Jane Dotson
Standard auto insurance is the type of policy chosen by most drivers. It offers coverage to average-risk drivers who are neither high-risk nor very low-risk. The insurer considers information such as driving record, accident history, vehicle type, car usage, credit history, and location when determining whether to offer coverage.
In the US, standard auto insurance policies typically include a duty to defend clause, meaning that if someone takes legal action against a policyholder, the insurance company has a duty to defend the insured by either settling the claim or providing for legal defence. The insurance company will pay for the lawyer directly, and while there may be a sub-limit on the legal defence costs, most plaintiffs' attorneys will settle for the limit of the policy.
| Characteristics | Values |
|---|---|
| Coverage | Minimum liability coverage, uninsured motorist limits, personal injury protection, uninsured/underinsured motorist coverage, collision coverage, comprehensive coverage, medical payments coverage, towing and labour coverage, rental reimbursement coverage |
| Cost | Depends on the type of coverage, driving record, accident history, vehicle type, car usage, credit history, location, etc. |
| Requirements | Clean driving record, consistent auto coverage, limited filed claims, contemporary car with safety features |
What You'll Learn
Standard auto insurance policies include a duty to defend clause
The duty to defend clause means your insurer must hire lawyers and mount a legal defence, as well as make decisions about whether to settle or take the case to court. This takes the pressure off the policyholder, as they don't have to find an attorney or pay legal costs upfront.
The duty to defend is triggered by a "suit" demanding damages against an insured party for bodily injury, property damage, or personal and advertising injury covered by the policy. If the damages being sought are clearly not covered, the insurer won't have a duty to defend.
In most jurisdictions, if just one allegation in a multi-allegation suit is potentially covered by the policy, the insurer has a duty to defend the entire claim, at least until the potentially covered claim is resolved.
The duty to defend is broader in scope than the duty to pay on behalf of an insured. Insurers are required to defend covered claims even if the insured is ultimately found to have no legal obligation to pay damages. The obligation to defend is determined by the allegations contained in the suit, not by facts that may later show the claim is not covered.
The duty to defend ends when the policy limits are reached or when the lawsuit is resolved within the coverage limits. If policy limits aren't high enough to cover settlement costs for all claimants, those who filed first take priority.
In summary, standard auto insurance policies do include a duty to defend clause, which means your insurer has a responsibility to provide you with a legal defence if you face a lawsuit that involves a claim on your policy. This can be a valuable form of protection, saving you time and money, and ensuring you have experienced legal representation.
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Motorists are sued for personal injury
Motorists are advised to seek legal counsel if they are being sued for personal injury following a car accident. An attorney can explain what to expect from the case and guide you through the process. They can also handle communication with the other party and ensure that you don't miss any important deadlines.
If you are being sued for a car accident, it is recommended that you notify your insurance company and consult an attorney immediately. Avoid direct communication with the plaintiff, as your insurer and lawyer will handle most of the communication and defence. It is also important to review your assets to see what is at risk of collection and set up a plan to protect them in case the lawsuit does not settle.
In terms of liability, the standard auto insurance policy usually provides minimum liability coverage, which will protect your assets, and uninsured motorist limits of $15,000 per person/$30,000 per accident for bodily injury, and $5,000 for property damage. These numbers can be adjusted according to your personal needs. The basic policy, on the other hand, does not include benefits such as income continuation and bodily injury liability coverage, and it will not cover you if you are injured by an uninsured motorist.
It is worth noting that each state has specific rules regarding the statute of limitations, which refers to the period after an accident in which a victim can file a lawsuit. This is usually a couple of years, but a lawsuit can be filed immediately after the accident or weeks or months later. Therefore, it is recommended to seek medical attention and contact your insurance company after every accident, regardless of the perceived severity of damage or injuries. Evidence collected during this time can be crucial for your defence if you are being sued for personal injury.
Additionally, it is important to understand that your insurance company's attorney is not your individual lawyer. You have the right to hire your own lawyer at your own expense, and it may be advisable to do so. Speaking with a knowledgeable car accident lawyer can help clarify your legal rights and protect your best interests. Your lawyer will be involved in the discovery process, reviewing evidence and taking depositions of witnesses. They can also file requests for interrogatories and admissions to learn more about the other side's approach and gather additional evidence.
During the negotiation and trial phase, there may be little for you to do unless instructed otherwise by your lawyer or the insurance company's lawyer. If your lawyer is unable to settle the lawsuit, the case will go to trial, and you may be required to testify. Having your own legal representation ensures that you are prepared for each step of the process and can present your version of events and evidence effectively.
If the case proceeds to trial and a jury determines that you are at fault, you can be held personally responsible for the compensation awarded to the victim. Your insurance company will indemnify you up to your policy limits, paying the award up to those limits. Any amount beyond that will be your personal responsibility. Therefore, it is crucial to carry appropriate policy limits and consult with legal counsel as soon as possible to gather evidence and prepare your defence.
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Insurers recognise risks when underwriting a new policy
In the context of auto insurance, underwriters assess the risks associated with insuring a vehicle and its driver. They take into account various factors, such as driving history, vehicle type, years of driving experience, and coverage limits. These factors help underwriters evaluate the potential risks and set appropriate premiums.
In the state of New Jersey, for example, the Standard Auto Insurance Policy is chosen by most drivers. It provides different coverage options and the opportunity to purchase additional protection. When deciding on a plan, individuals must choose between a Threshold Policy and a No Threshold Policy. The No Threshold Policy enables individuals to sue for damages, regardless of the severity of the injury, while the Threshold Policy has specific requirements that must be met for monetary compensation.
Insurers must balance their approach to underwriting to remain competitive. If they are too aggressive, they may face higher-than-expected claims that compromise earnings. On the other hand, if they are too conservative, they may be outpriced by competitors and lose market share. Therefore, insurers need to continuously modernise their underwriting practices by leveraging technology, data, and human capital to stay competitive and make informed decisions about risk assessment and pricing.
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Non-standard auto insurance policies are available
Non-standard auto insurance is available for drivers who are deemed too risky for insurance companies to cover at standard rates. Insurance companies typically break down their coverage into three risk tiers: preferred, standard, and non-standard. Drivers in the non-standard tier pay the highest car insurance rates.
There are many reasons why a driver may be considered non-standard or high-risk. These include:
- Being younger than 25 or older than 75
- Having little driving experience
- Having a poor credit history
- Having a suspended or revoked driver's license
- Having multiple accidents, traffic violations, or speeding tickets on your record
- Driving under the influence (DUI) without a license or insurance
- Having a lapse in insurance coverage
- Being required to have an SR-22 (usually due to a DUI or other form of reckless driving)
- Owning a car with a salvage title
- Owning a car but not having insurance
Non-standard auto insurance is typically more expensive than standard coverage, with higher monthly premiums. This is because insurance companies believe there is a greater likelihood that a non-standard driver will file a claim due to an accident.
Some large insurance companies have subsidiary non-standard insurance providers, while other companies specialise in non-standard or high-risk auto insurance. It is important to compare quotes from multiple companies to find the best deal.
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Insurers break applicants into rating groups
When it comes to auto insurance, insurers break applicants into rating groups to assess their risk characteristics. This process, known as "tier rating", was introduced in 1998 and has reformed the industry. It involves placing drivers into specific tiers based on factors such as driving history, coverage limit, vehicle type, and years of driving experience. These factors can vary from company to company, but the insurers must prove that their tiers are based on loss experience and revenue neutrality, rather than arbitrary or unfairly discriminatory factors.
The tier rating system has important implications for consumers. When deciding on an insurance provider, it is crucial to compare rates from several companies to find one that suits your specific needs. The tier rating system also affects the type of policy you choose. There are two main types of auto insurance policies: Standard and Basic. The Standard Policy, chosen by most drivers, provides minimum liability coverage and uninsured motorist limits, which can be adjusted to meet personal needs. On the other hand, the Basic Policy offers limited benefits at a lower cost but may not be suitable for everyone.
It is important to understand your personal situation before choosing a policy. Consider factors such as whether you rent or own a home, if you have assets to protect, if your health insurance covers auto accident injuries, and how much coverage you can afford. Additionally, when purchasing auto insurance, you must decide between a Threshold Policy and a No Threshold Policy. The latter is more expensive but enables you to sue for injuries regardless of their severity. On the other hand, the Threshold Policy restricts your ability to sue for pain and suffering unless certain specified injuries occur.
In addition to the tier rating system, there are other ways to assess the financial stability of insurance providers. Various agencies, such as A.M. Best, Standard & Poor's, Moody's, and Demotech, provide financial ratings for insurance companies. These ratings consider factors like cash reserves, profitability, debt ratio, diversity of revenue streams, and risk management protocols. While financial ratings provide valuable insights, they are not perfect, and it is advisable to do further research to make an informed decision when choosing an insurance provider.
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Frequently asked questions
Standard auto insurance is for average-risk drivers who are neither high-risk nor very low-risk. The insurer considers driving record, accident history, vehicle type, car usage, credit history, and location when determining whether to offer coverage.
Basic auto insurance usually costs significantly less than standard auto insurance but provides limited benefits. It is an option for those with few family responsibilities and few assets to protect.
Standard auto insurance policies typically include liability coverage, uninsured/underinsured motorist coverage, personal injury protection (PIP), collision coverage, and comprehensive coverage.
To qualify for standard auto insurance, you typically need to maintain a clean driving record, have a history of consistent auto coverage, limited or no filed claims, and own a contemporary car with safety features.
