Raise Your Insurance IQ

When it comes to auto insurance, it’s possible that what you don’t know may cost you one day. In a recent survey called the “Insurance IQ Study,” the National Association of Insurance Commissioners (NAIC) learned that many consumers do not have a clear understanding of basic insurance terms and concepts.

In fact, most survey participants received what can only be described as a failing grade, averaging only 4 correct answers out of 10. A lack of insurance knowledge most likely explains why only 45% of Americans who participated in the survey felt confident about making insurance decisions.¹

Here’s a closer look at the results of the NAIC’s insurance test, what it revealed about gaps in the general public’s awareness, and how you can gain the knowledge and confidence you need to avoid expensive mistakes.

• Sixty-three percent of Americans did not know that personal property stolen from an automobile is not covered by auto insurance. It may, however, be covered by their homeowners or renters insurance policy.²
• A majority of those surveyed (54%) were unaware that insurers can use their credit histories to determine their auto insurance premiums (depending on the state).³ Other factors that could affect insurance rates include the type and value of the vehicle, the amount of the deductible, and the insured’s driving record.
• A whopping 86% of survey participants did not understand that with liability coverage of 100/300/100, the last number refers to the maximum amount their insurance will pay for property damage per accident ($100,000).⁴ The first number represents the amount of bodily injury coverage per person ($100,000 in example), and the second number ($300,000 in example) is the total amount of bodily injury coverage per accident.
• In another NAIC survey, only 41% of Americans knew that their personal auto insurance does not automatically cover a rental car.⁵ It’s a good idea to check the fine print or ask your agent before assuming that damage to a loaner vehicle would be covered by your policy.

Auto insurance policies are complicated contracts that few drivers may understand in their entirety. Policies are full of industry-specific terms and concepts that may be confusing even to the most sophisticated consumers.

Your insurance agent, however, is well versed in the language of insurance policies and the various types of coverage. Your agent can answer questions you may have and explain difficult concepts as they relate to your policy. He or she also can make coverage recommendations based on your personal financial situation, needs, and goals.

Insurance decisions made today could have a profound effect on your family’s financial future. Do you have all the knowledge you need to make difficult choices about your insurance coverage?

1–5) National Association of Insurance Commissioners, 2009–2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.