Auto Insurance - Why Auto Insurance

Why Auto Insurance
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If you drive a car, you have to have auto insurance. It's that simple. Why? Because, most states require at least liability coverage. But, beyond state legal requirements, when you look at the facts and figures of automobile accidents, you'll realize that auto insurance is one of your most valuable and important expenditures.

How important is auto insurance? The following statistics can help you put the value of auto insurance into perspective.

The Risks:

FACT:
There were 35 million motor vehicle accidents in 1996.*

FACT:
Of those 35 million accidents, over 6.1 million involved injuries; 43,300 resulted in death.*

FACT:
The total cost of these accidents was approximately $120.8 billion.*

FACT:
The estimated average cost of an accident with minor injuries is $13,900. An accident involving serious injuries or a fatality can cost $790,000.** or more.

FACT: The average cost of property damage in an accident is $6,000.

FACT: You have a 29% chance of being injured in an automobile accident.

FACT: There are approximately 176.6 million licensed drivers in the U.S.

FACT: The average U.S. household has 1.77 cars.

FACT: Of the 197,941,202 registered private passenger cars in the U.S., only approximately 149,742,000 are insured, approximately 24% are uninsured.

FACT: A car is stolen or broken into every 19 seconds.

The Conclusion:

You need, and in many states, it's required, auto insurance:

Bodily Injury Liability
Property Damage Liability
Uninsured Motorists Coverage
Comprehensive
Collision
Medical Payments

*Insurance Information Institute and the National Safety Council
**National Highway Traffic Safety Administration

What's What in Your Premiums?

When applying for auto insurance, you are generally asked how much liability coverage you want, if you want collision and comprehensive, how much of a deductible you want, and if you want any types of optional or special coverage (such as rental reimbursement, towing, etc.). Then, you are given a premium amount - either as a cost per year, for 6 months or monthly.

However, you may not know how much of that premium goes to pay for your liability, or your uninsured motorists coverage. So, we've taken a couple of examples to show you what percentage of your premium will most likely go to which part of your coverage. It may help you better understand exactly what you're paying for when you pay for auto insurance.

Sample Premium with Collision and Comprehensive

Liability (Bodily Injury and Property Damage) 39% Uninsured Motorists (Bodily Injury and Property Damage) 2% Collision and Comprehensive 49% Medical Payments 5% Rental Car Reimbursement 3% Towing 1% Other 1%

Example is for a 1995 Honda Accord LX 4 Door Sedan, for a 47 year old single male, 29 years driving experience in the state of Illinois

Sample Premium without Collision and Comprehensive

Liability (Bodily Injury and Property Damage) 83% Uninsured Motorists (Bodily Injury) 08% Towing 01% Other 08%

Example is for a 1995 Toyota Camry, for a 26 year old single female, with no convictions, drives only for pleasure, 10,000 annual miles in the state of Pennsylvania.

Now that you know what portion of your premium goes to pay for which portion of your coverage, here's how insurance companies spend your premium dollars*:

Claims 78.5 cents Sales and Administration 19.4 cents Taxes 2.4 cents Dividends 0.9 cents Total: $1.012

*Based on an A.M. Best Co., Inc., survey which found that the overall cost of underwriting by property and casualty insurers in 1996 equaled $1.012 for every premium dollar collected.

Where to Find the Best Value for Your Insurance Dollars.

You could waste hundreds of dollars a year by failing to compare your insurance company's premiums against the competition's. You should also regularly re-evaluate the level of coverage you need and what coverage you actually have.

The cost of auto insurance coverage for the same person can vary enormously - in some cases, by more than $2,000 per year, from company to company. That's why you need to comparison shop.

Auto Insurance Index - About Getting a Quote
Auto Insurance Index - Supplemental Coverage and Types of Coverage
Auto Insurance Index - Special Discounts
Auto Insurance Index - Auto Insurance Tips - Handling an Accident
Auto Insurance Index - Reducing Premiums