A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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Automobile insurance is required by the individual states by action of the state’s legislature.

Most of us are familiar with the requirements of the state in which we live, but there are still things to learn about auto insurance.

Be sure to compare car insurance quotes using the FREE tool at the top of this page!

Primary Auto Insurance Requirements

There are two parts to the automobile insurance policy as it is sold.

The first part provides legal liability as required by law. This section of insurance provides insurance for the following:

  • Bodily Injury Liability – The limits are set to apply per person, with a total amount set per accident. Examples of this are – $100,000 per person and $300,000 per accident. These limits apply per incident. They cover any legal liability you may have incurred in an automobile accident for injury to others.
  • Property Damage Liability – These limits pay per accident for damage to property. The damage must have occurred in an incident for which you or a member of your household is legally responsible. An example of this type of coverage is $50,000 per accident.

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Additional Coverage Options

  • Medical Payments Coverage – which pays for emergency medical and death benefits resulting from an accident. This coverage extends to you and members of your household. It is intended to pay for emergency medical assistance, transportation, as well as hospital and doctor fees incurred.
  • Uninsured Motorists Coverage – Limits usually match the amount provided under Bodily Injury Liability. An example of this is $100,000 per person and $300,000 per accident. The coverage is intended to pay for injury caused to you and your family resulting from injury caused by a person who has no insurance.

This type of coverage reimburses you as the individual insured for damage to your own vehicle.

There are two types of physical damage coverage available to owners:

  • Comprehensive Insurance – This coverage protects your automobile against non-collision damage. Perils such as theft, windstorm, hail, flood, and fire as well as cracked or damaged glass are provided under this insurance. A more familiar type of accident such as deer damage is covered, too.
  • Collision Insurance – pays for collision with another car or object, or from overturning.

This coverage protects you from financial loss when your vehicle is damaged.

The coverage pays for those incidents that can be expensive and are due to weather or some such incident not under your control. It will also pay to fix your automobile if you are involved in an accident that is your fault.

Zero Depreciation Coverage Versus Actual Cash Value

When an insurance company pays for losses under physical damage, the amount of the deductible is subtracted. Most of us are familiar with this.

However, did you realize that when a claim is paid under physical damage, the insurance company figures the reimbursement including depreciation of the automobile?

When you purchase a new vehicle, as soon as it is driven for more than fifty miles or so, the value of the vehicle is reduced.

The older the vehicle becomes, the more value it loses.

This is called depreciation. Vehicles depreciate over the years until they have very little monetary value. Insurance companies pay claims based upon this depreciated value.

An example of this coverage is as follows: You have an accident involving Bambi’s mom on the road. Your brand-new Lexus sustains damage to the front, right quarter-panel, as well as the windshield and some damage to the rear of the vehicle from the effects of a deer being thrown over the vehicle.

The cost for this vehicle with all amenities was around $50,000 twenty months ago. With depreciation and 20,000 miles, the vehicle is now worth $40,000.

Insurance will pay to repair the damage to the vehicle up to the current value, or of the depreciated value. (Amounts are exaggerated to illustrate the point.)

The vehicle in this example is destroyed. The insurance company then offers $32,000 or 4/5 of the depreciated value to replace the car with another one or they will pay for the repairs.

You, as insured, will end up with $32,000 or a repaired vehicle – if it is repairable.

A way of avoiding this depreciation is to purchase zero depreciation coverage as part of your comprehensive and collision coverage, thus avoiding this penalty.

The problem is that this additional coverage will increase your premiums by at least 20%.

Zero depreciation coverage is not emphasized as much in the United States as it is in other countries because the cost of repair with original replacement parts in the United States is less than in other countries.

Getting the Best Insurance for Your Money

Acquire several different quotations and examine the terms of the insurance contract carefully to determine not only the best price, but also the best coverage.

Consult with your state’s insurance department to ensure that the company or companies, which offer quotes to make sure that the companies you choose, are licensed, solvent, and reputable. You can do this by checking their status with the insurance department and some other links.

  • The National Association of Insurance Commissioners (NAIC) will tell you both the financial status of your insurance company as well as the complaint ratio for complaints filed against the company.
  • A.M. Best Company provides financial information about insurance companies on their website; be sure that you understand their rating criteria
  • Standard and Poor’s Ratings also provides this financial information

Financial solvency ensures that the insurance company will be able to pay claims submitted to them.

The complaint ratio will help you assess the way an insurance company settles claims and handles business.

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Look at Available Credits and Discounts

The below discounts may be available:

  • Insure multiple vehicles
  • Carry auto and home insurance with the same company – you may save up to 20% on your premiums
  • Purchase protection devices such as air bags, anti-lock brakes, and anti-theft alarms
  • Take defensive driving courses and have your children take driver’s education courses
  • Good student discounts
  • Increase your deductible because higher deductibles may earn credits

Ask Questions

Be sure to always voice any questions or concerns.

  • Some companies are providing replacement coverage for new vehicles, an alternative to zero depreciation coverage
  • Ask about rental car coverage should you have a loss
  • What doesn’t the quoted policy cover?

Compare quotations carefully and read your policy when it arrives. Ask questions if you do not understand anything about your insurance.

Insurance agents are licensed and specially trained to interpret insurance coverage to clients. Continuing education helps them remain current with trends in insurance. Take advantage of this expertise.

Use the FREE tool below to start comparing quotes instantly! Simply enter your ZIP code now!