Car Insurance Issues

Even though you've done your research and insured your vehicle, there's still more to know when it comes to the wonderful world of car insurance. Below, we look at some not so commonly discussed, but important, issues about insurance that can benefit you tremendously when managing your automotive coverage.

Standard practice for most insurance companies is to allow you to cancel your policy at any time during the policy term by sending written notice stating the date of cancellation. Your car insurance policy does not necessarily terminate at the end of each policy term, so it isn't safe to assume that you can just cancel by failing to pay your next bill. If you don't send notice of cancellation, your insurance company will automatically bill you in advance for the next term's premium payment. If you don't pay it, they'll cancel your policy and it will go on your credit report.

Auto insurance fraud adds $200-$300 a year to your individual insurance premium, according to estimates from the National Insurance Crime Bureau (NICB). But that's a paltry sum compared to its overall impact, because every business has to pay for insurance as well.

Auto insurance fraud is generally classified as "hard" or "soft." Hard fraud, which involves staging or inventing an event that would be covered by insurance, includes:

Don't expect this information to be made explicit in your policy; while insurers are quick to inform you that your coverage will terminate at the end of the policy period if you don't pay your next premium, they don't always inform you of the repercussions you may face for not giving formal notice of your policy termination.

And none of these estimates incorporate the "soft" labor costs involved in dealing with fraud, including the drain on businesses, law enforcement, the civil justice system, regulatory agencies and local emergency services. While auto insurance fraud seems to most people like an "invisible" crime, its true cost to the consumer is far higher than we may ever know.Ironically, insurance companies can be so vigilant concerning fraud that they occasionally victimize the victims. We've seen stories of honest drivers whose cars were stolen, only to be accused by both insurers and police of dumping their car and filing a fraudulent claim. This occurred particularly when the so-called "undefeatable" anti-theft transponder chips first became available in vehicle key fobs. Insurance companies assumed — incorrectly — that anyone who filed a vehicle theft claim but still possessed all their keys must be lying.If you're switching to another insurer, and you plan on driving your car throughout the process, you want to make sure there is no lapse in your car insurance coverage. Therefore, be sure to coordinate the effective starting date of your new policy with the termination date of your old policy. The last thing you want is to get in an accident during an uninsured interim - how stupid would you feel if that happened?Though it may sound trivial, gap insurance is a must for leasing. And if you made a small down payment when buying a car, a gap policy can be lifesaver as well. But first, let's look at why it exists.Let's take a test case. Say you bought your car two months ago for $25,000. You begin making payments at about $500 a month based on a 6 percent interest rate. Then, disaster strikes: a tree falls on your car and flattens it.A claim flagged as potentially fraudulent takes longer to settle because it has to be investigated, according to Victoria Kilgore, director of research at the Insurance Research Council. While a claim is under investigation, an insurance company can request medical or police records. Meanwhile, the policy holder, who could be facing expensive medical and vehicle repair bills, waits for the insurer to reimburse him or his doctors. If the policy holder gets fed up waiting or is wrongly denied, Patten says, he can file a suit or take legal action. That's a heavy financial and emotional burden, if you happen to be wrongly accused.Another thing to keep in mind is that allowing your car insurance policy to be canceled may hurt your chances of obtaining auto coverage in the future. A cancellation in your insurance history may cause other companies to label you a high-risk applicant, thus giving them an excuse to charge you a higher premium. However, you can usually avoid this trap by officially terminating your policy in a timely manner.

That cost adds up. The Insurance Research Council estimates that excess payments made by auto insurers due to fraud totaled as much as $6.8 billion in 2007. But any statistic involving auto fraud dramatically understates the problem, because it relates only to claims already paid, not to claims dropped by the filer or dismissed due to suspicion of fraud.

Here's what to do: Call your insurer, let them know that you want to cancel your policy and give them an effective date. They will then send you a cancellation request form - review this form carefully before you sign and return it to your insurer.

Fraud is the second most costly white-collar crime in America after tax evasion. And the specific problem of auto insurance fraud is so widespread that almost a quarter of bodily injury claims resulting from vehicle crashes, and at least a tenth of property/casualty insurance claims, are fraudulent, according to industry studies.