Understanding Car Insurance

Why Car Insurance?

Car insurance is weird. We pay for a product that we hope we never use.

So why have it?

If you’ve seen dented fenders in parking lot at Fred Meyer or Walmart, you know that the most common risks of driving can be annoying and, yes, insurance can help during those moments. But the main reason for insurance is the scary one.

You’ve seen the ambulance lights reflecting off of smashed caddy-wampus cars with glinting glass, plastic, and metal debris scattered across the asphalt.

When we glimpse the somber faces of people in shock, we’re reminded that we pay for insurance because we’ll want some help at that most unwelcome moment.

Car insurance is an agreement you purchase that helps handle the injuries and damages of an unwanted accident. The agreement is that in exchange for some money (the premium), an insurance company assures you that they’ll pay for certain accidental damages.

Insurance is not perfect but it is an approach that helps people share the risks of driving so that we can all have better protection against the difficult consequences of an accident.

(As always, if you want specific details about your car insurance policy, you’ll need to consult your actual insurance policy as they can and do vary in significant ways.)

Coverages (from most to least important)

Liability Coverage

Any time you drive a car, you can accidentally injure people and damage their property (usually another car). Liability coverage helps pay for those injuries or damages so that you don’t have to. In addition, the company also handles the correspondence with the other party.

For example, let’s say you don’t see a stop sign and accidentally hit a vehicle. The other person receives emergency medical care, a brief hospital stay, follow up appointments and physical therapy over eight months for $58,000. It also cost them $12,000 to repair their car. $70,000 of costs.

In other words, you owe the other person $70,000. Yikes! And here’s where the insurance comes in.

Your insurance pays those bills on your behalf. $70,000 worth!

Moreover, the insurance company handles the communications with the other person during their recovery process. This is a big deal! The other person isn’t sending you ongoing medical and repair bills during their recovery process. That’s because your insurance company handles the claim for you.

Now, the insurance company does not do this out of the goodness of its heart.

The insurance company provides all those services and resources because you paid them ahead of time for their agreement to help handle an accident.

Uninsured/Underinsured Motorist

When someone, someone who does not have any or enough insurance, causes an accident that injures you or damages your vehicle, this coverage on your policy will help pay for treating those injuries and repairing those damages.

Damage to your Car

Comprehensive and Collision cover damages to your car in the case of an accident and typically have a deductible.

Whereas liability coverage covers damages to others, these cover your vehicle at Actual Cash Value (ACV). ACV is the market value of your car at the time of the loss so it won’t include depreciation. (If you have a classic or specialty car, you’ll want to investigate a classic car policy, which offers Agreed Value coverage.)

Comprehensive

Comprehensive coverage covers damage to your vehicle caused by events like hail, an airborne rock, a theft, vandalism, or striking a moving deer.

Often called “other than collision,” it is designed to cover damages to your car that aren’t covered by your collision coverage.

People typically choose a deductible of $0 to $1000. Though not required by state law, comprehensive coverage will be required by your lender if you have a loan on the vehicle.

Collision

Collision covers damage to your vehicle from those incidents when you are driving your vehicle and hit some other object such as a rock, a curb, a guardrail, a garage door, or another car.

It also covers your car if someone else collides with it (though frequently their insurance will pay for this).

People typically choose deductibles from $250 to $1000. Though not required by law, collision coverage will be required by your lender if you have a loan on the vehicle.

Personal Injury Protection (Medical)

PIP (Personal Injury Protection) coverage is required here in Oregon. The main value is $15,000 of no-fault medical coverage per passenger (including the driver).

That means if you or your passengers sustain any injury resulting from an incident involving your car, this will likely be the first coverage to pay for treatment.

Though most opt for $15,000 of coverage (usually because there are overlapping coverages through health insurance or another party), some opt to increase this coverage.

Common Options

Rental Reimbursement

Rental Reimbursement coverage helps pay for a replacement rental vehicle while your own car is being fixed due to an accident. In other words, the coverage kicks in if you can’t use your car because of an accident.

The coverage is paid either as a percentage or a fixed amount. For example, a percentage amount could cover 80% of your cost of the rental vehicle up to $500, while a fixed amount could cover up to $40 per day with a total benefit ceiling of $1200. Sometimes there is a day limit as well.

Depending on the company, this coverage may bundle in certain other perks such as a reduced deductible if your rental car is damaged, or travel expense reimbursements if the accident happens more than a certain distance (say 50 miles) from home.

Emergency Road Service (Roadside Assistance)

Emergency Road Service or Roadside Assistance is designed to help in the event of a car breakdown.

On the minimal end, the coverage provides an hour of roadside assistance to bring you gas, or put on your spare tire, or help arrange the tow of your broken car to a nearby repair facility. If you want the tow truck to go some extra miles to get to your favored repair shop, you may need to cover a portion of the towing for that extra mileage.

On the maximal end, the coverage can tow your car those extra miles and may also reimburse extra travel expenses if the breakdown is far from home.

Go to our blog entry if you’ve wondered, “Should I use my insurance for Emergency Road Service?”

Occasional Add-Ons

OEM Endorsement

This helps cover the extra cost that may be associated with repairing your car with parts from the Original Equipment Manufacturer.

Here in Oregon, the insurance companies are not required to cover OEM parts to help keep premiums down, but “Oregon law requires that aftermarket parts be certified equivalent to factory parts by an independent testing facility.”

For most cars, this doesn’t make a difference since aftermarket parts are in plentiful supply and often exceed the performance of factory parts. Nonetheless, if you have a specialty car or higher end luxury brand such as an Audi, BMW, Mercedes, or Jaguar etc, you may want to consider seeking out and getting this endorsement.

If you don’t have the endorsement, you can still repair your car with an OEM parts but you’ll need to pay the extra cost.

GAP Endorsement

If you total out your vehicle in an accident, gap insurance is the name given to insurance that covers the difference between the value of your car and your remaining loan.

Rates & Discounts here in Oregon

How can I lower my car insurance rates here?

1. Drive well. Don’t get tickets and watch out for those cameras in Beaverton and Tigard. Take extra care in parking lots.
2. Stay insured (Or, don’t let your car policy lapse.) Lapsed coverage will increase your rates when you go looking. Plus, if you get ticketed for driving without proof of insurance you could have your license suspended here in Oregon. Then the insurance gets even more expensive.
3. Stay put for awhile (or, don’t switch insurance companies every year.) Many companies include longevity with a company in their rating. Do have your agent check around for you every few years, but switching carriers every year isn’t generally advisable.
4. Consider a used car or keeping the old one you have. Ask for an insurance quote before you purchase a vehicle and include that increase in your “cost of my new car” calculation. 
5. Check your discounts: especially the teenager discounts, multi-car, or multi-policy discounts. 
6. Consider bundling and not bundling! Bundling is usually less expensive, but not always.
7. Consider a telematics—or smartphone tracking—discount. While some carrier programs are better than others, these programs can add significant savings. (Check out our article: Is it worth it to use the smartphone tracking app?)
8. Ask for a rerate. Here in Oregon, you can sometimes request a rerate with your carrier, which essentially gives them permission to rerun a complete insurance score and give you a better rate if they can give it to you.
9. Raise your deductibles.
10. Consider dropping collision coverage on a car if it’s not worth much.

How do they determine my car insurance rate?

We don’t think it is always for the better, but the amount of data that goes into pricing your car insurance policy can be really astounding. Companies use some combination of factors like these listed below to try and price your risk accurately.

• Driver information:
  • How long you’ve lived at a place.
  • What other drivers live in your household, especially if they don’t have their own car and own insurance.
  • The age of the drivers. Teen and inexperienced drivers tend to be more risky and as we age past our 60s we slowly become more risky again.
  • More specific driving behavior (if you use their driving app). Behaviors like how hard you accelerate or brake, the time of day you tend to drive, or where you tend to drive.
  • Any tickets? The main concerns here are moving violations like speeding, running stop signs, or texting while driving.
  • At-fault accidents. These tend to have the most significant impact on rates.
  • Any other claims. Even if you’ve made a simple towing or glass claim in which there was no fault, such insurance activity still typically affects the rate some.
• Vehicle Information
  • The type of car. Insurance companies keep track of how much each car model typically costs to repair, how much damage each model tends to cause in an accident, or how many injuries their passengers are likely to sustain in an accident.
  • The length of time you’ve owned your car.
  • How many miles you drive.
• Credit history (at the time of application here in Oregon). This one is a bit more complicated (and controversial), but the short story is that insurance companies have found a strong correlation between credit and propensity to file a claim. For this reason, they’ve found credit history to be another reliable indicator of risk. Go here for our write-up on the use of credit for pricing insurance here in Oregon.
• Your current insurance. Insurance companies get nervous about any gaps in coverage. This is one reason it’s important to keep continuous insurance.
• How long you’ve been insured with one carrier. In general, insurance companies favor stability. This is one reason we don’t recommend switching insurance companies frequently.
• Your profession. Some professions are more risky than others.
• If you own or rent your home.
• Your driving profile through their driving app. Most insurance companies now use an app on the phone to develop a portrait of how you drive on average, and they use that profile to adjust your rate, usually for the better–but not always! Go here to see if it might be worth it for you.

Wait, credit history can be used to rate my car insurance in Oregon? How?

Yes, when you first apply for insurance the company will likely use elements of your credit history as one among many factors to determine your rate.

Insurance companies began to incorporate elements of a person’s credit history about thirty years ago.

They did this because they found that elements of a credit history are predictive of a propensity to file claims and thus a relevant factor for determining a person’s rate. In other words, using credit history allows insurers to set the price of policies more accurately to reflect the likely cost of paying claims.

Accordingly, customers deemed less likely to file claims may see lower premiums while those deemed more likely to file claims may see their rates increase.

It is worth noting that this is a contested issue for some important reasons.

One simple irritation is that those who have a spotless driving and claims history may still see higher rates due to their credit history. It’s rare, but I’ve seen it, and I’ve also seen it with people who prefer all cash/checking transactions, people who rarely use the credit system.

On a broader and deeper level, opponents also argue that the use of the credit score ends up disadvantaging the poor and minorities. The argument in short is that, while insurers are already prohibited from using ethnicity and other factors in rating, the use of credit history still has the effect of pricing insurance unfairly.

I don’t know a perfect solution to these issues, but it is important to know that these concerns have shaped the laws here in Oregon.

What are the relevant credit history laws here in Oregon?

Back in 2003 and in 2009, the Oregon legislature passed important laws that govern how insurance companies can use the credit score. Here is the relevant law: https://www.oregonlaws.org/ors/746.661.

For instance, at renewals, an insurance company cannot use your updated credit to change your rate, but you can request a rerate in which the company rerates your policy using your updated credit. If your requested rerate gives you a better rate you get it, but the company cannot increase the cost based on your rerate.

What discounts are available for car insurance?

Companies are continually trying to invent or reinvent discounts that will help attract and retain customers. Here are most of the discounts out there.

• Multi-car: insuring multiple cars with the same company
• Multi-policy: having multiple types of policies with the same company. For instance, you have a home insurance policy and a car insurance policy and a personal liability umbrella.
• Telematics (app that tracks your driving): depending on the carrier may go up or down. (Is it worth it?)
• Advance quoting: getting a quote ahead of time
• Accident-free: just like it sounds.
• Claims-free: just like it sounds.
• Car safety discounts: based on the safety features of your car
• Loyalty discount: for how long you’ve been with one carrier
• For teens: For completing Drivers Ed or for being a good student.
• For college students: most insurers have a student away or distant student discount if the student goes to school far away from home without a car but returns home for breaks. College students can also qualify for good student discounts, even after graduating.
• Affiliate discount: as part of a professional organization that the insurance company offers a discount.
• Low mileage discount: if you don’t put many miles on the vehicle
• For seniors: drivers training or defensive driving course. This is usually good for two to three years.

Should I sign up for the smartphone app discount? Or, is it worth it?

https://youtu.be/-UEuQpo8o0kNearly all insurance carriers now offer a discount if you and your household will allow them to track your driving through their smartphone app. Safeco has RightTrack, Travelers has IntelliDrive, Progressive has Snapshot, and other carriers have their own version.

What does the app track?

The smartphone app uses your phone’s sensors to develop a portrait of your driving habits. That portrait typically includes:

• Braking: frequent hard braking is negative.
• Acceleration: fast acceleration is negative.
• Time driven: trip duration, regularity, or time of day.
• Distracted driving: phone use during driving. Of course, none of these apps requires you to use the phone while driving.

 And then the company uses that portrait to rate your risk-level more accurately.

What questions should I ask before signing up?

Because discounts are not the same from carrier to carrier, here are some key things to ask your agent before signing up:

How long do I need to have the app installed on my phone?

Most companies require you to use it for only 90 days and a minimal mile limit. Others require you to keep it on your phone permanently. Ask.

Can I back out or unenroll?

Some people start the program and realize they don’t want to hassle with another app, or that only some in their family want to use it. That’s why it’s good to know what happens if you unenroll.

Am I guaranteed to save money?

Some companies guarantee a discount, and you’ll always save some money with it. Maybe a little. Maybe a lot. But you’ll always save something. Ask because . . .

Can my rate go up?

Some of these programs can result in an increase to your rate. You heard right. In other words, some of the programs might get a look at your driving habits and determine that you’re more risky than they expected. Ask.

Can I redo it?

If you want to try for a better score, know when you can.

Will I save money?

Overall, most of these programs usually do end up saving you some insurance money. In the longer run, those savings can really add up.

Should my teen take drivers ed here in Oregon? Is it worth it?

Teen driving courses can easily cost $400-$700; so, it makes sense to ask: is it worth it?

Yes. Three main reasons plus a bonus.

1. You’ll likely recoup that cost and more in insurance savings over time. Ask your agent to know more.
2. An ounce of prevention is worth a pound of cure. In other words, investing some resources now to help your teen become a safer driver lowers the chance that they’ll get into an accident, possibly hurting themselves and others, and certainly raising your insurance rates.
3. It’s more comprehensive. The course will take time to fill in some knowledge gaps that you might not have the time to explain to your teen.

Bonus- It may even end up giving you some good reminders! I was driving my daughter recently on Canyon Rd towards Portland and she informed me that–in her opinion– I merged too early into the turn lane. I can neither confirm nor deny her assessment of the situation. But, I do remember an acquaintance who got a ticket for just such an event. Good to know!

Visit our Drivers Ed for Teens for a local listing of Hillsboro area schools so you can quickly call around.

Other Guides & Helps

• The State of Oregon has put together a consumer guide here at Car Insurance 101. You’ll find a Consumer Guide and Top 10 Car Insurance Myths along with other resources.
• At a national level, the National Association of Insurance Commissioners (NAIC) also put together a Consumer Guide on Car Insurance.
• Auto Insurance Basics | NW Insurance Council Insurance information and resources in Washington, Oregon and Idaho
• Our post “But I had “full coverage”.”
• Learn more About Us (actual people!), our Sensible Approach, or our Carriers.