What is an auto insurance policy?
What does a standard auto insurance policy cover?
What should I know about shopping for insurance?
What are the state-required auto insurance coverages?
What is the difference between liability only and full coverage insurance?
How do insurance companies decide how much to charge?
How can I lower my auto insurance premium?
How do rates in Illinois compare with other states?
How does the insurance company spend the premium dollars?
What should I do if I have an accident?
What should I know about the claim settlement process?
Common Auto Insurance Terms.
What is an auto insurance policy?
An auto insurance policy is a legal document between an insurance company and a policyholder. The insurer promises to indemnify the policyholder for specified losses in return for the policyholder’s paid premium.
An insurance policy consists of:
Declarations – The “dec” page personalizes the policy. It’s where you’ll find your name, address, driver identification information, vehicle description, serial number, lien holder (if applicable), dollar limits and deductibles on selected coverages, beginning and ending dates when insurance is in force, policy identification number, and a list of endorsements amending the policy form.
Policy Form – This describes what the insurance company will do in exchange for the premium you’re paying. Definitions explain insurance terms used throughout the contract. Review this section to find out who is covered as an “insured driver” and what is covered as an “insured auto.” Coverages and their functions are detailed in the coverage section. Find out how you’re protected for bodily injury, property damage, medical payments, comprehensive, collision, uninsured/underinsured motorist losses. Exclusions outline situations when the policy will not cover you or the insured vehicle. Read this section carefully. Conditions are important because they identify the policyholder’s responsibilities when a loss occurs. For example, policyholders must cooperate in claim investigations. This section also addresses cancellation requirements. Supplementary payments identify expenses the insurer will pay in addition to the policy’s liability limits.
Endorsements – These are automatic or “buy back” coverages that modify or change the terms of the policy form.
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What does a standard auto insurance policy cover?
Policies typically provide liability, uninsured/underinsured motorist, medical payments, and/or physical damage protection. Towing, rental car reimbursement, and custom/nonfactory equipment, etc. are optional coverages that must be added as “buy back” endorsements.
Policyholders can tailor the insurance contract to their specific needs by purchasing some or all of the standard coverages and endorsements.
Coverages available on a standard policy include:
Liability. This pays if you cause a crash and are legally responsible for another person’s damages. It also pays for a legal defense if you’re sued because of the accident. Liability coverage is often split into two separate coverages. Bodily injury (BI) pays for costs due to injury or death to a pedestrian(s) or person(s) in another car. It may also cover injury costs your passengers have as long as they aren’t members of your household. Property damage (PD) pays for damage to another person’s car or property such as fences, buildings, utility poles, signs, and trees.
Uninsured/Underinsured Motorist. This pays for injury-related damages such as medical bills, lost wages, or pain and suffering that you and your passengers have as the result of an auto accident. Uninsured motorist bodily injury (UMBI) pays when the accident is caused by an uninsured or hit and run driver. UMBI limits match BI limits unless you sign a rejection form. Underinsured motorist bodily injury (UIMBI) pays when the at-fault driver’s BI limits are lower than your UIMBI limits. For example, if your UIMBI limit is $100,000 per person, and the at-fault driver’s BI limit is $20,000 per person, the maximum UIMBI available to you is the difference of $80,000. UIMBI and UMBI limits must match when UMBI coverage exceeds $20,000/$40,000. UMBI and UIMBI do not pay for damage to your vehicle.
Medical Payments. This pays medical and funeral expenses for you, resident family members, or passengers who are injured or die in an auto accident. It also covers you or resident family members injured by a car while walking, bicycling, or riding in another auto. Medical payments is usually a single figure such as $5,000.
Physical Damage. This is for damage to your auto. You pay for part of the loss, called a deductible. Deductibles range from $0 to $1,000. Physical damage is split into two separate coverages. Collision pays for damage caused by an accident with another car or fixed object (such as a tree). Comprehensive (also called other than collision) pays for damage caused by events such as theft, vandalism, hail, fire, falling objects, and animals.
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What should I know about shopping for insurance?
Hundreds of companies sell auto insurance in Illinois. Ask friends, relatives and neighbors for agent and company recommendations.
Insurance is available from independent agents, exclusive agents, and direct writers. An independent agent represents many different insurance companies. An exclusive agent works with a single company. Buying insurance from a direct writer means you work directly with the company.
Shop around. Price, eligibility, and coverage vary by company. Compare at least three insurers.
A quote is an estimate of what the insurance will cost, and may vary from the final policy premium. You must provide complete information to get an accurate quote. This includes:
Personal information. Name, address, vehicle usage (miles to work, school, or business), annual mileage, driver license number, driving record (tickets, accidents, prior losses), and social security number (many companies use a credit-based insurance score to determine program eligibility and/or pricing).
Information on other drivers. License numbers and driving records for all household members.
Insurance coverages. Liability limits, physical damage deductibles, optional coverages.
Vehicle Specs. Make, model, and VIN number.
Price is important, but there are other factors to consider.
Coverage. All insurance policies are not alike. The least expensive policy may also provide the least amount of coverage. Find out what is and is not covered before making a decision.
Financial stability. A company’s financial strength is an indicator of its ability to pay future claims. Several independent organizations (A.M. Best, Standard & Poor’s, Moody’s, and Weiss Ratings Inc.) evaluate and report on insurer financial strength. Be sure the company you’re considering is financially sound.
Licensing Status. Confirm the insurer is licensed to operate in Illinois. Companies not approved by the Illinois Division of Insurance don’t have to obey Illinois insurance laws or participate in the Insurance Guaranty Fund, which protects Illinois consumers if a company goes bankrupt.
Service. Check the company’s customer satisfaction record. Also, the Illinois Division of Insurance tracks consumer complaints against insurance companies and releases an annual report.
Comfort. Buy insurance from an agent or company representative that you feel comfortable with. At some point you may need to seek advice regarding your insurance coverage or claim settlement.
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What are the state-required auto insurance coverages?
All motor vehicles must have liability insurance according to Illinois law.
Minimum bodily injury limits are $20,000 per person and $40,000 per accident.
Minimum property damage limits of are $15,000 per accident.
Minimum uninsured motorist bodily injury limits are $20,000 per person and $40,000 per accident.
State minimum requirements are very low. You may need higher limits to adequately protect your financial assets.
If you borrow money to buy a car, your lender may require physical damage insurance (collision and comprehensive).
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What is the difference between liability only and full coverage insurance?
Liability only policies provide bodily injury, property damage, and uninsured motorist coverages. Many also include medical payments coverage.
Full coverage policies provide the coverages mentioned above, plus physical damage (comprehensive and collision) protection for your automobile. Physical damage does not pay for extras like towing, rental car reimbursement, custom/nonfactory equipment, etc. Policyholders can request these additional coverages as “buy back” endorsements.
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How do insurance companies decide how much to charge?
Shop around. Hundreds of companies sell insurance in Illinois and costs can vary greatly.
Be a law-abiding, defensive driver. Insurance premiums are usually less for drivers that have no tickets or accidents.
Request high collision and comprehensive deductibles. Agreeing to pay more out-of-pocket when a loss occurs lowers physical damage premiums.
Drop unnecessary coverages. A vehicle’s value drops as it ages, so paying for physical damage on an older car may not be worth it.
Check with your agent before you buy another vehicle. Companies charge more for intermediate or high performance cars, luxury or sports vehicles, autos with fiberglass bodies, as well as those that are commonly stolen or easily damaged.
Keep your policy in force. Insurance companies are not obligated to accept late payments. A lapse in coverage may disqualify you from a preferred program or cause you to lose a claim free discount. If you have a car loan and no coverage, the lender can buy a policy for you and add the cost to your loan. “Force placed” policies are very expensive and usually protect only the lender.
Maintain good credit. There is a statistical relationship between credit and claims. Those with good credit generally have fewer claims, and pay less for insurance.
Ask about discounts. Here are some possibilities:
Good Driver – for policyholders that have no accidents during a specific period of time.
Mature Driver – for drivers over a certain age, often 55.
Defensive Driving – for drivers age 55 or older that complete an approved defensive driving course.
Car Pool – for those in a shared-vehicle car pool.
Low Annual Mileage – for vehicles operated less than a given number of miles per year, often 7,500.
Good Student – for students that maintain a “B” average or better.
College Student Away from Home – for college students over 100 miles away from home if no vehicle is taken along.
Safety Devices – for vehicles with safety equipment such as anti-lock brakes, automatic seat belts, or air bags.
Anti-Theft – for vehicles equipped with approved anti-theft devices.
Multi-Car – for having more than one auto insured with the same company.
Auto-Home – for having both auto and home insured with same company.
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How can I lower my auto insurance premium?
Hundreds of companies offer auto insurance to Illinois residents. These include:
Standard Insurers: Standard companies use a variety of strategies to compete for good drivers’ premium dollars. Each carrier has its own eligibility and pricing criteria. If you cannot obtain insurance from a standard insurance company, try the nonstandard market.
Nonstandard Insurers: Nonstandard companies insure motorists with less than perfect driving records as well as specialty or high-risk vehicles. Ask about the Illinois Auto Plan if you cannot get insurance from a nonstandard company.
Illinois Auto Plan: This is an assigned risk program that all insurers licensed in Illinois must participate in. The Plan will appoint a company to insure you. Rates are preset and do not vary by insurer. There are four basic requirements:
1) Other companies must deny you auto insurance.
2) You must have a valid driver’s license or be eligible to apply for one.
3) You must have no outstanding premium owed for prior insurance coverage during the past 36 months.
4) Your vehicle must be safe to drive.
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How do rates in Illinois compare with other states?
Illinois’ auto insurance premiums compare favorably with other states.
The Insurance Information Institute analyzed NAIC data and ranked Illinois below the countrywide average for auto insurance expenditures.
Illinois comes in at 24/51 (District of Columbia is considered a state), a remarkable feat for the fifth most populous state in the country. California, Texas, New York, and Florida have higher populations, and pay substantially higher premiums.
Review the complete analysis at: http://iii.org/media/facts/statsbyissue/auto/
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How does the insurance company spend the premium dollars?
Insurance premiums pay policyholder claims (liability and physical damage losses), company operating expenses, taxes, with a portion toward insurer profit margin.
The Insurance Information Institute examined premium dollar data and found:
Review the complete analysis at: http://iii.org/media/facts/statsbyissue/auto/
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What should I do if I have an accident?
Do:
Don’t:
- Move an injured person.
- Apologize or admit fault for the accident. Your insurance company will complete an investigation to determine fault and claim settlement.
- Accept money from the other person for damages. This forfeits your right to file a future claim.
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What should I know about the claim settlement process?
Contact your insurance agent or company representative as soon as possible after the crash occurs. Ask about coverages and deductibles that apply to the loss, as well as how a claim will affect your policy in the future. Your insurer may:
1. Do nothing.
2. Take away your accident-free discount.
3. Increase your premium by adding a policy surcharge.
4. Terminate the policy.
5. Take other action according to company guidelines.
Filing a claim with your own insurance company is called a “first party” claim. Refer to the “Loss Settlement Provisions” section of your policy. It explains the claim settlement process. Your responsibilities are outlined in the “Conditions” section. Follow through on conditions you haven’t met. There are also many consumer regulations that apply to first party claims.
Filing a claim against someone else’s insurance policy is called a “third party” claim. The claim is settled according to policy terms between the other person and his/her insurance company. You are a third party and have no rights under the other person’s contract. Insurance companies have fewer regulations to follow on third-party claims.
A company adjuster and claim number will be assigned to the loss. Keep this information in a safe place so you can refer to it in the future. The company adjuster will begin a detailed claim investigation. You will be asked to return certain forms or documents to support your claim.
Illinois is a “comparative negligence” state. This means more than one person can be at-fault in an accident. Comparative negligence requires you to be less than 50% at fault to collect damages from the other person. The settlement is reduced by your percentage of fault. For example, if the other driver was 80% at fault, his insurance company might offer to pay 80% of your damages.
You can go to the repair facility of your choice, but the difference is your responsibility when another shop can do the work for less money. Non-original equipment manufacturer (aftermarket) parts have been shown a safe alternative in vehicle repair.
A “total loss” means the cost to repair your vehicle is close to or over its actual cash value. You can keep a total loss vehicle if it is 9 model years or older.
Talk to your agent or adjuster if you have concerns about the claim process. Review your policy coverage, exclusions, and conditions if it is a “first party” claim. Ask about arbitration or appraisal procedures if you cannot work things out. In addition, you can file a written complaint with the Illinois Division of Insurance or seek legal advice.
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Common Auto Insurance Terms.
Adjuster – Insurance representatve assigned to evaluate loss and determine damages.
Aftermarket Parts (non Original Equipment Manufacturer) – Sheet metal replacement parts produced by a company not associated with the original manufacturer.
Appraisal – Method of resolving a value dispute in a first-party claim.
Arbitration – Alternative to court based litigation where an impartial third party determines damages.
Binder – Agreement putting insurance in force before the actual insurance contract is prepared.
Bodily Injury Coverage – Pays when you’re legally responsible for another person’s crash-related injuries.
Collision Coverage – Pays for damage to your vehicle caused by an accident with another car or fixed object (tree).
Comprehensive Coverage – Pays for damage to your vehicle caused by events like theft, vandalism, hail, fire, falling object, or an animal.
Coverage – Insurance protection.
Coverage Limits – Maximum amount the insurer will pay for any one claim.
Deductible – Amount you agree to pay out of pocket before the insurance company begins paying.
Endorsement – Optional coverage that alters the insurance contract, customizing it to the policyholder’s needs.
Exclusion – Provision in the policy that eliminates coverage for certain risks.
First-party Coverage – Policyholder seeks damages through his/her insurance policy.
Full Coverage Auto Insurance – Policy that includes bodily injury, property damage, uninsured/underinsured motorist, comprehensive and collision coverages.
Insurance Score (also Credit-based Insurance Score) - Numerical ranking measuring insurance claims-risk using credit factors like payment history, collection, credit utilization, and bankruptcy.
Liability Only Auto Insurance – Policy that includes bodily injury, property damage, and uninsured/underinsured motorist coverages.
Medical Payments - Pays medical and funeral expenses when you, resident family members, or your passengers are injured and/or die in an auto accident.
Minimum Limits – Lowest amount of liability insurance required by the state (Illinois minimum limits are 20/40 bodily injury, 15 property damage, 20/40 uninsured motorist coverage).
Motor Vehicle Record (MVR) – Document confirming an individual’s license status, convictions, and accidents.
Physical Damage Coverage – Comprehensive and collision coverages.
Policyholder – Person having ownership of the policy.
Premium – Price of insurance for specific coverages during a specific period of time.
Proof of Loss – Policyholder’s written statement describing the loss and amount of damage.
Property Damage Coverage – Pays when you’re legally responsible for damages to another person’s vehicle or property.
Subrogation Clause – Clause giving the insurance company the right to seek damages from a third party who is responsible for the loss the insurer paid the policyholder.
Territory – Location where vehicle is garaged.
Third-party Coverage – Claim seeking damages from someone else’s insurance policy.
Total Loss – Cost to fix the vehicle is more than it’s worth.
Underinsured Motorist Coverage (UIM) – Pays your injury-related damages when the at-fault driver has lower liability limits than your UIM limits.
Uninsured Motorist Coverage (UM) – Pays your injury-related damages when the crash is caused by an uninsured or hit and run driver.
Uninsured Motorist Property Damage Coverage (UMPD) – Pays when an identified uninsured driver damages your vehicle.
Underwrite – Process of evaluating, selecting, and pricing insurance for new applicants and existing policyholders.
Voided Policy – Coverage is cancelled back to the policy inception date because the insured committed a specific act that violated the terms of the policy (misrepresentation, etc.).
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