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Auto insurance and uninsured motorists

Uninsured drivers are a danger in more ways than one. A motorist without auto insurance can wreck your car as you’re heading home from work — and can wreck your bank account as well.

Unfortunately, the “uninsurance” threat is real and growing, with that growth being spurred largely by the sour economy.

According to CNW Research, the number of uninsured drivers is moving upward, from 17.4 percent in 2008 to 18.1 percent in 2009. A study by the Insurance Research Council shows that about one of every six U.S. drivers is rolling down the road without auto insurance.

“Insurance is a zero-sum game, and if there’s only 82 percent of the population paying for insurance, that population will see increases in their rates for the insurance companies to continue maintaining their profits,” says Eric Poe, chief operating officer at Princeton, N.J.-based CURE Auto Insurance.

auto insurance uninsured motorist

That makes it all the more important for upstanding drivers to include uninsured motorist coverage in their auto insurance policies, experts say. “Uninsured and under-insured motorist coverage may be the single most important protection in your policy,” says Mark Carrasquillo, an insurance agent with E.G. Bowman and Co. in New York City.

While the problem of uninsured motorists is pervasive across the country, some states are “hot spots,” according to the Insurance Research Council. The top five states for uninsured motorists are:

1. New Mexico, 29 percent.

2. Mississippi, 28 percent.

3. Alabama, 26 percent.

4. Oklahoma, 24 percent.

5. Florida, 23 percent.

On the flip side, the states with the lowest numbers of uninsured motorists are Massachusetts, 1 percent; Maine, 4 percent; North Dakota and New York, both 5 percent; and Vermont, 6 percent.

Every state except one requires auto insurance; New Hampshire mandates proof of financial responsibility in lieu of insurance.

It’s just that states like Massachusetts insist that drivers purchase insurance with higher minimums than in states like Mississippi. That gives Bay State drivers more of an incentive to properly insure their vehicles and Mississippi drivers less of an incentive.

Poe, the CURE executive, says that aside from the sour economy prompting drivers to drop their auto insurance, “most national insurance companies like GEICO and Progressive are adopting more ‘income proxies’ to determine drivers’ rates; the more likely you are to earn more money or have a higher income, the less your insurance rate will be charged.”

Many auto insurance companies take into account such factors as income, education and home ownership when computing rates.

“When more and more people are unemployed and have worse credit scores, their rates become untenable and they must go without insurance,” Poe says.

‘Uninsurance’ tied to unemployment

The Insurance Research Council’s report pins a fair amount of the blame for the insurance plague on the lousy economy. According to the council, an uptick in the unemployment rate of just 1 percentage point is linked to a 0.75 percent rise in the rate of uninsured drivers.

auto insurance uninsured motorists

“An increase in the number of uninsured motorists is an unfortunate consequence of the economic downturn and illustrates how virtually everyone is affected by recent economic developments,” says Elizabeth Sprinkel, senior vice president of the Insurance Research Council. “Responsible drivers who purchase insurance end up paying for injuries caused by uninsured drivers.”

Yes, you may find yourself compensating for uninsured motorists through higher premiums, Poe says. But it’s more complicated than that.

“If you are hit and your vehicle is damaged due to an uninsured motorist, you will need to invoke your collision coverage to repair your vehicle and incur your deductible,” Poe says. “In addition, if the cost to repair your vehicle is above a certain threshold paid on your behalf, you could possibly lose your loss-free discounts.”

Insurance against the uninsured

Carrasquillo, the New York insurance agent, says it really pays to not skimp on “uninsurance” coverage. Using New York State as an example, drivers there must carry auto liability insurance of at least $25,000/$50,000.

“That means the policy will pay a maximum of $25,000 to you if you’re injured by a driver deemed at fault,” Carrasquillo says. “The $50,000 limit refers to the per-accident limit — the most the policy will pay in any one accident, no matter how many people are inured.”

Consequently, the state-required minimum coverage doesn’t go too far, Carrasquillo says.

Some states, such as Massachusetts and Oregon, mandate that drivers shield themselves against uninsured motorists. Mandated or not, “uninsurance” can be an honest driver’s best route away from potential problems.

“As a good rule of thumb, it’s a really good idea to have uninsured or underinsured policies,” says Jack Taylor, a professor at Birmingham-Southern College in Alabama who specializes in insurance.

“If you don’t know if you have it, check on your policy and make sure. It’s not that expensive, and it can offer a solid piece of mind should you be involved in an automobile accident.”

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