life insurance, auto insurance, health insurance, home insurance

California Auto Insurance: 7 Things Californians Should Know About Auto Insurance

Auto insurance in California can be complicated and confusing. Having a claim can be a painful process, but it doesn’t have to be. Below you’ll find 7 things you SHOULD know about your auto insurance policy and company. Understanding these items can save a lot of money, time and heartache in the long run.

1. How your California auto insurance company determines your car's value after it's declared a "total loss."

Insurers say they use three mechanisms to determine the value of a totaled vehicle: computerized vendor quotes, value books such as Kelley Blue Book, and a market search of the local area. However, the local area isn't specifically defined and an insurer may be unable to locate a replacement car within your neighborhood. If an insurer finds a replacement car outside of your living area, the valuation can be affected.

For instance, if you live in California, the cost of replacing your car is going to be higher in the major cities than in the suburbs and rural areas. The insurance company will consider quotes from those suburban towns as reasonable estimates. Insurers say their goal in totaling a vehicle is to allow the insured person to purchase, within their market, the same car they lost in the accident. But even they admit that they can use one, two, or all three mechanisms to determine the value of your car, which means you can't be sure exactly what value you'll end up with.

What you can do: If you disagree with your insurance company's value determination, there are several things you can do. First and foremost, if you have records of maintenance that show you've had the oil changed every 3,000 miles and had it checked routinely by a mechanic, copy those records and present them to the insurance company to show the car was in good condition. If you had any special parts installed or any upgrades done after the purchase of the car and you've been paying premiums on those improvements, make sure those are included in the insurance company's evaluation.

Get price quotes on replacement cars from at least three dealers within a reasonable driving distance and submit these to your insurance company. Ask the insurance company to provide you with a list of dealers within a specific distance who can sell you a car at the price it is quoting that will be equivalent to your car.
If you still aren't satisfied, you can step up the process and go to mediation or arbitration, which means presenting your case to a neutral party for assistance in reaching a compromise or, in arbitration, a binding decision, or you can take the issue to court.

2. You may be entitled to payment for sales tax and registration fees for a new car.

There are 29 states that require auto insurers to pay for the sales tax when you replace your totaled vehicle with either a new or used car. Unfortunately, California is not one of them. See the bottom of this article for a list.*

What you can do: Even in states that do not require sales tax reimbursement, you should request it. Many auto insurers will not deny the request because the policy requires that they make you "whole," which means you should recover all of the costs for returning you to where you were before the accident.

Be aware, however, that the tax will be calculated based on the pre-accident value of your car. If the insurance company values your car at $10,000 and you purchase a new car for $20,000, the tax will be calculated on the $10,000.

3. How much making a claim could increase your rates.

Many insurance companies follow an industry standard of increasing your premium by 40 percent of their base rate after your first at-fault accident. So, for example, if the company's base rate is $400, your premium will go up by $160. Not all auto insurers play by this rule, though, and some may increase your individual rate by 40 percent. Regardless of what formula they use, in the majority of cases, your rates will go up.

What you can do: Some insurance companies have a "forgive the first accident" policy, but the qualifying variables are wide-ranging. You should ask when you buy your policy if there is a first-accident forgiveness policy and how to qualify.

4. Your credit history can impact your payment options in the state of California.

Your credit history impacts much more than simply applying for a loan or credit card. According to a 2001 survey of the top 100 insurers in the country by Conning & Co., 92 percent of responding insurers use credit information to create an "insurance risk score," which they then use as a factor to determine your auto insurance rate. The theory is that there is a direct correlation between your insurance risk score and the likelihood that you will file a claim. In most states, insurance scores are intended to evaluate your stability, meaning if you pay your bills in a timely fashion and have had the same credit accounts for long periods of time, you're considered more stable than someone who pays late or sporadically and who opens and closes accounts frequently.

The state of California does not allow the use of credit history to determine your insurance premium. However, it can be used to determine your payment options. That can mean the difference between being eligible for a monthly payment plan, or being required to pay the entire premium upfront.

What you can do: Pay your bills on time. If your credit score is less than ideal, do all that you can to improve it. You may even want to contact a free credit counseling service for guidance. Periodically check on your credit score to ensure that you’re maintaining a healthy score, as well as verify that there are no mistakes. If your credit history is shaky, be prepared, since your insurance company may deem you a higher risk.

5. You must officially cancel your insurance policy when you switch insurers.

Most auto insurance companies state in your policy that you can cancel your coverage at any time by notifying the company in writing of the date of termination. However, most consumers assume that if they decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The insurance companies don't see it that way. They will send you another bill for the next premium payment, and when you don't pay it, the company will cancel you for nonpayment, which goes on your credit record. Your company will not know that you purchased insurance through another company. Keep in mind that your current company must allow you to cancel your policy if you have already purchased a new one.

What you can do: Call your insurance company or insurance agent and let them know you are canceling your policy. Be sure to give them a specific date, or you may end up uninsured for a period of time. The company will then send you a cancellation request. Most often, the form is already filled out and all it requires is your signature. Make sure you read it to check for errors.

You may also have to prove to your former insurance company that you have new coverage, and if you've financed a car through a dealership, the dealer will need to know your new policy information, since purchase contracts often require proof of insurance coverage.

6. You can wait to add your teenager to your policy until he or she is licensed.

In most cases, insurance companies don't require you to add your teenager to your policy until they have their driver's license. The exception may be if you are in a high-risk pool; you may then have to add your child when they receive their permit.

What you can do: If you forget to tell your insurance company that you have a licensed teen and you have to file a claim for them after an accident, they will still be covered, but your insurance company is entitled to then charge you back premiums from the date your teen received a license.

You are not required to add your teenager to your policy just because he or she has reached driving age.

7. Paying in installments could increase your overall bill.

"Fractional premium" fees are usually charged when you divide your annual premium payment into installments rather than pay for a year of coverage all at once. Payments are usually offered on a six-month, quarterly, or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. It can be just dollars per payment, but the more you break it down, the more it adds up.

What you can do: Be sure to ask up front when you apply for the policy what the fees are for paying in installments. If the fees are small enough, it may be worth it. However, remember that insurance companies can cancel your policy for late payment if you forget one of your installments, many times with minimal notification. If you can pay the premium up front, it may simplify the process and save you a few dollars.

*States that require sales tax be paid by the auto insurance company as part of total-loss settlements (as of July 2002):

Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia, Wisconsin.