not seen in American auto insurance coverages.

In some provinces auto insurance is partially or entirely a government operation. Ontario’s state-run auto insurance program is comprehensive, but particularly complex. Private auto insurance is available in other provinces, however, such as Alberta and Nova Scotia.

Canadian Things to Watch For (Other Than Moose)

Speed limits in Canada are expressed in kilometers per hour and considerably lower than in the U.S. The standard highway speed limit in Canada is 80 kilometers per hour, or just under 50 miles per hour. Posted speed limits on rural highways can be up to 100 kilometers per hour, but even that’s only around 62 miles per hour. Also bear in mind road signs may be in French, particularly in Quebec.

DWIs are dealt with very severely in Canada. In fact U.S. citizens found driving in Canada with any alcohol-related offense on their records are subject to immediate deportation, no matter how minor or how long ago the offense was. Americans with any prior DWI conviction must apply for a waiver from the Canada Border Services Agency, the Canadian Embassy in Washington, D.C., or any Canadian consulate in the U.S. before they can drive legally in Canada. This process can take weeks or even months.

Radar detectors are illegal in Quebec, Ontario, Manitoba, the Yukon and the Northwest Territories. If you are caught with one in these areas, even if it’s off or broken, it may be confiscated and you may be heavily fined. All the more reason to review your US car insurance in Canada – before driving there. Leave your detector at home if you plan on driving at all in these areas.

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