In today’s world, natural disaster, terrorist attack, plane crash, etc. are all over the news. However, for the majority of the people, the chance of being directly affected by those tragedies is relatively low. On the other hand, most people are exposed to a more common risk in our daily life: a car accident. Today, I will answer some of the most frequently asked questions on auto insurance.

1. How much auto insurance do I have to buy? In other words, what’s the minimum requirement?

   Firstly, each state has its own minimum requirement. For example, California requires a minimum coverage of $15,000/ $30,000/ $5,000, which means $15,000 for injury or death of 1 person per accident, $30,000 for injury or death of 2 or more persons per accident, and $5,000 for any property damage per accident. You could find the minimum insurance requirement for your state here.

   Secondly, if your car is financed, especially leased, the lenders usually require higher insurance coverage to protect their interest in your car.  You should be able to easily find the specific requirement on your final contract. For example, for my leased 2015 Passat, Volkswagen Credit requires a minimum of $100,000/ $300,000/ $50,000 plus collision and comprehensive coverage with a deductible not to exceed $1,000. It is a huge difference compared to the state minimum requirement mentioned above.

   Last but not the least, if you are trying to get an Umbrella Insurance Policy, which I recommend to most of my clients, the insurance company may ask you to have at least certain amount of auto insurance coverage and homeowners insurance coverage. In California, the minimum auto insurance coverage to qualify for a personal umbrella policy is usually $100,000/ $300,000/ $50,000 or even $$250,000/ $500,000/ $100,000 depending on the company.

2. Am I covered when I drive someone else’s car? Or when a friend drives my car?

   In general, an auto insurance follows the car first and the insured second. For instance, if I have a car accident when I drive my friend’s car with his/her permission and I am at-fault, my friend’s auto insurance will be the primary insurance and will cover any liability and damage first and then my auto insurance will share some payment or even just make up the difference if any. Vice versa, if a friend of mine got into an accident while driving my car with my consent, my insurance will come in first before his/hers.

   You are required by most insurance companies to add any people who live with you and have access to your car regularly as an additional insured on your policy in order to get them covered. Some insurance companies may have some specific limitations on people not listed on your policy. You should always read your policy or check with your insurance company directly.

   One caveat here, if someone else drove your car with your permission and ran into an accident, the accident will stay on your record and may make your future insurance premium increased because your auto insurance will usually be used first if anything happened.

3. Does my auto insurance cover rental car?

   Generally, the answer is yes, but it may differ between insurance companies. If you have proper liability, collision and comprehensive coverage which I recommend everyone to have anyway, you don’t need to worry about getting additional insurance from the rental car company. The only thing you should be aware of is that your own insurance may not cover the “loss of use” or lost the income of the rental car while it is being repaired.

   In addition, some credit cards may also offer extra insurance on top of your auto insurance. What you can do is to double check with your auto insurance and your credit card company before renting a car next time.

4. Does my auto insurance cover my personal property and pets?

   We treat our pets as family members. However, from the insurance perspective, pets are considered to be your personal property. Most insurance companies will not cover the damage to your personal properties including your pets if you are at-fault in the accident. The good news is that your homeowners or renters insurance may help you recover some losses under certain limitations. It is actually one of the four common misunderstandings people have on their homeowners insurance which I covered in a previous post. 

   Certain insurance companies like Progressive, Chubb, and Metromile may offer additional insurance up to $1,000 - $2,000 as part of their collision or comprehensive coverage for your dogs or cats regardless of who was at fault. Please check with the insurance company directly and make sure you understand all the fine print and limitations.
    

Some people do not think the auto insurance is necessary and just want to get the minimum coverage to save some money on the premium. In my opinion, insurance is something you hope you will never use but glad when you need it. As a financial planner, I always recommend my clients getting the right but not the cheapest coverage. 

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