As a responsible driver, it is important to have auto insurance to protect yourself, your passengers, and your vehicle in case of an accident. Auto insurance is also required by law in most states, including Texas. But what exactly is auto insurance and how does it work?
What is auto insurance?
Auto insurance is a type of contract between you and an insurance company. In exchange for paying a premium, the insurance company agrees to cover your financial losses in case of an accident. This can include damages to your vehicle, medical expenses, and liability for any injuries or damages caused to others. Depending on the kind of coverage you have, it can also pay to repair or replace your car if it’s damaged or stolen.
Is auto insurance required?
Texas law requires drivers to show proof they can pay for the accidents they cause. Most drivers do this by buying auto liability insurance. Liability insurance pays to repair or replace the other driver’s car, or other damaged property, and pays other people’s medical expenses when you’re at fault in an accident.
Additionally, in most circumstances its recommended that you have collision and comprehensive insurance. If you still owe money on your car, your lender will require you to have collision and comprehensive coverage.
Types of auto coverages
There are eight basic auto insurance coverages.
- Liability coverage pays to repair the other driver’s car if you caused the accident. It also pays the other driver’s and his or her passenger’s medical bills and some other expenses. Texas law requires you to have at least $30,000 of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. This is called 30/60/25 coverage. Think about buying more liability coverage. The minimum liability limits might be too low if you cause a multi-vehicle accident or the other driver’s car is totaled. If you don’t have enough liability coverage to pay for the damages and injuries you cause, you might have to pay the rest out of your own pocket. The other driver could sue you.
- Collision coverage pays to repair or replace your car after an accident.
- Comprehensive (other than collision) coverage pays if your car is stolen or damaged by fire, flood, vandalism or something other than a collision.
- Medical payments coverage pays your and your passengers’ medical bills. It also pays if you’re hurt while riding in someone else’s car or while walking or biking.
- Personal injury protection (PIP) coverage is similar to medical payments coverage. It pays your and your passengers’ medical bills. But it also pays for things like lost wages and other nonmedical costs. All auto policies in Texas include PIP coverage. If you don’t want it, you must tell the company in writing.
- Uninsured/underinsured motorist coverage pays if you’re hit by someone who didn’t have insurance or didn’t have enough to pay your medical and car repair bills. It also pays if you’re in a hit-and-run accident. Insurance companies must offer you this coverage. If you don’t want it, you must tell the company in writing.
- Towing and labor coverage pays to tow your car if it can’t be driven. It also pays for labor to change a flat tire or jump-start your battery.
- Rental reimbursement coverage pays for you to rent a car if yours is stolen or being repaired after an accident. Some policies also pay for taxis or ride-hailing services.
Most policies cover you, your family, and people driving your car with your permission. Ask your agent or read your policy to know who your policy covers and if anyone is excluded from coverage.
What does my policy cover?
Coverages vary by policy and depend on the types of coverages you choose. This table shows some of the things most policies do and don’t cover. Read your policy or talk to your agent to be sure of your exact coverages.
|Most policies cover:||Most policies don’t cover:|
|Damage to your car because of fire, hail, theft, flood, flying gravel, or hitting an animal (if you have comprehensive coverage)||Accidents that happen while you’re driving for a ride-hailing service or delivering food or other items for a fee|
|Accidents that happen while you or someone covered by your policy is driving a rental car||Accidents that happen while you’re driving a car that doesn’t belong to you but you could use regularly, like a company-owned car|
|Accidents that happen while you’re driving in other states and Canada||Equipment not permanently installed in your car|
|Your attorneys’ fees if you’re sued because of an accident||Accidents that happen while you’re driving in Mexico, driving for business, or racing|
|Car repair, lost wages, and medical and funeral bills to the other driver and passengers if you cause an accident||Damages that you caused intentionally|
What happens if I buy a new car? Is it covered?
If you get a new car, your current insurance will automatically cover it for about 20 days. The type of coverage depends on whether the car is an additional or replacement car.
- An additional car gets the same coverage as the car with the most coverage on your policy.
- A replacement car gets the same coverage as the car it replaces on your policy.
Tell your company about a new car as soon as you can to avoid a lapse in coverage.
Am I covered if I’m driving someone else’s car?
Rental cars. Rental agencies offer damage waivers and liability policies. The damage waiver isn’t insurance. It’s an agreement that the rental agency won’t charge you for damage to a car you rent.
You might not need the rental agency’s liability policy. Your own auto policy will usually cover you while you’re driving a rental car for personal use. Ask your agent if your policy covers you if you’re driving the rental car for work.
Before you rent a car, ask your agent whether you need the rental agency’s liability policy and damage waiver.
Borrowed cars. If you cause an accident while driving a borrowed car, the car owner’s insurance pays the claim. If the owner doesn’t have insurance – or doesn’t have enough to pay for the damages and injuries you caused – your insurance will pay.
If you don’t own a car, but borrow a car often, you can buy a nonowner liability policy that pays for damages and injuries you cause to other people while driving a borrowed car. It doesn’t pay for your injuries or damage to the car you’re driving.
If you borrow a car from a repair shop, your liability insurance will pay for damages to the car. It will also pay for other people’s injuries and damages if you’re at fault in an accident. Check your liability limits to make sure they’re enough to pay for the damages.
I’m driving into Mexico, am I covered?
Mexico doesn’t recognize American auto policies. Some companies offer endorsements for short trips into Mexico, but the coverage might not meet Mexico’s legal requirements. If you’re driving into Mexico, you should buy a Mexican liability insurance policy. Some Texas agents sell them. Your agent might be able to help you find an agent who does.
Deductibles and dollar limits
You must meet a deductible for some types of claims.
You must pay a deductible for collision, comprehensive, and uninsured/underinsured motorist claims. A deductible is the amount of a claim that you must pay yourself. For instance, if you have a $1,500 collision claim and your policy has a $500 collision deductible, the insurance company will deduct $500 from your claim amount and pay you $1,000. You don’t have to pay a deductible for claims against another driver’s insurance company.
Some coverages pay only up to the policy’s dollar limits.
Liability, personal injury protection, uninsured/underinsured motorist, towing and labor, and rental coverages have dollar limits. This is the most the company will pay, even if the cost is higher. If you don’t have enough coverage, you’ll have to pay the difference yourself. Collision and comprehensive coverages don’t have dollar limits.
The first page of your policy is the declaration page. It has a summary of your policy, including your coverages, dollar limits, and deductibles.
Auto insurance for young drivers
You have two options for covering your young drivers. You can add them to your policy, or you can buy a separate policy for them. Adding them to your policy is usually cheaper.
Some companies require you to put everyone who lives with you and is of driving age on your policy. Tell your company when someone in your family starts to drive or turns 16. If you don’t tell the company, and the company learns about them later, the company will bill you for the extra premium you should have paid. The company also might deny any claims you have or choose to not renew your policy.
If a teenager is the main driver of a car, the company will base the premium on that car. Otherwise, the company will base the teen’s premium on the car in the family with the highest rate.
Children away at school or not living with you
Some companies require you to keep young drivers on your policy, even if they’re away at school. Tell your insurance company if you have a child living in another city for school. If your child has a car, the company might charge you differently because rates are based on where a car is usually located. If your child doesn’t have a car, you might be able to get a discount on your premium. If your child is going to school in another state, check the laws in that state to make sure you have enough liability coverage.
Texas law requires insurance companies to charge rates that are fair, reasonable, and adequate for the risks they cover. We don’t approve rates in advance, but if we find that an insurance company’s rates are too high, we can require it to pay refunds to the people it overcharged. Insurance companies may appeal our decisions.
How do companies decide what to charge me?
Insurance companies use a process called underwriting to decide whether to sell you a policy and how much to charge you. The amount you pay for insurance is called a premium.
Most companies consider these things when deciding your auto insurance premium:
- Your driving record and claims history. Insurance companies will charge you more if you’ve had accidents or gotten tickets. Some companies might refuse to sell you a policy.
- Where you keep your car. Rates are higher if you live in a city. This is because people in cities are more likely to have accidents or have their cars stolen than people in rural areas. Rates can also vary between ZIP codes in the same city.
- The kind of car you have. Collision and comprehensive rates are highest for luxury, high-performance, and sports cars. Rates are also higher for cars that cost more to repair.
- How you use your car. Your rates will be higher if you drive your car to and from work or use it for business.
- Your credit score. Some companies use your credit score to decide what to charge you. To find out which companies use credit scores, visit HelpInsure.com.
Insurance companies check your claims history.
Most companies use the Comprehensive Loss Underwriting Exchange (CLUE) to learn your claims history. A company can charge you more or refuse to sell you a policy based on the information in your CLUE report. You can get a free copy of your report each year. Call LexisNexis at 866-312-8076.
An insurance company may not:
- Turn you down or charge you more because of your race, color, religion, or national origin.
- Turn you down or charge more because of your age, gender, marital status, geographic location, or disability unless the company can show that you’re a greater risk for a loss than other people it’s willing to insure.
- Turn you down, charge you more, or treat you differently than other people in your rate or risk class unless the company can show that you’re a greater risk than others.
- Turn you down or charge you more only because of your credit score.
Saving money on your insurance
Discounts help lower your premium. Each company decides what discounts to offer and the amount of the discount. You might be able to get a discount if you have:
- Airbags, antilock brakes, and antitheft devices in your car.
- Completed a defensive driving or a driver education course.
- More than one car on a policy.
- Other policies with the same insurance company.
- No claims and a good driving record.
Losing your insurance
If you ask, a company must tell you in writing why it turned you down, canceled, or didn’t renew your policy. You may complain to us if you think a company improperly denied, canceled, or nonrenewed your policy.
What happens if a company cancels my policy or doesn’t renew it?
Cancellation means either you or the insurance company stops coverage before your policy’s end date. A company must give you 10 days’ notice before it cancels your policy. A company may cancel your policy in the first 60 days for any reason, unless the cancellation violates a law.
An insurance company may cancel your policy at any time if:
- You stop paying your premiums.
- You file a fraudulent claim.
- Your driver’s license or car registration is suspended or revoked (this also applies to other drivers who live with you or use your car).
If either you or the company cancels your policy, the company must refund any unearned premium to you within 15 days after the date of the cancellation. Unearned premium is the amount you paid in advance that didn’t go toward coverage. For instance, say your premium is $100 a month and you paid for six months in advance. If you cancel your policy after one month, the company would owe you $500 in unearned premium.
Nonrenewal means a company refuses to renew your policy when it expires. A company must tell you in writing that it isn’t going to renew your policy. It must tell you at least 30 days before your policy expires.
A company can nonrenew your policy only after it’s been in effect for 12 months. This means that if you bought a six-month policy, the company can’t refuse to renew it when the first six months ends. It must renew it to give you a full 12 months of coverage.
A company can’t refuse to renew your policy because of your age. It also can’t nonrenew your policy because you had claims for:
- Weather damage.
- Damage from hitting an animal.
- Accidents or incidents that can’t reasonably be blamed on you, unless you have more than one of these claims in 12 months.
- Damage from flying gravel or other flying or falling objects (the company can raise your deductible if you have three of these claims in 36 months).
- Towing and labor (the company can refuse to renew your towing and labor coverage if you have four of these claims in 36 months).
If you get a nonrenewal or cancellation notice, start shopping for new insurance right away. Make sure you get a new policy before your old policy ends so you won’t have a lapse in your liability coverage.
If you still owe money on your car, your lender will require you to have collision and comprehensive coverages. If you cancel or lose these coverages, your lender will buy single-interest coverage and add the cost to your loan payment. This coverage is expensive and protects only the lender.
What if I can’t find a company that will sell me a policy?
If you can’t find a company willing to sell you a policy, you can get basic coverage through the Texas Automobile Insurance Plan Association (TAIPA). You can get TAIPA coverage if two insurance companies have turned you down.
TAIPA sells liability, personal injury protection, and uninsured/underinsured motorist coverages. It doesn’t sell collision or comprehensive coverage or higher liability limits than state law requires.
TAIPA coverage is more expensive than coverage from other insurance companies. TAIPA also charges more if you’ve had tickets or accidents than other companies.
If you have TAIPA coverage and haven’t had any tickets or accidents for a year, your rates might go down. If you don’t have any tickets or accidents for three years, your insurance company must offer you a cheaper policy outside of TAIPA.
To get TAIPA coverage, talk to your agent.
To help make the claim process go smoothly, follow these tips:
- Get the other driver’s name, address, phone number, and license plate number. Write down the exact name of the other driver’s insurance company, the company’s phone number, and the policy number. To save time, take a picture of the other driver’s insurance card. If the other driver refuses to tell you the name of his or her insurance company, call the police.
- Give the other driver the same information about you.
- Get the names, addresses, and telephone numbers of any witnesses to the accident. Give this information to the insurance company. Independent witnesses can help prove fault if you were in an accident caused by another driver. If you don’t have witnesses and the other driver denies fault, his or her insurance company might deny your claim.
- Call the police if you were hit by a driver who left the scene. Your uninsured motorist coverage won’t pay for a hit-and-run accident if you didn’t report it to police.
- Call the police if anyone was injured.
- Note the time, date, and exact location of the accident. Also record any special circumstance like weather and road conditions. Take pictures of the accident scene. Give this information to the insurance company.
- Tell your company about the accident as soon as possible. Most companies have deadlines for filing claims. Your insurance card should have a number you can call to report claims. Explain what happened and answer questions as thoroughly as possible.
- Send the company copies of the police accident report. It usually takes a few days for the police officer to file a report. Get the officer’s name and badge number so you can follow up if you need to.
- Tell the company if you were injured. If you went to the emergency room or to a doctor, give the company copies of the medical reports and doctors’ bills.
After I file my claim, what happens?
Texas law sets deadlines for insurance companies to act after you file a claim. A company must:
- Tell you it got your claim within 15 days of getting notice. The company may ask you for a signed proof-of-loss form or for more information. The company may also ask you to have a medical exam.
- Have an adjuster look at your damage. The adjuster will estimate the cost of repairs. The company will base its payment on the adjuster’s estimate. If the damage turns out to be worse than the adjuster originally thought, you or the repair shop can talk to the adjuster about raising the estimate. If you can drive your car, the company might ask you to take your car to one of its claim centers so an adjuster can look at it. Some companies might ask you to get your own estimates and provide them to the company.
- Accept or reject your claim within 15 business days of getting all the information it needs from you. A company that needs more time can take 45 days to decide whether to pay your claim. It must tell you the reason for the delay. If it denies your claim, it must tell you why in writing.
- Send you a check within five business days after it agrees to pay your claim.
The prompt payment law doesn’t apply if another driver’s insurance company is paying the claim. But the company must act in good faith and try to settle your claim quickly and fairly.
Insurance companies will pay for repairs or replacement of your car only up to its actual cash value. Actual cash value is the cost to replace your car, minus depreciation. Depreciation is a decrease in value because of wear and tear or age.
Some companies might give you a list of preferred repair shops, but they can’t require you to use a shop on its list.
The insurance company is only required to pay for parts of like kind and quality to those that were damaged. It doesn’t have to pay for original parts from the manufacturer.
What if the other driver’s insurance company refuses to pay my claim?
If you believe the other driver was at fault, but his or her insurance company won’t pay your claim, file a claim with your own insurance company. You must have collision coverage to do this. Your insurance company will probably try to collect from the other driver’s company.
Be aware that if you file a claim with your own company, you’ll have to pay a deductible.
What if the other driver’s limits aren’t high enough to pay my bills?
If the other driver’s policy limits aren’t high enough to pay for all your car repairs, file a claim with your insurance company. Your collision or uninsured/underinsured motorist coverage should pay the difference. If you file a claim with your insurance company, you’ll have to pay a deductible.
If the other driver’s limits aren’t enough to cover all your medical bills, file a claim with your auto insurance company or your health insurance company. Your auto insurance company will use either your PIP coverage, medical payments coverage, or your uninsured/underinsured motorist coverage to pay the difference. You might have to pay a deductible.
What if the insurance company totals my car?
If the cost to repair your car is close to its current value, the company might decide to total it. This means the company will pay you to replace your car rather than fix it.
If the company totals your car, it will pay your car’s value minus depreciation. Depreciation is a decrease in value because of wear and tear or age. For instance, if your car is 10 years old, the company will pay you the value of a 10-year-old used car. It won’t pay to replace your car with a new car that’s the same make and model as your totaled car.
Be prepared to negotiate with the company to get what you think is a fair deal. A company might raise its offer if you can show that your car would sell for a higher price. Get written price quotes for a similar car from used car dealers. You can also look in the classified section of your local newspaper for used car prices.
If you still owe money on your car, the amount the company will pay you if it totals your car might not be enough to pay off your loan. This will happen if the market value of your car is less than what you owe. Auto dealers and lenders usually offer guaranteed auto protection, or gap, insurance for this.
If you want to keep your car, the insurance company will subtract its salvage value from the settlement amount. If your car is issued a nonrepairable title, it can’t be retitled or registered.
Will the insurance company pay for a rental car?
If your accident was caused by another driver, the other driver’s insurance company will pay for you to rent a car. You can keep the rental car for the time the company believes is reasonable for your car to be repaired. The company will base the amount of time on the estimated number of hours of labor. Be sure to let the adjuster know about any delays in getting your car fixed. The company might extend the rental if there are delays because the repair shop had to order parts or found more damage.
If the company totals your car, it might stop paying for the rental a few days after telling you.
Your insurance company will pay for a rental car if:
- you have uninsured/underinsured motorist coverage and the driver who caused the accident didn’t have insurance or enough insurance.
- you have uninsured/underinsured motorist coverage and the accident was a hit-and-run.
- you have rental reimbursement coverage and were in an accident.
- you have comprehensive coverage and your car is stolen.
Your insurance company will pay for a rental car only for the time it believes is reasonable to repair or replace your car. It will pay a set amount each day and only up to your policy’s rental coverage dollar limits.
If you were injured in an accident caused by another driver, the other driver’s insurance company will offer you a settlement to cover your medical bills related to the accident. The company will also ask you to sign a release promising that you won’t file more claims for the accident. Before you sign the release, talk to your doctor about any future medical treatment you might need. Consider this information to decide whether the company’s settlement offer is fair.
In addition to understanding your policy, it is also important to regularly review and update your coverage as needed. As your driving habits and lifestyle change, so should your insurance coverage. For example, if you purchase a new car or move to a different area, your insurance needs may change. It is important to keep track of these changes and adjust your coverage accordingly. If you have any questions about insurance or want to file a claim, hire Adam Miller, The Texas Bulldog by calling 713-572-3333. You will never pay anything unless he wins or settles your case.