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California Automobile Insurance Guide
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.
All California drivers and owners must have at least the statutory limits of minimum liability insurance 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.
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 cancelled, 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. Most 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.
Comprehensive & Collision Coverage
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.
Drivers on a Policy
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.
Purchasing or replacing a Vehicle
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 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:
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 insurance company is required to provide evidence of insurance to the DMV, usually done electronically within 24-72 hours after the effective date of the policy. The insurance company is also required to notify the DMV when your policy is cancelled or non-renewed by you or the company regardless of the reason for cancellation or non-renewal.
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 as a way of guarding against personal liability to protect the assets you own and possible garnishment of income and wages in the event of a court ordered judgement against you.
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.
Many insurance companies will order a C.L.U.E. (Comprehensive Loss and Underwriting Evaluation) Report to obtain your insurance history and further information regarding insurance claims or losses found on the MVR or not reported on the MVR to determine eligibility and the price of coverage. These show the date of the incident, amount of loss, name of the policyholder, name of the driver involved in the incident, claim number and type of claim reported. The garaging address, VIN and Social Security Numbers are usually necessary to obtain this information.
California SR-22 Filing
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 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?
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.
Insurance Coverage Chart — an Overview
This information is for informational purposes only.
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