12 things you don't know about car insurance that could cost you

1. You'll pay for your friend's bad driving

bad driverIf your friend borrows your car and crashes it, you'll have to file a claim with your insurance company. You'll have to pay any deductible that applies, and your car insurance rates could increase as a result of your claim, especially if you have made other recent claims.

What you can do: If the person who took your car didn't have permission to take the vehicle, in most cases you won't be held liable for the damage. If your friend is uninsured and causes damage that exceeds your policy limits, the injured party can sue you for medical and property-damage expenses. Best bet? Don't loan out your car.

2. Your personal property in your car isn't covered by your auto insurance

Stolen or damaged items like compact discs aren't covered by your auto insurance.

What you can do: You can file a claim on your home insurance (if the cost of the lost items is more than your deductible). However, if you carry expensive items such as computer equipment, you'll need a rider to your home insurance policy for proper coverage above the normal limits. You'll also be in better shape if you have photos or video of the items.

3. You may be entitled to payment for sales tax and registration fees for a new car

Most states require car insurance companies to pay sales taxes on total loss settlements, according to the Property Casualty Insurers Association of America. Some states require the insurer to pay it at the time of loss while other states require it to be paid only if you purchase a replacement vehicle within a certain time period. In addition, some states require it only for first-party claims (the claim you make on your own policy) but not third-party claims (the claim you make on someone else's policy). For more, read about recouping expenses after your car is totaled.

What you can do: Make your request for sales tax reimbursement no matter what state you live in.

Even in states that do not require sales tax reimbursement, you should request it.

Be aware that the tax will be calculated based on the pre-accident value of your old car, not the new car you buy. If the insurance company values your old car at $10,000 and you purchase a new car for $20,000, the tax reimbursement will be calculated on the $10,000.

4. You may be entitled to a diminished value claim in some states

Diminished value is based on the idea that any car that has been in an accident, regardless of how well the repairs are done, is worth less than the exact same car that hasn't been in an accident.

diminished valueBut for first-party claims, meaning accidents where you're making a claim on your own insurance policy, you are unlikely to be entitled to diminished value reimbursement. The Insurance Services Office (ISO), which offers policy forms and data to insurance companies, authored a “diminution in value exclusion” that has been approved by insurance regulators in 45 states, Washington D.C. and Puerto Rico. The exclusion has not been approved in Georgia, Kansas and Maryland.  Hawaii and North Carolina are under the jurisdiction of an independent bureau.

What you can do: There's one way you may be entitled to a diminished value claim: If someone else hits you and you make a damage claim on that person's insurance. That's called a third-party claim and it's possible to get diminished value damages as a third party because you don't have a contract with that insurer. The ISO's diminished-value exclusion form applies only to first-party physical-damage claims, not to third-party liability claims.

Also, in tort claims, the measure of damage is generally calculated as the difference in value before and after the loss, sometimes making diminished value a viable claim. However, there is still a wide variation among state case law in pinpointing when a third-party claimant is entitled to diminished value. For more, read about diminished value payments when your car has been in a wreck.

5. You may be able to "stack" your coverage

Stacking uninsured/underinsured motorist coverage means you can collect payment more than once within the same auto policy or among two auto policies. There are two scenarios for stacking: First, if you have multiple cars on your policy with UM/UIM coverage on each, you can collect the limit of your UM/UIM coverage under as many vehicles as necessary to cover full payment for damages. Second, if you have more than one policy with UM/UIM coverage, even if they're from two different insurers, you can make a claim under each policy until all your damages are recovered.

What you can do: You'll have to check the language of your policy to see if it's allowed. In some states, such as Pennsylvania, you'll be able to choose stacked or unstacked coverage when you buy your policy (stacked coverage will cost more because you'll have the right to more coverage). For your state's law, see stacking your UM/UIM auto coverage.

6. Making a claim could increase your car insurance rates, but by how much?

When an insurer decides to raise your car insurance rates because you make a claim, it doesn't follow any hard and fast rules; many factors are involved. That's why you may find yourself getting double- or triple-whammied by your individual circumstances. For example, if you make a claim and have a birthday before renewal time, your birthday might bump you into a higher risk category along with the claim, shooting your rate through the roof.

Remember, too, that circumstances can work in your favor at times. If you turn 40 and enter a lower-risk category, or if you buy a car that's less expensive to insure, your savings might help offset any increase due to an accident.

Many auto insurance companies follow the Insurance Services Office's (ISO) standard of increasing a premium. Under ISO’s accident and conviction surcharge plan, a vehicle’s premium can increase by 20 to 40 percent of the insurer's base rate (not your current rate) after your first at-fault accident. A base rate is the average amount of claims paid plus the insurance company's claims-processing fee. For multicar policies, the surcharge is 20 percent of the premium applicable to two cars, according to ISO. For single-car policies, it’s 40 percent. For more, we asked how much can your rates go up after one accident?

What you can do: Some insurance companies have "accident forgiveness" guidelines, but the qualifying variables can be wide-ranging. You should ask when you buy or renew your policy if there is accident forgiveness and how to qualify.

7. If you don't drive much, "usage-based" car insurance could save you money

"Usage-based" car insurance allows you to buy coverage based on how much you actually drive. If you're reducing your driving based on gas prices or other factors, usage-based insurance could be a good match for your reduced insurance needs. Progressive pioneered this program in 1998 when it began testing usage-based coverage in Texas.

Called MyRate, the program is available on a state-by-state basis. Customers who sign up for MyRate will plug a wireless device into a port in their cars that measures how people drive, how much they drive and when they drive. That data is used to calculate a discount for drivers. Customers can earn discounts of up to 30 percent. In essence, you earn a discount based on how much and how well you drive.

Even if your car insurer doesn't offer usage-based coverage, it may have "low-mileage discounts," so if you've reduced or eliminated your commute to work you may garner a reduced premium.

8. Your credit history may affect your car insurance premium

Auto insurers believe that your credit score is an indicator of whether you are going to make a claim, and price your insurance policy accordingly. A July 2007 report from the FTC confirmed a correlation between one's insurance score and the likelihood of filing a future insurance claim. Read the FTC's report on "Credit-based Insurance Scores: Impacts on Consumers of Automobile Insurance."

Auto and home insurers also make ample use of "insurance risk scores," which are similar to credit scores but weigh credit factors differently. Not all states are keen on insurance scoring as a factor in pricing car insurance policies. To see what your state says, see state laws on insurer use of credit information.

What you can do: You can buy your own auto or home insurance score report through ChoiceTrust, which is operated by ChoicePoint, a provider of consumer insurance scores and other data to insurance companies.

9. You must officially cancel your insurance policy when you switch insurers

Most auto insurance policies state that you can cancel your coverage at any time by notifying the company in writing of the date of termination. However, most consumers assume that if they decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The insurance companies don't see it that way. They will send you another bill for the next premium payment, and when you don't pay it, the company will cancel you for nonpayment, which goes on your credit record.

What you can do: Call your insurance agent or the company and let them know you are canceling your policy. Be sure to give them a specific date, or you may end up uninsured for a period of time. The company will then send you a cancellation request. Most often, the form is already filled out and all it requires is your signature. Make sure you read it to check for errors.

You may also have to prove to your former insurance company that you have new coverage, and if you've financed a car through a dealership, the dealer will need to know your new policy information, since purchase contracts often require proof of insurance coverage.

10. You can wait to add your teenage driver to your policy until he or she is licensed

teen driverIn most cases, insurance companies don't require you to add your teenager to your policy until the teen has his or her driver's license. The exception may be if you are in a high-risk insurance pool; you may then have to add your child when they receive their permit.

What you can do: If you forget to tell your insurance company that you have a licensed teen and you have to file a claim for them after an accident, they will still be covered, but your insurance company is entitled to then charge you back premiums from the date your teen received a license.

You are not required to add your teenager to your policy just because he or she has reached driving age.

11. Paying in installments will usually increase your overall bill

"Fractional premium" fees are usually charged when you divide your annual premium payment into installments rather than pay for a year of coverage all at once. Payments are usually offered on a six-month, quarterly, or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. It can be as little as a few dollars per payment, but the more you break it down, the more it adds up.

What you can do: Be sure to ask up front when you apply for the policy what the fees are for paying in installments. If the fees are small enough, it may be worth it. However, remember that insurance companies can cancel your policy for late payment if you forget one of your installments. If you can pay the premium annually, it will simplify the process and save you a few dollars.

12. Your car model affects your premium, but by how much?

Auto insurers have a premium-rating system for every car model, usually based on "Vehicle Series Ratings" (VSRs) received from the Insurance Services Office (ISO). This rating indicates how comparatively expensive your vehicle should be to insure. ISO assigns a “symbol” that is used in developing physical damage coverage premiums.  The symbols are numbers that indicate the relative risk of loss for each model and year of a private passenger vehicle. The symbol assigned to a particular vehicle reflects differences in its claim frequency. For example, some vehicles are more attractive to thieves than others, and others are simply more expensive to repair than others.

For example, a $40,000 luxury car with a fiberglass-based body would likely incur more damage in an accident than a $40,000 sport utility vehicle.

Here are the most and least expensive 2010 vehicles to insure.

What you can do: If you are buying a new car, contact your insurance company and ask about the premium difference among the cars you are considering.

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