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Auto Insurance Basics
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Auto insurance is a contract between any insurance company, also called the insurer, and you, the insured. In exchange for your premium payments, the insurance company promises to provide financial protection to you for certain happenings. The insurance contract is usually called a policy and includes different sections.
Any auto insurance policy usually contains 6 parts. You may be required to purchase some, if not all, of these parts depending on the state in which you live.
Bodily Injury Liability
This pays damages when other people are injured or killed in an incident involving your vehicle. This coverage is needed in most states.
Property Damage Liability
This pays when you damage the others property with your vehicle. This coverage is needed in most states.
Personal Injury Protection (or Medical Payments Coverage)
This pays medical costs and other damages for injuries to you and your passengers. This coverage is needed in some states, optional in others.
Collision Coverage
This pays for loss or damage to your vehicle from a collision with another vehicle or object, when you're at fault. States do not need this coverage. However, companies that lend you money to buy a car or agree to lease you a car, may require this coverage.
Comprehensive Coverage
This pays for loss or damage to your vehicle caused by riots, theft, vandalism, hail, windstorms, falling objects, floods, fire and certain other perils. States do not need this coverage. However, companies that lend you money to buy a car or agree to lease you a car, may require this coverage.
Uninsured Motorist Coverage
This pays for damages to you and your passengers when injury or death is caused by an uninsured, under-insured or hit-and-run motorist. It also pays for damage to your vehicle due to a collision with another vehicle or object, when the uninsured motorist is at fault. This coverage is needed in some states, optional in others.
Can the company or I cancel the contract?
Once your auto policy has been in force for 60 days, the insurance company can only cancel for a certain reasons. These include:
- You fail to pay your premium
- You file a fraudulent claim
- Your driver’s license or motor vehicle tags are suspended or revoked during the policy period
- Someone who customarily uses your car has his or her driver’s license suspended or revoked during the policy period
- Material Misrepresentation in obtaining a policy
The insurance company must give you 10 days written notice before canceling any policy and 30 days before non-renewing a policy. Non-renewal happens when a company refuses to renew your policy after the current policy expiration date. Usually after the initial policy has been in force for 60 days, a company can only non-renew after your policy has been in force for 12 months, or at each subsequent annual renewal.
Also, the insurer must provide a written explanation about declination, cancellation, or non-renewal of your policy. It must include the exact reason that violated the company’s underwriting guidelines.
You are entitled to a complete refund of any unused portion of your premium. This is referred to as unearned premium. For instance, if you paid a 6-month premium of $1,200 and you cancelled after one month, then you would be entitled to a $1,000 refund of the unearned premium.
An insurance company is not allowed to refuse to renew your policy based on your age or because someone in your household becomes of driving age. Also, the insurer cannot discriminate because of race, color, religion, sex, family status, national origin, or disability.
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