Automobile insurance is an often misunderstood insurance product. Since the Department of Motor Vehicles (DMV) requires liability insurance in order to register and operate a vehicle, it is of great importance to purchase and to fully understand your automobile insurance policy.
This page will provide you with the information to answer the following frequently asked questions:
- What is Auto Insurance?
- Who requires you to be financially responsible?
- What could happen if you ignore the law?
- When must you provide proof of insurance?
- How Do I Prove I Have Insurance?
- What Happens if I Don't Carry Insurance?
- Why it is all up to you?
- What liability limit should I choose?
- What is a broker fee disclosure?
- What are my policy rights?
- What other coverages are available?
- What else should I keep in mind?
- What Information do I Need to Have Ready When I get a Quote?
What is Automobile Insurance?
Automobile insurance is simply a contract that helps pay for certain types of financial losses or obligations resulting from the use or ownership of an automobile. To obtain this contract (insurance policy), you pay a specified amount of money called a premium. In return for the premium paid, the insurance company agrees to pay certain expenses and legal liabilities depending on the terms of the insurance policy. Having the right insurance coverage may prevent you from suffering a large financial loss in the event of an automobile accident.
The responsibilities of owning and driving an automobile include following the financial responsibility laws under the Vehicle Code. The most common way to satisfy the financial responsibility for operating an automobile in California is by purchasing automobile liability insurance.
If you choose to meet your financial responsibility by purchasing liability insurance, the DMV outlines minimum limits that you must purchase under Section 16451 of the Vehicle Code.
Financial Responsibility Laws
The statutory minimum limits of liability insurance in California* are as follows:
Bodily Injury Liability
$15,000 for death or injury of any one person, any one accident.
$30,000 for all persons in any one accident.
Property Damage Liability
$5,000 for any one accident.
There are four ways to accomplish financial responsibility:
1.Coverage by a motor vehicle or automobile liability insurance policy;
2.A cash deposit of $35,000 with the DMV;
3.A certificate of self-insurance issued by DMV to owners of fleets of more than 25 vehicles; or
4.A surety bond for $35,000 obtained from an insurance company licensed to do business in California.
All California drivers and owners must have at least the statutory limits of minimum liability insurance or an approved alternative way to pay for injury or property damage they may cause.* Penalties are very severe for non-compliance with this section of the vehicle code.
When your car is in an accident for which you are found legally liable, bodily injury (BI) liability covers your liability to others for injuries to them. Property damage (PD) liability covers your liability for damage to someone else’s property.
A policy with BI of $15,000/$30,000 and PD of $5,000 will pay out as follows:
The maximum limit for one person’s injuries, medical expenses, etc. is $15,000 under the bodily injury portion;
If two or more people are injured, the maximum limit for the accident will be $30,000;
The maximum limit for damage to other people’s property (their car, their fence, etc.) is $5,000.
Comprehensive coverage (other than collision), uninsured motorist, medical payments and collision insurance are not required by law.
What Could Happen if I Ignore This Law?
The most common way drivers choose to comply with the financial responsibility requirement is by purchasing an automobile liability insurance policy. If you have an accident not covered by insurance, then your license may be suspended. It is your responsibility to provide liability insurance for any vehicle you own regardless of who is operating the vehicle. It is illegal for vehicles to be operated without meeting the requirements of this law.
When Must You Show Proof of Insurance?
The Legislature passed a law requiring motorists to produce proof of insurance before the DMV renews the vehicle registration. The new legislation also requires motorists to display proof of insurance when they are stopped by a police officer for traffic violations. Drivers who can’t do so may be subject to fines and other penalties.
Proof of financial responsibility must be shown when you:
- Are asked for it by a law enforcement officer
- Have an accident
- Register your car or renew its registration
- Get your car inspected
How Do I Prove I Have Insurance?
Your insurance company will send you a proof of insurance card listing the covered automobiles and drivers and showing the policy number and expiration date. Your policy or a temporary binder also is acceptable evidence of insurance.
What Happens if I Don't Carry Insurance?
In California, driving without insurance is a serious offense. Failure to show proof of insurance when requested may result in fines or a suspended license. Remember, driving is a privilege … not a right. If you are stopped by a police officer and asked for proof of insurance and you can’t produce it, you may receive a citation. You can have the ticket nullified by showing proof of insurance in court. You could, however, be assessed an administrative fee for expenses.
Why Is It All Up to Me?
It is not the responsibility of the company or agent/broker to determine either the type or amount of coverages you need. You and the agent/broker should have an open exchange about the coverages that are available so that you can determine what best fits your needs. The time to discover that you do not have the necessary coverage is before you are involved in an accident, not after.
Now that you know what California Law requires, you should determine whether you need coverage above the legal minimum in order to protect your assets. “How much is this going to cost me?” should not be the only question in deciding how much insurance you need. There are a variety of options regarding types of coverage and policy limits so you should shop carefully.
Ask Yourself: Do I need higher limits?
Since you may be personally responsible for damages above the policy limits, you should consider purchasing liability insurance with higher limits than the minimum required by law. With the increased cost of hospital stays, medical care, and car repair, it may be well worth considering the extra premium to purchase higher limits of coverage.
Choosing a qualified, professional insurance agent can be as important as choosing your doctor, your accountant, or any other professional upon which you rely. If you are selecting an agent or broker for the first time, your best resources are your relatives, neighbors, co-workers, as well as professional broker-agent associations.
Broker fee disclosure and agreement
To charge a broker fee, a broker must have you sign a broker fee agreement, and must give you a special broker fee disclosure. Be sure to read and obtain copies of both of these documents.
Policy Rights: When I Apply for Insurance, What Kind of Information is Obtained?
Your insurance company or agent will require that you disclose certain personal information on the application to determine your eligibility for insurance coverage and establish the price of coverage. If you are applying for automobile insurance, the company will collect information such as your driving record, use of automobile, mileage driven, and years of driving experience.
For automobile insurance, most insurance companies will order a Motor Vehicle Report (MVR) for all the drivers listed on the insurance application. The MVR is the state’s official record of driving information obtained from the DMV. It is used to verify accidents, traffic violations and license suspensions for all potential drivers listed on the application.
A California Insurance Proof Certificate (SR22) filing is required in cases of unsatisfied judgments, major convictions, license suspensions and failure to have liability at the time of an accident. Your insurance company files this form with the DMV. The filing requirement period can be up to three years. Most major convictions of traffic offenses, such as hit and run, reckless driving, and driving under the influence will remain on your record for seven to 13 years from the violation date. Most minor convictions will remain on your record for three years.
The SR22 form should not be confused with the SR1 form, which is the California Traffic Accident Report Form. Whenever you are involved in an accident, the DMV requires that you file the SR1 form within ten days of the accident date, if there is any bodily injury, or property damage that exceeds $750.
What Other Coverages Are Available?
Insurance companies must offer the following coverage with every automobile policy:
- Uninsured / Underinsured Motorist: Provides liability insurance when the party at fault does not have the state required minimum liability coverage, or the minimum liability coverage is insufficient to cover the injuries sustained in the accident. Likewise, uninsured motorist property damage covers possible reimbursement for damages your car sustains (BI and PD).
Most insurance companies will also offer the following optional coverages:
- Medical Payments: Provides for the payment of medical and similar expenses without regard for liability.
- Physical Damage (collision and comprehensive): Neither of these cover mechanical breakdown or normal wear and tear. Collision covers damage to your vehicle caused by collision with another vehicle or with any other object, regardless of fault. Collision insurance covers vehicle upset (overturn), but does not cover bodily injury or property damage liability.
- Comprehensive coverage covers damage to your car caused by reason other than collision, such as fire, theft, windstorm, flood, vandalism, etc.
- Endorsements/Riders: Special equipment (i.e. after-market additions such as premium stereos, tires, and other misc. equipment), towing, and rental reimbursement.
What Else Should I Keep In Mind?
Inquire about discounts (such as multi-car, airbags, anti-theft device, etc.) and/or surcharges the company applies. All companies will not offer the same type of plans, nor have the same underwriting rules (eligibility/acceptability guidelines). Therefore, it is critical to ask for this information.
Make sure you know the length of the policy term. This can be one month, six months (semi-annual) or one year (annual), depending on the insurance company.
Many companies have their own payment (installment) plans which allow you to pay the premium over a period of time for a service fee. If you decide to buy a policy on an installment plan, find out the applicable finance or service charges. If you use a premium finance company to pay for your insurance, the monthly payments may be easier, but the total of payments will be larger. Moreover, if the policy is canceled, the insurance company must remit all return premiums to the finance company, who will apply them to your account.
Check to see if you are responsible for paying any up front fees. Sometimes insurance companies charge policy issuance fees. Once the policy is issued, this fee is generally fully earned. If the policy is canceled later, the fee will not be returned.
Ask about higher deductibles. By requesting higher deductibles on comprehensive and collision coverage, you can lower your costs. However, remember that the deductible you choose is what you are responsible for paying up front in the event you file a claim against your automobile insurance policy.
Should you drop comprehensive and/or collision coverage on an older car? It may not be cost-effective to have comprehensive or collision coverage on cars worth less than $1,000 because any claim you make would not substantially exceed the annual premium cost and deductible amounts.
A broker’s fee must be agreed upon in advance. If you choose a broker to place your coverage, ask about the broker’s fees. These fees should be disclosed and agreed upon before finalizing the insurance transaction. Remember, broker’s fees are in writing, not filed with the state, and are fully negotiable. If the policy is canceled for any reason, the broker’s fee is generally not refunded.
Review the territorial provisions of your policy with respect to driving in Canada and Mexico. Generally, Mexico does not recognize liability insurance issued in California. If you are involved in an accident in Mexico, you are subject to Mexican legal requirements. Therefore, it is strongly recommended that Mexican insurance be purchased prior to entering that country. Some California issued policies do extend limited physical damage (comprehensive and collision) coverage on vehicles for a limited distance while operating in Mexico.
Most automobile insurance policies provide coverage for other licensed drivers to drive your vehicle on an occasional basis. As coverage can extend differently to you as compared with an occasional driver, it is critical to read and understand your policy terms and provisions before allowing others to drive your vehicle. Check with your agent/ broker or company for the details. It is a common practice for insurance companies to exclude a driver from your policy for a variety of legitimate reasons under the law. Such driver exclusions must be stated in the policy or by endorsement. Your coverage is not valid while a specifically excluded driver is allowed to drive your vehicle. Be aware of all policy driver restrictions.
If you anticipate acquiring a new, replacement, or additional vehicle, contact your agent/broker or company prior to taking possession. It is necessary to determine what coverage will be extended and what coverage will have to be added to your existing policy. If the new vehicle is financed, also check with the lender for their insurance requirements.When renting a vehicle, the automobile rental companies hold the renter responsible under the rental agreement for damage to their vehicle. They normally offer a Damage Waiver at an additional cost. This is not insurance, but a contractual agreement between the renter and rental company. Therefore, if a waiver is not purchased, review your own automobile policy to determine if any extension of coverage applies. Also, determine how the liability coverage afforded by your policy applies in the event you are at fault in an accident with the rented vehicle.
Personal effects and equipment such as cellular telephones, compact discs, tape players, and recorders that are not permanently installed in the vehicle by the manufacturer generally are not covered, unless specifically declared and added to the policy.
What Information do I Need to Have Ready When I get a Quote?
You need to know what coverages you want, what limits of liability you require, and what deductibles you desire. Also, you need to have the following basic information available on all drivers in your household:
- All drivers’ names, ages, sex, and marital status
- Driving record (accidents and moving violations)
- Annual mileage
And the following information on all cars:
- Full vehicle identification number
- Year of vehicle
- Cost of vehicle
- Special equipment