Some auto-insurance basics you should know

This was originally published on Monday, April 14, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Automobile insurance is a gamble and is based on risk. We pay for it, but we rarely experience its benefits firsthand. Sometimes we feel it’s a waste of money. But accidents happen and when they do, your auto insurance will protect you and your finances. How much it protects you depends on your combination of options and amount of coverage.

But, let’s face it, understanding your policy is difficult and at times you are not sure exactly what you are buying.

• Third-party liability bodily injury: This should be given the greatest of importance. This will help insure you for another party’s medical expenses caused by an accident that was your fault. This does not cover your car or other property damaged in the accident.

• Property damage liability: This protects you if your car damages someone else’s property.

• Uninsured motorist coverage: This covers bodily injury to you if you are injured in an accident by someone who is not insured and at fault.

• Collision coverage: This pays for the damage sustained by your car when you collide with another car or other object like a tree, fence or a post.

• Comprehensive coverage: This covers the damage to your car that is not covered in the collision coverage. This could include vandalism, theft, falling objects, glass breakage, fire, animal damage. Most auto insurers on Guam offer typhoon coverage as an option.

• Medical payment coverage: Covers medical bill costs associated with the accident for you and passengers in your vehicle.

• Rental reimbursement coverage: Pays for a rental car if your vehicle has to be fixed. This option usually has a rate per day and maximum amount.

• Emergency roadside service coverage: Usually this is offered free in an automobile policy. This may also cover lockout, fuel delivery and flat-tire change services.

• Towing: The annual cost of towing coverage is minimal and well worth it. Towing coverage applies to mechanical failure ONLY and not in the event of an accident. I recommend using the towing companies listed on the back of the insurance card your insurance company provides you and not the first tow truck that shows up on the scene.

Deductible, premium

When choosing a plan that is right for you, think about the cost. In general, with the exception of classic autos, older cars need less collision or comprehensive coverage than a newer one would.

A deductible is the amount you pay before the insurance company pays.

Deductibles are inversely related to premium.

The lower the deductible the higher the premium and vice versa.

If your deductible is $500 and you get into an accident that costs $1,500 to fix your car, you will pay the $500 and the insurance company will pay the remaining $1,000.

Your premium is how much you pay to have the insurance company to insure you. Most insurance companies offer terms to pay your premium. Some offer monthly or quarterly payment plans.

Deciding how much you are willing and able to pay for your premium will help determine your deductible.

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 moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Auto insurance must cover injury, property damage

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 moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Planning for your car insurance costs

Slick roads, sharp turns, sheer physics: a car accident can happen at any time, regardless of how careful you are. The Guam Code Annotated and lending institutions require car owners to purchase insurance to protect against the risk of an accident, by setting minimum limits for required coverage. It’s important to understand these limits and the role they play in your overall financial plan.

Liability Insurance: Bodily Injury

In order to register your vehicle, Guam law requires that you purchase at least $25,000 per person and $50,000 per accident bodily injury liability insurance.

If you are in an accident, and you are at fault, this insurance will cover hospital bills for a third party: the driver of the other car you hit, or a bystander injured in the accident. The $25,000 figure is the limit of funds that your insurance company will pay out per person. If multiple third-party individuals were hurt, the maximum that this policy pays out is $50,000 for the entire accident.

If you have room in your budget, you may want to consider adding coverage for this component of your insurance. If you’re involved in a catastrophic accident, those hospital costs can be immense. If you have assets to protect, additional coverage will prevent you from having to liquidate those assets to cover the difference.

Liability Insurance: Property Damage

Guam law mandates that you retain at least $20,000 worth of property damage liability insurance. If you’re involved in an at-fault accident, and the other car is totaled, $20,000 is the maximum that the insurance company will pay to the other driver.

Just keep in mind: there are cars on Guam’s roads that cost more than $20,000 to replace, in the event of a major collision.

Comprehensive and Collision Coverage

While Guam law doesn’t mandate comprehensive and collision insurance coverage for your own vehicle, financial institutions often set minimum limits before they finance your car loan. Even if you purchased your car with cash, you should still consider protecting yourself from hefty replacement costs.

Your Vehicle: Comprehensive Coverage

Comprehensive coverage covers any non-moving damage to your vehicle. As long as the car is parked, theft, fire, falling objects, or any other damage would be covered by this policy. If you installed any anti-theft features, check for discounts

On Guam, comprehensive coverage usually doesn’t include typhoon coverage. Check with your insurance company to see if you are covered, and if not, ask for a quote. Typhoons are unpredictable, and a typhoon that lingers and intensifies can end up flooding your car or flinging debris into your car’s windshield.

Your Vehicle: Collision Coverage

If you get into an at-fault accident while your car is in motion, collision coverage will pay for damages to your car.

Both comprehensive and collision coverage will probably involve deductibles, which you’ll need to pay before your insurance policies pay out. If you have a $200-$200 policy, you’ll need to spend $200 out-of-pocket in order to fully repair your car.

The higher your deductible, the lower the cost of your monthly premiums, and vice versa. You can adjust your deductible based on what you can pay, but be sure to have that deductible amount saved up for a potential accident.

Optional Coverage

Insurance companies also offer separate policies for medical payments and protection against uninsured motorists. Just be sure that your policies don’t overlap, and that your overall coverage is set at a limit that you feel comfortable with.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.

Protecting yourself with insurance

In looking after your personal finances, one of the smartest things you can do is protect yourself against massive financial loss.

Think about the largest purchases you will make in your life: your home and your car. If either suffered damage from an earthquake or a collision, you’d need to pay the repair or replacement costs, just to keep your life running. Those costs can stretch into thousands of dollars, emptying your bank accounts and sending you into debt.

Insurance policies can protect you against those high and unexpected costs, in exchange for premiums that you pay on a regular basis. In effect, you trade unpredictability — in the form of typhoons, earthquakes, fires, vandalism, theft, and collisions — for smaller, predictable payments. In some cases, the law mandates that you buy insurance. In other cases, the financial institution that lends you money for your home or car will require the purchase of insurance, before you sign the final papers.

We’ll talk more about home and car insurance in upcoming columns. But for now, here are a few tips to help save you money and stress, before an emergency occurs.

What’s needed

Insurance can pay for itself several times over after a disaster, but you also don’t want to buy more insurance than you need. What you decide to cover, beyond what is mandated by law or your financial institution, depends on your assets and your comfort zone.

There are two major components in home and car insurance:

  • Third-party liability: Your legal responsibility to pay for damages, if your actions or negligence cause injuries or property damage to a bystander; and
  • Replacement costs: The cost of replacing your belongings in the event of a collision, natural disaster, fire, or theft.

Beyond mandatory limits, you can decide how much coverage you need. You should think about for what risks you need to insure yourself, and what you can afford to pay out- of-pocket if disaster strikes. Start with the belongings that you would absolutely need to replace, and work from there.

Keep good records

You should keep copies of your insurance policies, receipts, photographs, and other necessary records somewhere safe and easily accessible.

Try to keep back-up copies with a trusted relative, in a safety deposit box, or on a secure online storage site with hefty security. If anything does happen to your home or car, you’ll save yourself stress by knowing exactly where to go next.

Save for deductibles

If you insured your own belongings, and you need to file a claim, chances are that you’ll need to pay a deductible before your policy pays out the remainder of its coverage. If you have a $300 deductible on your car’s collision insurance policy, and an accident on Marine Corps Drive leaves you with $1,000 worth of damage, you’ll need to pay $300 out of your pocket before your insurance covers the remaining $700.

Out-of-pocket expenses for replacing or repairing your most important belongings are just one reason for having an emergency fund. Double- check the deductibles on all of your insurance policies, and make sure you have enough to cover them, so that you’re totally prepared when life delivers the unexpected.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.