This was originally published on Monday, April 7, 2014, in the Pacific Daily News. Click here to subscribe to the PDN.
Question: I am looking to change my auto insurance company and have gone to several different companies to compare quotes. I admit with my last policies, I just signed what looked to be reasonable. This time, I really want to understand what I am getting into. Could you help make sense of it all?
Answer: Automobile insurance can be confusing and expensive, especially if you are paying for something you do not need. It is smart to shop around and even smarter to know what it is you need. Some insurance provisions are vital, some are wanted, and others are just plain unnecessary.
First, understand how insurers decide your auto rates. It is all about risk. Insurance companies decided how much they are willing to cover you based on statistics collected nationwide in the U.S. Whether or not you are a new driver, your marital status, sex, age, driving history and even what type of car you drive all contribute to the insurance company’s risk assessment. For example, a young teenage boy who drives a sports car is perceived as a higher risk than a 30-year-old married woman who drives a minivan. It does not necessarily mean that the young teenage boy is more reckless. In fact, he could be a better driver. However, statistics show that younger males usually drive faster and when driving a fast sports car, the risk of an accident is greater.
Guam law requires “mandatory automobile liability insurance in order to guarantee adequate protection for victims of car accidents.” The type of insurance that is required and the mandatory amount required by Guam law are as follows:
• Third Party Liability Bodily Injury — “The minimum amount of third party liability bodily injury coverage that an insured must purchase shall be $25,000 for each person injured in any one accident and $50,000 in aggregate for all persons injured in any one accident.” If you are found at fault for the accident this policy will help you cover the other driver(s)’ and passenger(s)’ medical fees due to the accident and any other accident related bodily injury.
• Property Damage Liability Insurance — “The minimum amount of property damage liability insurance coverage that a named insured must purchase is $20,000 for property damage in any one accident.” This type of insurance protects you if your car damages another person’s property, whether it is another vehicle, a fence or house. Ask your insurance provider if it will help with legal defense in case a lawsuit is filed against you.
This is the minimum requirement for auto insurance on Guam, which covers bodily injury and property damage to others. Auto insurance covering your vehicle is separately covered under the comprehensive and collision insurance category, so consider comprehensive and collision coverage to protect your vehicle from damage or theft. Imagine how much it would cost to replace yours in the event you are at fault in an auto accident. If you can afford to pay a little more to protect your vehicle as well, do so. Car accidents can be costly and the more coverage you have on your insurance the better. You want to be able to cover any medical or property costs for others and cover your vehicle for damage or theft without paying too much out of pocket.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.