Illinois mandates that all drivers carry auto insurance, but the insurance industry and consumer advocates agree that the amounts required by law are inadequate.
How much is enough and what is too much are open to discussion.
Illinois requires all drivers to have liability insurance, which covers deaths, injuries and property damage caused by you or someone driving your car with your permission. The required amounts are minimal: $20,000 for bodily injury per person and $40,000 per accident, plus $15,000 for property damage.
“That’s useless. That gets used up in the first few minutes in the emergency room,” says J. Robert Hunter, of the Consumer Federation of America, who recommends at least $100,000/$300,000/$50,000 (expressed as 100/300/50 by the industry).
For those who own homes and have other assets that can be targeted in lawsuits, he also recommends an umbrella liability policy that covers accidents in autos and the home. He estimates a $1 million to $2 million umbrella policy costs $200 to $400 per year.
“God forbid you should hit a school bus full of kids. Things like that aren’t likely to happen, but if it does it can wipe you out,” said Hunter, who suggests consumers review their coverage frequently and shop several companies to determine whether they have the right amount.
Pam Caywood, an auto underwriting administrator for State Farm Insurance Cos., the largest auto insurer in Illinois and the nation, says liability coverage of 100/300/50 probably is sufficient for most people but warns, “Everyone’s needs are different, so we don’t have one set of recommendations. It’s not unusual to find a $50,000 car these days. If you total someone’s BMW or Mercedes, $50,000 [for property damage] may not be enough.”
Increasing liability coverage to 250/500/100, she said, “often costs about the same as a large pizza or a haircut.”
The cost of liability coverage varies by the driver’s age, driving record, where they live and other factors, but will be the same no matter what they drive. State Farm estimates a 40-year-old Naperville resident will pay $276 per year for 100/300/50 liability coverage and $308 per year for 250/500/100.
“People should purchase the maximum amount they can afford,” Caywood said, and those who own more assets should carry more insurance. “I don’t know that there is too much insurance.”
Hunter disagrees, saying insurance companies tend “to try to sell you too much.” Loss-ratio studies show that for every dollar the average consumer spends on auto insurance, they get back 65 cents over the long haul, he said, “so it’s a good idea not to over insure. Instead, you should buy smarter.”
Illinois also requires uninsured motorist insurance that covers occupants of your vehicle who are injured or killed by an uninsured or hit-and-run driver. Though the state requires only $20,000 per person/$40,000 per accident, insurance companies recommend coverage at the same levels as liability. Some companies also may require protection against “underinsured” drivers whose insurance will not cover your medical costs.
Uninsured/underinsured coverage is typically a small portion of a premium. State Farm estimates a married 40-year-old male in Naperville who drives a 2000 Toyota Camry will pay $36 per year for 100/300 uninsured/underinsured motorist versus $276 for 100/300/50 liability coverage and $418 for collision and comprehensive.
State law does not require collision and comprehensive coverage, which pays for damage to your car and theft, but anyone who owes money on their vehicle or leases it won’t be able to say, “No, thanks.” Banks, most finance companies and leasing companies require collision and comprehensive to protect their interests: They want to get paid if the car is totaled in an accident or stolen and not recovered.
Unlike liability insurance, consumers can’t choose the amount of collision and comprehensive coverage they want. The insurance company will pay for repairs or replacement up to the cash value of the vehicle. The cost depends on several factors, including the age and record of the driver, where they live and what they drive.
As a rule of thumb, a $40,000 vehicle will be more expensive to insure than a $20,000 model because it costs more to replace parts or replace the vehicle. Each insurance company sets rates based on its claims experience with a particular model, so a car that carries a surcharge at one insurer may qualify for a standard rate or a discount at another, a good reason to shop for insurance at different companies.
The cost of insuring different types of vehicles may not be great. Premiums furnished by State Farm for 2000 model-year vehicles show that a married, 40-year-old Naperville resident will pay $720 for a Ford Explorer sport-utility, $748 for a Toyota Camry sedan and $770 for a Ford F-150 SuperCab pickup.
Though the cost of collision and comprehensive should drop as a vehicle ages and its value declines, Caywood advises consumers not to expect a windfall.
“We still have to pay current parts rates and current labor rates to repair it, and those costs continue to escalate,” she said, so there may not be much difference between a new and used vehicle.
Eventually, however, a vehicle’s value will drop to where it doesn’t make sense to cover it for physical damage. After an accident, the cost of repairing a vehicle may be more than it is worth, and insurance companies instead will “total” it and give the policyholder cash value. As an extreme example, the Alliance of American Insurers estimates that replacing every part on a 2000 Honda Accord, which sold for about $23,000 new, would be $68,000.
Hunter says a typical driver makes one claim every 11 years, so he recommends dropping collision coverage when the annual premium becomes 10 percent or more of the vehicle’s value. Because collision coverage costs more than comprehensive, drop that first, he advises, and the vehicle will still be covered for theft, vandalism and weather-related damage.
Mark Arnell, a product manager for Progressive Insurance in Illinois, suggests consumers look at the worst-case scenario before dropping collision coverage.
“For someone on a tight budget, they can save on their insurance bill, but what if their vehicle is totaled? Would they be in a position to replace this vehicle?” Arnell said.
Consumers can lower the cost of collision and comprehensive coverage by raising their deductible, the amount they pay before the insurance company starts to pay. Deductibles do not apply to other types of coverage.
Allstate, the second largest auto insurer in Illinois, gives the following examples of how deductibles affect cost, based on a 40-year-old Naperville resident driving a 2000 Toyota Camry: With a $250 deductible on collision coverage and $100 on comprehensive, the annual premium is $990 for all types of coverage. Boosting the deductibles to $500 for collision and $250 for comprehensive lowers the premium to $924, and raising the deductibles to $1,000 for both knocks the premium down to $818.
“If you have a little claim, you aren’t going to file it anyway because you’re afraid your rates will go up because of it,” Hunter said. “If that’s the case, then why pay a higher premium?”
Hunter practices what he preaches by carrying a $2,500 deductible on his collision and comprehensive coverage, a level most insurance companies don’t allow. Allstate and State Farm, for example, allow maximum deductibles of $1,000.
Even parking-lot accidents are likely to cost at least $500, so consumers have to accept more risk with higher deductibles. Hunter estimates he has shelled out $3,000 from his own pocket for car repairs the last 25 years but has put another $4,000 in the bank from money he saved on his premiums.
“Deductibles also encourage accountability on the part of the policyholder to take better care of their vehicle because they have to share some of the costs of repairing it,” State Farm’s Caywood said.
Another way Hunter says consumers can save money is to drop coverage for medical payments if they have comprehensive health insurance. Medical payments insurance is optional with most companies and covers injuries suffered by occupants of your vehicle even if you are at fault. It also covers you and your family while riding in other vehicles or while walking.
“I don’t think you need it if you have good medical insurance on your family,” said Hunter, who cautions that without it, a friend who is injured while riding in your vehicle might have to sue you to collect under your liability coverage.
State Farm says that 55 percent of its Illinois customers carry $5,000 coverage (per person) for medical payments, and the average cost is $26 per year.
Hunter says optional coverage that reimburses part of the cost of renting a car while yours is being repaired “tends to be very bad values.” Rental reimbursement costs $40 to $50 a year, but Hunter says it may not be necessary if a family has more than one vehicle.
Though insurance companies promise to return a vehicle to its original condition after an accident, consumers may have to pay more for this service if they specify that all replacement parts must be original-equipment parts supplied by the vehicle manufacturer. The use of lower-cost aftermarket parts became a major issue after State Farm lost two lawsuits in 1999 to Illinois policyholders who say they were forced to accept inferior generic replacement parts. State Farm temporarily allows customers to specify original-equipment parts while it appeals the verdicts (this sentence as published has been corrected in this text).
State Farm and other insurers claim the generic replacement parts they approve match the quality of original-equipment parts at lower cost. The Alliance of American Insurers says an original-equipment hood for a 2000 Accord made by Honda costs $332, but an equivalent generic hood is $241.
Hunter, however, says, “Some of those parts are shoddy, they don’t fit right and they corrode. “
When consumers shop for insurance, Hunter advises that they ask whether they can get original-equipment parts if they desire and whether they will have to pay any additional cost. Like State Farm, Progressive allows its Illinois customers to specify original-equipment parts but makes them pay the difference over equivalent aftermarket parts. Allstate does not charge its customers anything for original equipment parts.
While some consumers may choose to save money by going with a lower-cost part, leasing customers may not have a choice. Ford Motor Credit, one of the largest lessors, and other companies say that exterior parts must be original equipment or the customer could face additional “wear and tear” charges at the end of the lease.
With so many variables to auto insurance, how do consumers know whether they have the right kind and the right amounts?
“Shop till you drop,” Hunter advises. “It’s the most important thing to do because prices are so variable.”
Hunter suggests the state Department of Insurance Web site as a good starting point (www.state.il.us/ins). The site provides rate comparisons for liability and collision and comprehensive coverage. It lists complaint ratios for the 40 largest companies based on the number of complaints per $1 million of premiums. Hunter says the ratio indicates what kind of service consumers can expect.
“The old saw that you get what you pay for is not true with auto insurance,” he said. “The companies with the best service and the lowest complaint ratios are usually among the ones with the lowest rates.”
The value of the rate comparisons on the state’s Web site is limited because they are for a single vehicle (a Ford Taurus), with examples for four drivers, and they cover 13 locations in the state, including six in the Chicago area. In addition, the liability rates are for the minimum amounts, and deductibles for collision and comprehensive are $250 and $100 respectively. A driver with a different age or record, a different vehicle, other locations and higher amounts of insurance will result in different premiums.
Hunter says consumers should get rate quotes from one or two of the largest insurers, such as State Farm or Allstate, and a direct-marketing company such as GEICO or Amica, which do business mainly by phone instead of through local agents. This will help them determine how much they need and give them an idea of what it costs. From there, he said, “Go to an independent agent and ask, can you beat these companies?”
Most insurance companies have Internet sites that allow consumers to obtain a rate quote or find an agent who can supply rates. Progressive claims a step on its rivals by comparing rates with three other companies on its site (www.progressive.com) and allowing shoppers to buy a policy online for immediate coverage.
AUTO INSURANCE BASICS
Automobile insurance policies provide several types of coverage. Here are the major components:
Liability coverage is required in Illinois. Bodily injury liability covers injuries and deaths caused by your vehicle. Property damage liability covers damage your vehicle causes. Liability coverage is expressed in three figures: 100/300/50 means $100,000 bodily injury coverage per person, $300,000 total coverage per accident and $50,000 for property damage.
Uninsured motorist protection, also required in Illinois, covers injuries to you and other occupants of your vehicle caused by uninsured or hit-and-run drivers. It does not cover damage to your vehicle or other property. Limits usually are in the same amounts as body injury liability, such as $100,000 per person and $300,000 per accident.
Collision coverage pays for damage to your car up to its cash value. Collision coverage carries a deductible, which is the amount you pay for each claim before the insurance takes effect. Though Illinois does not require collision coverage, banks, most finance companies and leasing companies will not approve a loan or lease without it.
Comprehensive covers damage to your car from causes other than accidents, such as theft, vandalism, fire and the weather. It also carries a deductible and is usually required to obtain a loan or lease.
Medical payments insurance covers injuries to yourself and occupants of your car. Most Illinois drivers choose limits of $5,000 or $10,000 per person.
— Rick Popely
