5 Insurance Questions To Ask Before You Buy A Car

Auto insurance is often an afterthought for people buying cars. After all, choosing the right vehicle and negotiating a good deal can take substantial time and research. You may think the only insurance question to ask is, “How much will it cost to insure this thing?” But asking a few more questions can help you head off unpleasant financial surprises.

Here are five questions to ask.

Would a similar model cost a lot less to insure?

Sometimes similar models have very different insurance rates. For example, in Chicago a 2015 Ford F-150 pickup costs an average of $483 more per year to insure than a 2015 Dodge Ram pickup. If you’re in the market for a small car in California, you should know that insurance on a Fiat 500 will cost an average $688 more than a Smart Fortwo.

Over the years, these differences add up. It’s easy to compare car insurance quotes online to see the relative difference among cars.

Do I have to buy collision and comprehensive coverage?

If you’re taking out a loan to buy the vehicle, you will be required to buy “full coverage” auto insurance for the life of the loan. That includes collision and comprehensive coverage in addition to liability.

Collision and comprehensive coverage pay for damage to your own vehicle — such as repairs if you crash into someone else, back into a pole, suffer weather-related damage or encounter other problems. Comprehensive also pays out if your car is stolen and not recovered.

Recommended by Forbes

If you haven’t been paying for full coverage, get ready to adjust your budget upward when you buy car insurance. Even if you’re not required to buy full coverage, it is generally a wise buy for new cars.

Should I buy gap insurance?

Gap insurance comes to the rescue of people who have financed their new cars and then total them. It pays the difference between what you owe on your car loan and what the insurance company paid you as the value of your vehicle.

New cars start to depreciate in value as soon as you drive them off the lot. The problem is that if your new car is totaled, insurance will pay for the value of the car at the time of the accident — not what you owe on your car loan. This could leave you underwater, meaning you don’t have enough money to pay off the loan balance on the totaled car.

The more your car depreciates, the bigger the “gap” will be between your insurance check and the balance on your loan. Cars that depreciate especially fast include the Nissan Leaf, which loses 48% of its value in the first year, according to a study by Calypso that compared MSRP to wholesale prices. The Dodge Charger loses 45% of its value, while the Mercedes-Benz SL-Class loses 41%. If your car is a likely victim of fast depreciation, or if you’ve financed most of the purchase price, consider buying gap insurance. But don’t succumb to high-pressure sales tactics at the dealership, where gap insurance prices can be inflated. Your best bet is to buy this coverage through your regular insurance company.

Are there many insurance claims for passenger injuries in this car?

Insurance data can give you insight into all sorts of safety issues with cars.

A good way to get a sense of passenger safety is by looking at insurance claims associated with personal injury protection and medical payments coverage, which pay for driver and passenger injuries. Information from the Highway Loss Data Institute, for example, shows that among midsize four-door cars in the 2012-2014 model years, the Dodge Avenger, Chrysler 200, Nissan Altima and Toyota Camry have among the highest averages for passenger injury claims. Large SUVs like the Toyota Sequoia perform much better than average, thanks to the protection offered by their size.If passenger safety is important to you, this data can help guide you to a good choice.

Should I get coverage for vehicle theft?

If you want to receive an insurance payout if your car is stolen, you’ll want to buy comprehensive insurance. It will pay the value of your vehicle, minus your deductible amount. A NerdWallet study of rates from the three largest insurers in California and Florida found that adding comprehensive coverage with a $500 deductible on a new Toyota Camry cost from $119 to $227. Raising the deductible to $2,000 lowered the cost to as little as $66 a year. Comprehensive insurance is generally sold along with collision coverage, so you’ll end up buying both.

Unless you can easily afford to replace your car or believe there is no chance it will be stolen, you will want this coverage.

Amy Danise is an editor at NerdWallet, a personal finance website.

Hyundai Motor Co. vehicles sit on display for sale on the lot of the Keyes Hyundai dealership in the Van Nuys neighborhood of Los Angeles. Photographer: Patrick T. Fallon/Bloomberg

Will driverless cars mean the end of auto insurance?

Driverless cars could mean a huge downsizing of the auto insurance industry, as the frequency of accidents declines and liability shifts from the driver to the vehicle’s software or automaker.

Self-driving cars, such as the fleet Google has been operating for several years, are still mostly a curiosity. But it seems inevitable that they will become a significant part of the nation’s transportation infrastructure in the near future.

And that could mean a huge downsizing of the auto insurance industry, as the frequency of accidents declines and liability shifts from the driver to the vehicle’s software or automaker. It could also greatly reduce what we pay for car insurance.

Among auto insurers, State Farm is taking the lead in realigning its services with this new landscape.

General Motors recently announced that it has partnered with ride-sharing company Lyft in a $500 million plan to create an “on-demand” network of self-driving cars. Uber has also been outspoken in its plan to rely increasingly on autonomous cars.

Ford has announced plans to triple its research fleet of self-driving Fusion Hybrid cars (from 10 to 30), boosting speculation that it plans its own autonomous car.

Google says its fleet of self-driving cars has logged more than 1 million miles since 2009 with only 12 minor accidents — none of them the fault of the vehicles.

Self-driving cars are not yet commercially available, but autonomous-car technology, such as crash-avoidance systems, is making its way into models from many automakers including Mercedes-Benz, Volvo and Tesla. Research and consulting firm Celent, in a recent report on “the end of auto insurance,” projects that within 20 to 30 years, more than 50% of cars on the road will be autonomous.

KPMG, an advisory and research firm, predicts that these trends mean that within 25 years the personal auto insurance industry could shrink to less than 40% of its current size. If cars are self-driving, perhaps owners will only need to buy car insurance policies that cover car theft and non-crash damage such as hail and floods.

State Farm considers a new role

State Farm, the largest auto insurance company in the country, appears to be making plans to survive in this new world. One possibility could be for the insurance giant to reinvent itself as a “life management company,” as the company put it in a patent application recently published by the U.S. Patent Office.

State Farm’s patent application, “Aggregation and Correlation of Data for Life Management Purposes,” describes how the company could analyze data about a customer’s vehicles, home and personal health, find patterns and offer “personalized recommendations, insurance discounts, and other added values or services that the individual can use to better manage and improve his or her life.”

To that end, State Farm would collect data about:

Your home, including security systems, environmental conditions, energy use and home automation.

Your vehicle, including use of the vehicle and your physical and mental state while driving. (NerdWallet previously has reported on State Farm’s patent-pending plan to get inside your head while you’re driving.)

Your health, including weight, blood pressure, sleeping patterns and fitness activities as reported by “wearable, implantable, ingestible, or hand-held personal health sensors.”

State Farm could use the data to send you advice, alerts, coupons or discounts on insurance or other goods and services, according to the patent application.

In one example given in the application, State Farm’s system might determine you are not sleeping well and correlate that with information that shows your home gets cold at night. The system would suggest that you raise the temperature to sleep more soundly.

Or your personal health metrics might show a high level of stress. The State Farm system might be aware of a recent break-in affecting your home or vehicle and recommend extra security measures to give you more peace of mind.

In response to an inquiry from NerdWallet about the patent application, a State Farm spokesperson said the insurer “takes the privacy of our customers seriously. We do not sell customer information, and we do not allow those who are doing business on our behalf to use our customer information for their own marketing purposes.”

The spokesperson declined to comment specifically on the patent, beyond saying the company is “actively innovating in a number of areas.”

Transforming into a life-management advisor could play to State Farm’s strengths:

State Farm has a vast customer base. At the end of 2014 it had 82 million customer accounts, including auto, home, health and life insurance policies and banking accounts.

The company also is adept at analyzing huge amounts of data about people, cars, homes, health, pets, weather and much more. It processes about 35,000 claims a day.

State Farm has a lot of money. The mutual company had a net worth of $80 billion at the end of 2014, a year in which its subsidiaries generated $4.2 billion in net income on $71.2 billion in revenue. (2015 figures are not yet available.) The company can afford to test new ideas and technologies.

State Farm isn’t the only insurance company eyeing a future in which its expertise in risk assessment is harnessed to provide recommendations and advice to consumers. Travelers, for example, recently applied to patent a device that offers specific suggestions for managing errands and other travel. Customers would be able to see a map of “risk zone” data for places they want to go, such as stores, restaurants and roads. They could then plan the day “with an eye toward how ‘risky’ such endeavors may be,” according to the patent application.

Products and systems described in patent applications may never make it to the consumer. But State Farm’s “life management” patent application fits a pattern for the company. Applications published over the past several years show that State Farm sees a promising future in consumer-data analysis that could allow it to calculate scores for customer behavior, change customers’ daily habits through advice, recommend products and target advertisements based on where you drive.

Auto insurers must adjust to disruption

Donald Light, Celent’s director of North America property/casualty insurance, predicts that as self-driving cars gain momentum, auto insurers will go out of business if they can’t reduce their cost structures — the massive buildings, the armies of agents, the computer systems.

He said auto insurers will have to ask themselves, “Am I OK with being a smaller company? Have I adjusted my cost structure so I survive being smaller?”

Light says it’s unlikely companies that depend on auto insurance premiums will be able to make up the difference by shifting to selling other types of insurance. “There aren’t other kinds of insurance lying in the street waiting to be written,” he says.

Few auto insurance companies have taken serious action to prepare for the gutting of their business, according to a June 2015 KPMG survey. Most senior insurance executives believe that any change will happen far in the future, or not at all, according to the survey. Almost one-third (32%) say the companies they work for have “done nothing” to prepare for the advent of driverless cars. In addition, 23% say they have little or no understanding of driverless cars and only 6% say they have an operational plan to deal with “the end of auto insurance.”

Shifting into new business lines is a possible tactic, says Light, “but I doubt it solves the cost-structure problem,” he says.

For example, say you currently pay $800 a year for car insurance.

“What’s it worth to me to have a personal life manager? It’s not worth $800 a year to me. Maybe it’s worth $100 a year to me. Revenue goes down in a material way,” he says. “Companies need to accept this reality earlier rather than later.”

How driverless cars will transform auto insurance and shift burden onto AI and software

In the era of autonomous cars, driving will become safer. With a predicted 80% drop in accidents by 2040, there are major implications for the car insurance industry. Here's what you need to know.

Image: iStockphoto.com/gst

With almost every major car company—and even tech companies like Google and Apple—looking to unveil models of self-driving cars in the next few years, considerations for car safety are being radically altered. According to a reportfrom KPMG, there will be an 80% drop in accident frequency by 2040.

So what does this huge drop in accidents mean? According to Jerry Albright at KPMG, "the implications for the insurance sector are going to be profound. They have to completely transform their business model."

How cars are getting safer

Humans are responsible for 90% of the accidents on the road, said Albright. So when cars make more and more decisions, with tools like like lane assist, self parallel parking, traffic jam assistant and more, accidents drop. "When you remove the human element with something that can react quicker, detect with sensors and lenses, perform a full environmental driving scan," said Albright, "the vehicle risk profile is going to change, and it's going to get safer."

And, as automated vehicle technology moves toward level 5—offering a completely driverless experience—safety increases. The Insurance Institute for Highway Safety's research shows that fully-engaged technology, meaning that you don't turn off any function, translates into a 7% to 15% reduction in property damage claims. Still, "you don't have to wait to be at a level four to realize the safety benefits," said Albright. "Each generation, each capability that advances the autonomous technology—be it lane assist, stop and go traffic—all of those continue to improve the safety profile of the car."

The rise of the "smart" car

Another way that safety is increasing is through car to car communication. Cars "talk" to each other. "We're anticipating a smart environment in which cars will be talking to the stoplights, to the guardrails, actually to the pavement itself as well as to the other vehicles," said Albright. It's like "a spider web of interactive interchange of communication—as it gets denser and denser, the safety factor continues to advance."

In many ways, autonomous cars can become safer by continuing to learn about the driver. "It's going to also learn from the cumulative driving of all the other drivers," said Albright. Vehicle-to-vehicle communication, (V2V), means that cars will start interacting with other cars. And, eventually, they will also "talk" to the infrastructure at some point, or vehicle-to-infrastructure (V2I).

"You're essentially accumulating driving information from all of their vehicles on the road," said Albright. "If you're driving down 290 West in Chicago and see a huge pothole in the left-hand lane and all the cars are swerving around it, your car then tells all your other cars that are going on 290 West to 'watch out.'"

Impact on insurance companies

Insurers have typically considered the past to be an indicator of what's going to happen in the future. But what's happened over the last 100 years is radically different than what the next five to ten years will bring. "You go from human behind the wheel to no human behind the wheel," said Albright "How do you accurately predict what you should be charging people from a premium perspective on their insurance when the world is totally different than it's been for the last century?"

The key, he said, is to be proactive. It's no longer an option to deny that self-driving cars will be a reality. "The thing that's plaguing a lot of insurers," said Albright, "is disbelief that this is ever going to happen, or it's going to happen too far in the future to do anything about it now. They are weighed down by legacy systems and process and all sorts of other things that do not enable them to act nimbly to massive changes in their environment," said Albright.

Now is the time for a "call to action," he said. "They need to completely reevaluate their business strategy."

So it's time for businesses to answer some core questions, said Albright, like how to sell business, who to sell to, how to underwrite risk, and how to manage claims."Every core component of doing insurance right now will change," he said.

With new technology comes new risks

Of course, automated driving does not mean that accidents will be altogether eliminated. There will still be bad weather, animals darting in front of vehicles, and other unforeseen circumstances that will lead to crashes. Also, there are still problems with the technology behind level 3 driving, in which drivers are handed back control from the system.

Gill Pratt, head of the Toyota Research Institute, which is studying AI, said that this hand-off can sometimes be dangerous. "Our view is that in certain circumstances, hand-off can be valuable, but in others, it can't," he said. "The important thing is to make sure that drivers know what to expect and aren't surprised when a car hands off control back to the driver."

But the big change in insurance is likely to come from a shift in focus, going from covering the car itself to the software of the car. "That may well become the majority of the driving exposure and the component of the insurance," said Albright. "That's a different product from the personal auto insurance that you or I would buy for our car."

Thilo Koslowski, an analyst at Gartner, believes that we will always have a need for insurance. "Technology can fail. But we will move from a driver-centric approach to a product-centric approach. Going forward, manufacturers would insure that the vehicles will function, rather than putting the burden on the driver."

Instead, car insurance companies will need to broaden the scope of what constitutes potential safety threats. Cybersecurity, for example, is one of the biggest areas of concern.

According to Koslowski, "the companies have to master cybersecurity. They have to consider it wholistically—data communication, the cloud, and a cybersecurity approach needs to be on the table."

"I hope the industry is taking it seriously enough," said Koslowski.

The 3 big takeaways for TechRepublic readers

1. The auto insurance industry will change dramatically with autonomous vehicles, and the burden of indemnity could switch from drivers to the software and systems powering the vehicles.

2. The driverless cars of the future will talk to each other (V2V) and the infrastructure around them (V2I) to provide a far safer driving experience than humans currently can.

3. With the rise of autonomous vehicles, there are will be demand for a lot more tech jobs in the auto industry in the years ahead.

Ontario finance minister knew in 2014 that auto insurance promise was a challenge

Ontario Finance Minister Charles Sousa, pictured, April 22, 2015, says the 2014 election created 'challenges' in cutting insurance rates.THE CANADIAN PRESS/Frank Gunn

TORONTO – Ontario’s finance minister was hard-pressed Monday to explain why he continued to declare publicly that the government would meet an election pledge to cut auto insurance rates despite being aware that keeping the promise would be challenging.

The Liberal government failed to cut auto insurance rates by 15 per cent by its self-imposed deadline of August 2015 – a promise that was part of a deal to get NDP support for the 2013 budget when they were still a minority government.

Premier Kathleen Wynne said last week that her government “always knew it was a stretch goal.”

The opposition parties said this was news to them, as the government consistently held out the promise as an achievable one.

When asked about Wynne’s “stretch goal” comments Monday before a cabinet meeting, Finance Minister Charles Sousa noted that the 2014 election delayed the passage of legislation the government said would reduce rates for drivers.

“The moment we came into an election, the moment the delays were occurring, we knew that we were going to have challenges,” he said Monday.

But when the government introduced the legislation aimed at tackling insurance fraud and inflated towing costs in July 2014, following the election that gave the Liberals a majority, Sousa insisted the 15-per-cent goal could be met by the following August.

In October of 2014 Sousa again said the target could be met.

When the legislation passed the next month, Sousa still spoke of the August 2015 goal and did not suggest it couldn’t be met.

The second-quarter rates for 2015 were posted in July and had only declined on average by 6.46 per cent since August 2013. Sousa said the plan to tackle auto insurance fraud and reduce costs was working, but the government wanted to “go even further.”

“Our reforms have sent rates lower on average over the last two years and there’s more to do to reduce rates by 15 per cent on average,” Sousa said, with no mention of it being a “stretch goal.”

On Monday he called it “an ongoing issue.”

“It’s not at any one point or one date that matters to me, it’s just the ongoing ability for us to reduce the cost of claims to further reduce our insurance premiums,” Sousa said.

NDP critic Jagmeet Singh said the election only delayed the business of the legislature by little more than a month.

“That doesn’t explain the 2 1/2 years,” Singh said.

“If something is a priority the government can do it. They haven’t made reducing premiums a priority.”

Compulsory car insurance premiums to fall March

The cut in premiums for the coming year will be 17%, amounting to an average of NIS 250.

The new lower premium for compulsory insurance for private cars will come into effect on March, Israel's Ministry of Finance announced today. Last November, Minister of Finance Moshe Kahlon and Supervisor of Capital Markets, Insurance and Savings Dorit Salinger announced the lowering of prices as part of a reform in the compulsory insurance market.

As the first step in implementing this reform, the new compulsory insurance policies can be purchased on the insurance company pool website from February 1, or by phone or at branches throughout the country.

These measures will lower the cost of compulsory auto insurance for 850,000 private vehicle owners (about 50% of all private vehicle owners) by substantial amounts, mainly for young drivers and drivers of cars with life-saving safety systems. The measures, which are slated to go into effect gradually this year will bolster competition in the sector, reduce reciprocal subsidizing among policyholders, and adjust the risk to the price of the insurance. Since the reform in the sector in 2003, compulsory insurance premiums for the public have dropped 35%, saving the public a cumulative NIS 15 billion. "The actions we are taking in the compulsory insurance market are designed to prevent exploitation of the public. We have announced that we will intervene wherever there is market failure," Kahlon stated. "Israel obligates people to buy compulsory auto insurance, and we must therefore make sure that the public receives a fair price and good service. The insurance market annual turnover is NIS 5 billion, while the companies' profit is 20%. We have said yes to a reasonable profit, but no to greed."

According to this plan, the cut in premiums for the coming year with be 17%, amounting to an average of NIS 250. The cut will be 13% in the second year, an average of NIS 200, and 5%, an average of NIS 50, in the third year.

Compulsory car insurance covers drivers in the event of injury to themselves, their passengers, other vehicles and their passengers and pedestrians.

Auto insurance rate reductions far from promised target

Reducing insuranceFile photo by Rick Madonik/Torstar Network

Almost three years after Premier Kathleen Wynne came to Brampton to promise a 15 per cent reduction in auto insurance rates, Ontarians are still waiting to see a dramatic drop in premiums.

Brampton Guardian

It was May 2013 when Premier Kathleen Wynne sat with Brampton resident Injum Bhutta in his living room surrounded by media cameras and reporters to spotlight the Liberal government’s budget proposal to lower the average auto insurance rate by 15 per cent in Ontario.

A few months later, the Liberals promised to reduce those rates within two years.

In November 2014, just months after securing a majority government at the polls, Bill 15, the Fighting Fraud and Reducing Automobile Insurance Rates Act, was passed at Queen’s Park.

Still though, almost three years after Wynne assembled the media in that Brampton home and promised an average 15 per cent cut to auto insurance rates, most Ontarians are still waiting for any dramatic fall in premium costs.

The Financial Services Commission of Ontario (FSCO), which sets auto insurance rates in the province, issued a report that showed approved rates decreased on average by 0.15 per cent in the fourth quarter of 2015.

For Bramalea-Gore-Malton MPP Jagmeet Singh, who is the New Democrat Party’s deputy leader and consumer services critic, the rate hasn’t dropped near far enough or fast enough.

“They (government) haven’t hit half the target,” Singh said of the average rate decline to date. “That’s unacceptable.”

He accuses the government of doing more to lower costs and raise profits for insurance companies than taking action to reduce premiums for consumers.

According to Singh, the Liberal strategy reduces costs for insurance companies in hope the industry passes those savings on to drivers.

“That’s simply not working,” he insisted.

The government has the power, through the FSCO, to set the rates, but is not using that authority to bring costs down for consumers, Singh said.

“When you have a product that is mandated by law… there’s an obligation on the government to make sure it’s affordable,” he remarked.

According to Mississauga South MPP and Ontario Finance Minister Charles Sousa, the government has made great strides on its Auto Insurance Cost and Rate Reduction Strategy, but there is still work to do.

A spokesperson in his office pointed out that last spring the government passed legislation that requires insurers provide discounts to drivers who install winter tires on their vehicles. Also, in June, the interest rate charged on monthly premium payments will be cut by more than half and premium increases will be prohibited for certain minor at-fault accidents.

“Since our government has made reducing auto insurance rates a priority, auto insurance rates have decreased 7.1 per cent,” Sousa noted in a statement sent via email.

He added the government is committed to reducing auto insurance rates in a way that is fair and practical.

“The auto insurance industry must continue to play a role as well, by being more competitive in processing claims and employing efficient practices to lower costs and enable faster claim payments,” he said.

The End Of Automobile Insurance As We Know It

Volvo says it wants “death proof” cars by 2020. Elon Musk says autonomous cars could be safer than human drivers within a few years. Some people even imagine there will come a time when human drivers are banned because computer controlled cars will be so much safer. If any of that is true, what will happen to the auto insurance industry?

According to an article in Forbes, those companies may shrink by 40% or more over the next 25 years. The GEICO gecko could become extinct. Even the effervescent Flo could be out of a job promoting Progressive car insurance. If cars no longer get into accidents and people no longer get killed or injured while driving, the demand for auto insurance will decrease considerably. That’s a good thing if you are a driver, because you will save lots of money not buying insurance. If you are a company that makes its living selling car insurance, though, the news is a little less welcome.

How is the insurance industry preparing for the changes? In June of last year, KPMG did a survey of the auto insurance industry and found that most senior insurance executives believe that any change will happen far in the future, if at all. About a third said they have “done nothing” to prepare for the age of driverless cars. A quarter said they have little or no understanding of self driving cars and only 6% say they have a plan to deal with “the end of auto insurance.”

Donald Light, director of North America property/casualty insurance for Celent, a banking and insurance research firm, predicts that as autonomous driving systems like Tesla’s Autopilot become more common, auto insurers will go out of business if they can’t reduce their overhead. That means getting rid of their massive buildings, armies of agents, and extensive computer systems. He thinks it is unlikely companies will be able to shift from auto coverage to other forms of insurance. “There aren’t other kinds of insurance lying in the street waiting to be written,” Light says.

State Farm, the largest auto insurance company in America, has other ideas. In a recent patent application, it describes a “life management system.” Called the “Aggregation and Correlation of Data for Life Management Purposes” plan, the patent description details how the company could analyze data about a customer’s vehicles, home and personal health, find patterns and offer “personalized recommendations, insurance discounts, and other added values or services that the individual can use to better manage and improve his or her life.”

The program might detect you are not sleeping well at night and correlate that to the temperature in your home being too low. It could alert you to adjust your thermostatm — or do it for you. Your biometric data might indicate a high stress level, possibly due to concerns about burglaries. State Farm would provide you with a list of personal security companies and perhaps offer discount coupons for one or more providers.

Donald Light is skeptical. He asks,“What’s it worth to me to have a personal life manager? It’s not worth $800 a year to me. Maybe it’s worth $100 a year to me. Revenue goes down in a material way. Companies need to accept this reality earlier rather than later.”

But State Farm has more arrows in its digital quiver. By analyzing where and when you drive, it could push targeted adds to the touchscreen in your internet connected vehicle. For instance, coupon for a free pizza might pop up when you are near a Pizza Hut or a discount on power tools when there is a Home Depot ahead.

Does that sound outlandish and a little creepy? Maybe, but there is a reason why a company like China’s LeTV is backing Faraday Future. The touchscreen in future cars will become prime marketing space and companies will fight hard to get a piece of that very valuable digital territory. LeTV, also known as the “NetFlix of China,” is in the business of delivering content to video screens. It and its billionaire owner think there are vast amounts of money to be made by providing in-car content for bored humans who are being driven about by their computer controlled cars.

Every new technology creates winners and losers in the marketplace. The age of traditional car insurance is nearly over, even though most insurance companies don’t know it yet.